New approaches to spectrum management

Changing paradigms and convergence

“The spectrum management process is a mammoth task that governments are beginning to acknowledge they cannot tackle alone,” concludes a Background Paper on “Radio Spectrum Management for a Converging World,” prepared by the ITU Strategy and Policy Unit (SPU) for a workshop held in Geneva from 16 to 18 February 2004. Technological progress and marketplace change have placed an increasing strain on the traditional spectrum management approaches that governments have resorted to for almost 100 years. In the same way as the wave of liberalization, deregulation and privatization has swept over the telecommunications sector as a whole, the regulatory approach to spectrum management is poised to follow, according to this Background Paper.

Increasingly, the convergence of telecommunications, broadcasting and computing is “blurring” the boundaries between traditional service definitions along which regulators allocated spectrum. Where traditionally different radiocommunication services were regarded as separate, involving different spectrum allocations, a single platform can now be used to deliver a wide variety of services to customers. “In some countries mobile handsets can now deliver live TV, as well as Internet access at speeds of up to 2 Megabits per second. All this, in addition to making voice calls. Broadcasting has crossed over into mobile telephony and mobile telephony into wireless broadband access. Gone are the days when a phone was just a phone, and was regulated as a phone,” ITU Secretary-General, Yoshio Utsumi, told the workshop. Organized jointly by the ITU Strategy and Policy Unit and the Radiocommunication Bureau (BR), the workshop was supported by Japan’s Ministry of Public Management, Home Affairs, Posts and Telecommunications (MPHPT).

How are countries reacting to these rapid advances in technology and emerging new markets? At one end of the scale are a number of countries that have retained centralized control over functions such as spectrum allocation while introducing market-based mechanisms, for example auctions, to assign spectrum. At the other end of the scale, a few countries, like Australia, Guatemala and New Zealand, have gone further in deregulating spectrum management by allowing the market-based allocation of spectrum use, according to the Background Paper.

The Paper also notes that: “While these market-based measures have been introduced within a system of exclusive rights, where spectrum frequencies are assigned for the exclusive use of a licensee, many countries have also allocated spectrum bands for licence-exempt use, effectively allowing more freedom for market players to manage spectrum among themselves.”

In a way, the February workshop was a vantage point from which to view and examine the range of spectrum policy options available. For this purpose, ITU had commissioned country case studies on Australia, Guatemala and the United Kingdom.

Case study on the United Kingdom

A case study, conducted by Martin Cave, Professor and Director of the Centre for Management and Regulation at the Warwick Business School (University of Warwick), gives an overview of the major changes in spectrum management under way in the United Kingdom. Until about five years ago, the Government of the United Kingdom practised what could be called a fairly conventional “command and control” form of spectrum management. Allocations were derived from international agreements made at the global and European level; assignments were made using either “beauty contests” or the “first come first served” approach, and the management process was undertaken by a government department, the Department for Trade and Industry (DTI), although implementation was assigned to an agency within the Department, responsible to the Secretary of State, the Radiocommunications Agency (RA).

Throughout the 1990s, however, the pressure of demand for spectrum increasingly called the traditional framework into question. Extra demand came from many sources, including from the growth of mobile communications, which took off in the 1990s, from other telecommunication innovations, from digital broadcasting terrestrially and by satellite, from the growth of civil aviation and from new safety of life applications.

The UK Government responded to the increasing disjunction between new spectrum needs and traditional methods of allocation and assignment by making proposals and bringing forward legislation to change the face of spectrum management. The foundations for these changes were provided by two major pieces of legislation, namely the 1998 Wireless Telegraphy Act and the 2003 Communications Act. These Acts were preceded by a wide-ranging policy debate and followed by major implementation projects, largely completed in relation to the 1998 Act and recently set in train in relation to the 2003 Act.

As well as permitting the introduction of a system of administrative incentive pricing for spectrum, the 1998 Wireless Telegraphy Act authorized spectrum auctions. The first of these was carried out in 2000 for third-generation (3G) licences, with spectacular results. That first round of auctions raised around GBP 23 billion - well above the highest expectations.

The 2003 Communications Act has established a “converged” regulator, the Office of Communications (Ofcom). On 29 December 2003, Ofcom assumed its responsibilities as the UK’s new regulator for television, radio, telecommunications and spectrum management. Ofcom is a statutory body independent of government. It replaces the UK’s five communication regulators: the Broadcasting Standards Commission, the Independent Television Commission, the Office of Telecommunications (Oftel), the Radio Authority and RA from which it has taken over the responsibility for lincensing wireless transmission equipment. Convergence of regulation mirrors the growing convergence of the regulated.

