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ITU Strategy and Policy Unit News Update 
Monthly Flash - February 2004


Issue 7
: February 2004


Previous editions

In this edition

Radio-spectrum Management for a Converging World (www.itu.int/spectrum)
1. The evolving spectrum rights paradigm – The role of Ultra Wide Band and privatization
2. Spectrum management in Guatemala
3. Spectrum pricing in Australia
4. Major new consultancy study launched at the ITU


Radio-Spectrum Management for a Converging World was the topic of the latest workshop organized by the ITU Strategy and Policy Unit (SPU) from February 16-18 2004. This theme was chosen following a survey of ITU Member States and Sector Members that ranked it a topic of high current interest. The workshop was the twelfth in the series organized by the Strategy and Policy Unit (SPU).A number of case studies were presented, covering Australia, Guatemala and the United Kingdom. A publication based on the event will be made available for sale through the ITU Sales Service (sales@itu.int), and background information pertaining to the workshop is published on the ITU website at: http://www.itu.int/spectrum. This series of ITU events and publications has been made possible with the help of the Japanese Ministry of Public Management, Home Affairs, Posts and Telecommunications (MPHPT). 


1. The evolving spectrum rights paradigm – The role of Ultra-wide band and privatization

Ultra-wide band (UWB) may fundamentally change the way spectrum authorities look at spectrum rights. UWB is one of the most anticipated radio frequency technologies because it can transmit data at very high speeds by sending the transmission over a wide range of frequencies at very low power levels. By employing a wide range of frequencies, UWB allows for highly effective transmission through objects, including walls and the ground. UWB can penetrate obstacles that would severely hamper communication using traditional higher-powered, narrow band radio waves. This is especially important for radio applications that suffer from multipath problems. 

One of the most striking elements of UWB communications is the ability to communicate below the noise floor, often referred to as “underlay”. In theory, this implies that UWB could operate at high speeds in the same bands as licensed spectrum without causing any harmful interference. UWB operates under a wide swath of licensed and unlicensed frequencies and thus many current licensees are following its development very closely. Not surprisingly, many licensees have been sceptical over fears that an “unproven technology” will cause problems in the bands they have paid for.  

One of the most promising uses of UWB is home networking and other short-range, high bandwidth applications. Limiting the power of the pulse could make more effective use of underused spectrum in a home. Much like small FM radio transmitters that broadcast within a few feet to a car radio from a portable MP3 player, UWB could make use of the spectrum in a small area to increase connectivity, without interfering with the spectrum owner’s operation. Sample applications for UWB include, home networking of phone, cable, and data through a building. 

While individual technologies such as UWB have been catching the attention of regulators and policy makers, the much broader topic of privatization has been a key focus of spectrum research. Economists have argued that the market will take care of many of the current problems plaguing the system with the introduction of tradable spectrum rights and its unrestricted use. Some have even called for a "Big Bang" auction that could theoretically put all frequencies on the auction block (see Box 1). 

Under current rules around the world, a spectrum licence is very specific as to how it can be used. Free-market advocates argue that by allowing licensees freer use of assigned spectrum bands, the efficiency of the band will increase. One technology that can help make this possible is smart antennas. Smart antennas can track users and send them narrow, targeted transmissions rather than broadcasting in a 360 degree radius. This can significantly decrease the amount of interference to other users in the cell. Smart antennas can also pick up targeted transmissions in a noisy environment, allowing for greater overall spectrum use. This allows for more transmissions to be "packed" into a frequency range and decreases the effects of interference in the band. Operators could then offer new services (e.g. data on mobile networks) inside the same spectrum band. 

The economic connection between the introduction of new technologies and property rights in spectrum is clear. Bid winners have the incentive to use the most efficient technology to recover the costs of their winning bids. If property rights are bought and sold on the open market, bidders will theoretically bid up to the point where economic profits are zero (i.e. earning a "typical rate of return"). This creates huge incentives to use the most efficient technology in order to be able to outbid, and outperform other potential bidders for the band. Operators will do all they can to increase the efficiency of the band. Or, if they cannot, someone with better technology would be willing to pay an attractive price to the current owner to take it over. 

