Spectrum Liberalisation:Where have we got to?

Julian McGougan, Head of Public Policy

International Institute of Communications, UK Chapter

1st July 2009

Think of spectrum supply as 3 markets

Spectrum Land analogy

Primary Auction New build

Secondary Spectrum trading Owned and occupied

Third Band management Rentals

But the primary market dominates – and Ofcom is the monopoly supplier

But the primary market has undergone considerable change

Principal allocation method

Payment LicenceTradable?

Technology-Specific?

RolloutObligations?

Licenceterm

Old world Beauty contest

PAYG No Yes Probably No end date

New world Auction Up front Yes (in whole or part)

No No Minimum guaranteed term

• Slow but consistent progress from old world (“command & control”) to new world (spectrum liberalisation):

The infamous 3G auction of 2000 was in the transition between old and new worlds.

The worst of both worlds!

What does liberalised spectrum use mean?

• Government/regulator doesn’t know best after all. So market-based allocations of spectrum are the optimal approach.

• Spectrum licensees are awarded rights, not obligations. Licensees decide what to deploy (technology- and service-neutral), with what coverage, subject to: The licence’s Technical Licence Conditions (TLCs) – “planning

permission for spectrum”.• No coverage or “use it or lose it” obligations.• A spectrum licence is a tradable asset in whole or part, so a licensee

can: Sell the licence if their business model proves flawed (or

someone else comes up with a better use for their spectrum) Sell the “white space” around their network Lease the white space to those who only want a bit of it

(including geographically or temporally) – or at least that’s the theory!

But with its auctions, Ofcom has some tensions to balance• Striving for a technology- and service-neutral auction (an unachievable

& time-consuming goal trying to anticipate every potential use) vs. accommodating the most obvious potential uses: The primary market shouldn’t have to solve everything! Generally the market would rather an auction design now which

was 85% perfect instead of a 95% perfect design 18 months later.• Harmonised use & sub-bands vs. free for all (which may result in “sub

optimal” subsequent use with guard blocks).• Spectrum caps & other ex ante measures to distort an auction’s

outcome vs. relying on ex-post competition law: If spectrum use is technology- and service-neutral, which

downstream markets are being affected by one bidder being allocated “too much”?

How should Ofcom define “spectrum hoarding”, when very little of the spectrum auctioned so far is in use?

Ofcom spectrum auctions to date

Date Spectrum MinimumLicence term

Geographic licence areas

Number oflicensees

Amount raised (£ m)

Anything deployed yet?

National Regional

May 2006 DECT guard band

10 √ 12 3.8 Some

Oct 2006 412 MHz 15 √ 1 1.5 Yes, lots

May 2007 1785-1805 MHz

15 √ 1 0.4 ?

Feb 2008 10-40 GHz 15 √ √ 10 1.4 A little

May 2008 L-Band 15 √ 1 8.3 No

Feb 2009 DDR (interleaved)

16 √ 2 0.0 No

Spectrum for auction in the next 2 years

• MOD manages about a third of all spectrum under 15 GHz:

Including 2.3 GHz (suitable for mobile WiMAX broadband)

Yearexpected

Spectrum to be sold Seller Potential uses

2009H2-2010H1

2.6 GHz (unpaired) Ofcom Mobile/fixed broadband (WiMAX)

2010H1 872/917 MHz (paired) Ofcom ?

2010 800 MHz &2.6 GHz (paired)

Ofcom Mobile broadband (LTE)

2010 406 – 430 MHz MOD Private Mobile Radio (PMR) – TETRA

2010 3.4 – 3.6 GHz MOD Mobile broadband (WiMAX)

2010 4.4 – 4.5 GHz MOD Fixed links?

2011H1 600 MHz Ofcom Freeview/mobile TV

2011 10 GHz MOD Fixed links?

2011 13 GHz MOD Fixed links?

…and the secondary and third markets?

• No spectrum brokers operating in UK yet.• So vendors need to find their own purchasers (e.g. Red-M’s recent “auction”

of 28 GHz).• For potential spectrum purchasers, Ofcom’s website provides some details

of spectrum licences, but not everything (e.g. TLCs, anything deployed?).

• Very limited band management at present.• Third market held back by lack of industry familiarity and inadequacies of

current spectrum trading regulations - Lack of certainty over what Ofcom & EU would accept as a lease (as

distinct from a de facto trade). WTA & European Directives to take into account. Consultation soon.

• Ofcom’s desire to introduce commercial band management for PMSE means they intend to update the trading regulations to make the third market more commercially viable.

Some future spectrum trends

• Increasing litigation in the primary market (with implications for Ofcom’s resources & the timing of auctions). 2.6 GHz will set a trend.

• Ofcom’s after sales service will become increasingly important (with implications for Ofcom’s resources): Applications to change Technical Licence Conditions (a key determinant of the value of

a spectrum licence in secondary market), including for permitting very different uses of the same spectrum with geographic separation (Ofcom sets TLCs on a UK-wide basis).

Increasing number of trades (including splitting spectrum licences) Band management – Ofcom’s latest proposals for access to spectrum for PMSE use

doesn’t imply “letting go” (quite the opposite!). Ofcom very cautious about lack of oversight.

Complaints about incoming interference likely to rise, but it’s far from clear what would trigger any auction from Ofcom – victims gathering evidence of illegal spectrum usage and incoming interference? Just how keen would Ofcom be to act?

Need to establish a process for negotiating extensions beyond minimum licence terms Appeals against changes to AIP.

• Ofcom will have to decide whether to remain the dominant supplier of spectrum for certain services (e.g. fixed links, business radio, PMSE), where a commercial spectrum owner may find itself competing against its regulator (like playing against a competing team, where that team has picked the referee).