Spectrum trading
Ofcom consultation on spectrum trading

Under the Communications Act 2003, Ofcom must look for the most efficient way to use spectrum. Ofcom is proposing to introduce spectrum trading and liberalization of spectrum use to meet this challenge. It set out its proposals in a consultation document issued jointly with RA in November 2003, referred to as the “Ofcom/RA Joint Consultation on Spectrum Trading”. A plain English summary of this document states: “We are proposing to change the way wireless transmission equipment is licensed in the United Kingdom so that organizations will be able to buy, sell and change their licences. We call this proposed system ‘spectrum trading’. It will mean a significant change to the current system, which does not allow licences to be bought or sold. If this system is introduced, it will make the United Kingdom the first country in the European Union to allow trading in the use of the spectrum.”

Spectrum trading has been considered extensively in the United Kingdom, beginning with the Review of Radio Spectrum Management (the “Cave Review”) in March 2002. This led to the consultation entitled “Implementing Spectrum Trading” undertaken by RA in July 2002. The introduction of trading fulfils a Government commitment made in its response to the Cave Review in October 2002.

The main consultation document explains this fundamental and potentially far-reaching change in spectrum management in these terms:

“Spectrum trading will allow holders of Wireless Telegraphy Act (WT Act) licences to buy and sell all or part of their rights to use spectrum. Trading may involve the outright transfer of rights and obligations in relation to spectrum use, or a range of other arrangements including leases and hires. Liberalization of spectrum use will provide a mechanism for licensees to change the use of their licensed spectrum, subject to some constraints.

Today, the use of spectrum is restricted to particular licensees, who are only permitted to use it for particular uses. In future, the combination of trading and liberalization of spectrum use will enable spectrum to be used by those who value it most, and for those uses that offer most value. At the same time, access to spectrum for public services will be protected by necessary safeguards. In this way, trading and liberalization of spectrum use will enable spectrum to migrate towards applications and users providing the greatest benefit to the economy and society. They will help optimise use of the finite spectrum resource for the benefit of UK consumers and citizens.”

Ofcom believes that these policies will yield substantial benefits through: faster access to new technologies, cheaper prices for the most popular wireless services and greater choice and greater competition for wireless services. It proposes to introduce this new approach to spectrum management quickly but pragmatically. As stated in the consultation document: “It will do so in a way that takes due account of existing licensees’ rights to spectrum use, and recognizes a number of considerations which will affect the extent and speed of change. These factors include international constraints, such as international coordination agreements and harmonization arrangements, domestic policy considerations, and constraints that may arise from the physical characteristics of the spectrum, including interference management and coordination processes.” Ofcom is proposing a progressive roll-out of trading, and liberalization, band by band, over a four-year period. Table 1 shows the licence classes that may be affected and when.

The introduction of a system of spectrum trading is just one of the mechanisms Ofcom will use to carry out spectrum management. Ofcom “will continue to use market methods such as auctions in making primary assignments of spectrum. It will continue to exempt blocks of spectrum from licensing where appropriate. In addition, there will be occasions when a more administrative approach to the management of spectrum may be appropriate.”

During 2004, Ofcom expects to consult further on specific aspects of spectrum trading, for example, competition policy measures or dispute resolution procedures. Ofcom recognizes that “a trading environment is likely to result in new types of dispute” and therefore proposes to use a dispute resolution procedure. Such a procedure would encourage negotiation between affected parties as the primary means of resolving disputes, “ but would provide for Ofcom to adjudicate in disputes where a solution cannot be reached through mutual agreement”.

Ofcom’s consultation document recognizes that “spectrum trading is not an end in itself”. When seeking views into the design of the trading system so that the benefits can be realized and the risks avoided and mitigated, the document concludes that: “A well-designed system of trading has the potential to yield substantial benefits to the UK economy and its consumers and citizens. But a poorly designed system could impede the management of the radio spectrum.” The deadline for comments on the consultation document was 13 February 2004. Ofcom promised to take account of people’s views before making a final decision on its proposals.

The UK is in the lead in Europe in issuing such a substantial consultation. If Ofcom’s plans are realized, by 2007 almost all high-value spectrum will be subject to price and market instruments, and most of it will be tradable. The UK experience is thus likely to provide the first valuable information on the operation of economic incentives in frequency management in Europe.