The impact of new technologies and spectrum property rights is even more pronounced if the regulatory scheme allows licence owners to divide their allotted frequency and sell it off in parts. As technologies improve the licensee can use less spectrum for the same service, and sell or rent the unused portion on the market. This creates and incentive for licensees to use the most efficient technologies available. 

Despite the economic rational for free spectrum trading markets, they are largely untested and may or may not produce a more effective use of licensed spectrum. Opponents of spectrum trading has recently used 3G licence auctions as examples of how markets have led to ineffective use of spectrum, namely through the extremely high bids for spectrum and the resulting inability of operators to afford the infrastructure to roll out services. Indeed, many licensed 3G frequencies have yet to come into commercial use, leaving a valuable frequency untapped for the time being. 

Because of the ambiguity several authors have suggested using test bands open for free-market trading. Governments could consider clearing new bands for an experiment that would allow unrestricted use in the band by the licensee with the ability to trade the spectrum. Just as with Benkler's spectrum commons experiment, governments must include a recovery option for the spectrum if the experiment does not work well.

Box 1: Technology and the Big Bang Auction

Kwerel & Williams of the FCC have called for a “Big Bang” auction of spectrum rights in the US in order to make more efficient use of spectrum.  The auction would be announced a year in advance and current licensees could decide whether they wanted to participate or not. If a licensee decided to put the auction up for bidding, they still could decide against accepting the final bid.  If the bid is accepted, the current licensee would receive the bid money. From then on, markets would dictate the price of spectrum. Proponents of the system want to ensure that spectrum is held by the highest bidder, and hope this corresponds with the most efficient use.

New radio technologies would be very much tied to the market allocation process. Operators could implement new technologies such as smart antenna, spread spectrum, and agile radios as a way to reduce their spectrum requirements. Any spectrum that could be spared through better technology could then be sold to the highest bidder on the open market.  

 Source: Kwerel & Williams, "A Proposal for a Rapid Transition to Market Allocation of Spectrum" at:
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-228552A1.pdf.  


Excerpt from the background paper "
Radio Spectrum Management and Advanced Wireless Technologies" [pdf], presented at the workshop.


2. Spectrum Management in Guatemala

Before the enactment of the 1996 General Telecommunications Law in Guatemala, the radio waves were owned and licensed by the State following the licensing of radio spectrum model of the Federal Communications Commission.  The radio spectrum licence was a revocable authorization for the licensee to use a given frequency band in a given manner.  The risks involved with the legal licensing scheme taxed the development of the wireless sector in Guatemala.  The 1996 radio spectrum deregulation reform privatized, in essence, the Guatemalan radio spectrum.  Owners of radio spectrum are allowed to lease, sell, subdivide or consolidate their titles.  The results of the reform have been strongly positive, as can be shown by comparing the growth of the mobile sector in Guatemala with Latin America as a whole.

                 Radio spectrum management after the telecommunication reform of 1996

The spectrum allocation system of Guatemala changed dramatically with the “Ley General de Telecomunicaciones” of 1996.  Allocation of radio spectrum evolves from the bottom up. Private action comes first: any person or company, national or foreigner, may request any spectrum band not currently assigned to other users.  When conflicts arise — caused by interference from signals of adjacent bands and/or intermodulation distortions — private parties are encouraged to mediate between themselves.  If private mediation fails, specific rules are enforced by the telecommunication regulatory body.[i]  Additionally, the injured party may sue for damages in existing courts.

From the perspective of the theory of economics of property rights, the most salient feature of the spectrum reform is the creation of usufruct titles in lieu of Constitutional restraint.  In the Guatemalan Civil Code, the usufruct carries the right to use and enjoy the property of another to the extent that such use and enjoyment does not destroy or diminish its essential substance.[ii] The 1996 law specifically states that the Títulos de Usufructo de Frecuencias (TUF) may be leased, sold, subdivided or consolidated for a limited period (fifteen years). In fact, the TUF may be even used as equity exchanged for investment. The usufruct term can be extended for an additional 15 years by a simple request at no cost to the bearer, and so on.[iii]  The electromagnetic waves are infinitely reusable and are not “destroyed or diminished” after being used.  Therefore, in all practical matters, the TUFs are the closest approximation to private property rights in radio spectrum that the Guatemalan law allows.[iv] Regulation is limited to interfering emissions and reserved bands.  

Figure 1


Source: ITU

The physical TUF is a security paper certificate listing the six following basic variables on the front:

  • frequency band;
  • hours of operation;
  • maximum power transmitted;
  • maximum power emitted at the border of adjacent frequencies;
  • geographic territory;
  • duration of right (beginning and ending).

The back of the TUF is for endorsements which are required whenever the instrument is being negotiated for property transfer.  The independent regulatory body established by the 1996 law, the Superintendencia de Telecomunicaciones (SIT) is responsible for the TUF registry.  This computerized database is easily accessible to the public.  Anyone may request a copy of the TUF inventory.

The adjudication process contained in article 61 of the law is quite simple and has been implemented in practice as follows:

  • An interested party surveys existing spectrum use in the spectrum registry of SIT.
  • The party applies to SIT for the right to use a frequency band as specified in the application form.
  • The application is evaluated by SIT which deems it accepted, incomplete, or rejected.  SIT is required, by law, to answer in 3 days or less. Grounds for rejection include technical interference, request of reserved or radio amateur bands.  Reserved bands are for government use only.[v]
  • If the application is accepted, public notice is issued.  Parties objecting the new use file formal complaints.  Grounds for opposition are limited to technical interference.
  • Complaints are quickly adjudicated via binding arbitration.  The adjudication process cannot exceed 10 days.
  • Other interested parties are allowed to file competing claims to requested spectrum rights.
  • If no competing claims are filed, then the petitioner directly receives rights without auction gratis.  
  • If competing claims filed, then SIT must schedule an auction 35 days after the end of the opposition period.

Conclusion

Before Guatemala essentially privatized the spectrum in 1996, radio spectrum management was inefficient and ineffective, and overwrought by the regulatory straight jacket.  If  “private property is inextricably linked with civilization,”[vi] then we may add that property rights spontaneously “civilized” (but also “energized”) the radio spectrum. The reform allowed a poor country to make good use of a precious resource that was being wasted. A centralized licensing spectrum allocation system is a collectivist scheme that deprives persons of the freedom to organize wireless entrepreneurial initiatives creatively and efficiently.  As Peter Huber says “[t]he telecosm is too large, too heterogeneous, too turbulent, too creatively chaotic to be governed wholesale, from the top down.”[vii]

Excerpt from the ITU Country Case Study, Radiospectrum Management for a Converging World: Guatemala [pdf].

[i] Professor Thomas W. Hazlett has correctly pointed out that regulatory agencies are susceptible to capture (see Hazlett op. cit.).  Ideally the enforcement of the new law should have remained exclusively in the hands of the existing courts. Alternatively, the law could have contemplated exclusively private alternatives (e.g. arbitration, mediation, private courts) for conflict resolution.  See Benson (1990).

[ii] República de Guatemala. Código Civil, Libro II, De los Bienes, de la Propiedad y demás Derechos Reales, Título III, Usufructo, uso y habitación.

[iii] This scheme to extend the life of the TUF, while practical, carries some risks (e.g. a future change in the law).

[iv] The TUF is not a licence, it is a right.  A licence gives the licensee a specific permission to do so and so.  A right simply defines the owners borders. 

[v] The law stipulates that the Government may at any moment request SIT to transform reserved bands into regulated bands.  

[vi] See Mises (1998), p. 264.

[vii] See Huber (1997), p. 206.


3. Spectrum pricing in Australia

The Australian spectrum pricing system is conceived on the assumption that charges to the users of spectrum should serve two objectives:

  • act as a rationing device and set in a manner that encourages efficient use of spectrum, and

  • deliver a fair return to the community for the private use of a community resource.

The radiocommunication licence taxes (for transmitters and receivers) are based on a formula that takes into account:

  • the spectrum location authorised by a licence (some spectrum bands are in higher demand and are therefore more congested than other bands);

  • the amount of spectrum (bandwidth) used by a licensee;

  • the geographic coverage authorised by the licence; and

  • the power of the transmitter (transmitters operating a low power will attract a discount).

Australian Communications Authority (ACA) acknowledges that, in the interests of simplicity and accessibility to spectrum users, the fee formula incorporates some compromises and a degree of crudeness in the manner in which different factors are measured and charged. Since introducing the fee formula in 1995, the ACA has continued to monitor and adjust the fees. The ACA has a programme to review fee levels, in particular in bands, which are experiencing congestion and in which there is arguably a case for increasing fees. Ideally, in spectrum bands and geographic locations where there is scarcity and congestion, fees should be set at "market" levels. However, the task of establishing those market levels is very difficult. Methods by which values might be established that would match supply with demand include:

  • shadow pricing against auction outcomes;

  • shadow pricing against alternative (non-wireless) service delivery mechanisms; 

  • gathering evidence of market values from observing trading in the secondary market, and

  • where there is evidence of congestion (excess demand) in a band or location, gradually increasing annual spectrum charges to the level which causes an easing of that congestion.

In addition to commercial services, the ACA levies spectrum pricing on a number of public users of spectrum. For example, the Department of Defence pays around A$ 8.4 million each year for spectrum reserved in the defence bands. It pays a further A$ 979 000 for spectrum it uses outside the defence bands and A$ 245 000 for classified assignments. Although it may be difficult to make judgements about opportunity costs in the defence environment, for example security reasons may prevent full disclosure of the purpose for which spectrum is used, the ACA nevertheless believes that charges for defence spectrum should continue to be made on the same basis as for other users. This provides the best assurance that there will be an incentive for the Department of Defence to make efficient use of spectrum, including surrendering spectrum that it no longer requires. It should be noted that there have been several examples where the Department of Defence has been willing to give up or share spectrum.

Excerpt from the ITU Country Case Study, Radiospectrum Management for a Converging World: Australia [pdf].


4. Major new consultancy study launched at the ITU

Based on Decision 7 (Marrakesh, 2002) of the highest decision-making body of ITU, the Plenipotentiary Conference, in 2002, and as a result of ongoing work within the ITU Administrative Council (composed of government representatives), ITU has chosen Dalberg Development to help the the organization respond to the fast-changing telecommunications environment. Dalberg Development, a young and dynamic firm which focuses specifically on working with the UN and its agencies, is a professional services firm dedicated to making groundbreaking contributions in the field of international development. As well as having the big name private sector experience behind it, Dalberg illustrated strong awareness of the particular issues facing ITU, and received excellent references from previous clients.

This project will  help ITU to translate the wishes of the membership into concrete results, particularly in the way we present the budget, the way we allocate costs, and the IS services we are able to offer to our members and our staff. The project, which is being conducted with collaboration from ITU management from all Sectors, the Group of Specialists, the Council Oversight Group and a specially-created multipartite "Steering Committee", will be reported on to the ITU Council at its session in June 2004.

  


For further information on Strategy and Policy Unit Monthly News Flash, please contact: ITU Strategy and Policy Unit, International Telecommunication Union, Place des Nations, CH-1211 Geneva 20 (Switzerland). Fax: +41 22 730 6453. E-mail: spumail@itu.int . Website: www.itu.int/spu/

 

 

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