Conclusions and recommendations
Liberalisation of the 900 MHz licences
1. The
debate surrounding the liberalisation of the 900 MHz licences
reflects the predictably polarised views that exist among mobile
network operators. It also provides an example of the difficult
judgements Ofcom has to make in order to balance the needs of
consumers with those of fair competition. We are convinced that
Ofcom made a considered decision based on thorough research, and
that—overall—the liberalisation of the 900 MHz licences
has not resulted in a significant or permanent distortion of competition.
(Paragraph 28)
Spectrum trading
2. The
sale by Everything Everywhere of some of its spectrum allows a
private company to profit substantially from the sale of a public
asset. We acknowledge that unless companies can profit from the
sale of their spectrum, there is no incentive for them to divest
any of their holdings. However, we recommend that the Government
and Ofcom investigate mechanisms by which a proportion of the
proceeds of any sale could be used to the benefit of consumers.
For example, Ofcom should explore whether it could compel Everything
Everywhere to ring-fence a proportion of this windfall for investment
in its network . (Paragraph 34)
Spectrum licence fees
3. We
acknowledge the concerns of some of the mobile network operators
regarding spectrum licence fees. However in a commercial situation
such as this, it is unlikely that all interested parties can be
satisfied at the same time. We agree that Ofcom's proposals to
link licence fees to the market value of the spectrum determined
by the auction is the most likely way to ensure that the fees
charged to MNOs are fair and appropriate to the market value of
their spectrum holdings. (Paragraph 38)
The number of mobile network operators
4. From
the evidence we have heard, we believe that Ofcom's proposal to
secure at least four mobile network operators after the next spectrum
auction is an adequate measure to safeguard plurality of mobile
network operation. We are reassured that four is a minimum rather
than a limit, as imposing such an artificial constraint on the
number of operators in the market would inhibit competition.
(Paragraph 47)
Spectrum caps and floors
5. Those
mobile network operators with sub-1 GHz spectrum play down any
advantage it may offer, stating that they are not immediately
able to use it for 3G because the spectrum is already in use by
2G customers, who cannot simply be cut off. Those operators without
sub-1 GHz spectrum claim to be frozen out of the market. These
irreconcilable claims highlight the difficulties faced by Ofcom
in overseeing competition in the spectrum market place. Ofcom's
approach has been to liberalise spectrum allocation but there
still remain some vestiges of a historical "command and control"
approach to market regulation, which Ofcom itself has criticised.
Not all operators start out on an equal footing, but by over-compensating
for differences in their positions, Ofcom would risk reversion
to the command and control principles from which it has been distancing
itself since its inception in 2003. (Paragraph 54)
6. We believe that
the spectrum floors and caps proposed for the next auction are
the best viable compromise to ensure a competitive tension in
the market place in the context of the liberalised 900 MHz licences.
(Paragraph 55)
Rural broadband: coverage obligations
7. Attaching
a coverage obligation to one of the 800 MHz licences may well
result in that licence achieving a lower price at the auction;
however, this will probably be off-set by the costs associated
with increasing coverage. Increasing coverage will bring business
benefits from attracting new consumers, which should encourage
other network operators to follow suit. There is a risk that,
by only applying a coverage obligation to one licence, consumers
in the rural areas that would receive the extended coverage may
still be limited in their choice of network provider. We recommend
that Ofcom reconsider applying a coverage obligation to two or
more licences. (Paragraph 67)
8. The evidence we
have received suggests that Ofcom's proposed 95% population coverage
obligation on one of 800 MHz spectrum licences being auctioned
is readily achievable. In fact, we consider the imposition of
a 95% coverage obligation to be unambitious. (Paragraph 69)
9. When deciding the
level at which any coverage obligation is set, Ofcom must balance
the cost to the network operator of meeting the obligation with
the effect that it will have on competition. The objections we
have heard to imposing a coverage obligation higher than 95% have
cited the cost of improving the infrastructure, rather than the
feasibility of increasing coverage. The evidence that we have
heard suggests that a 99% coverage obligation, although achievable,
would cost up to £230 million and we are concerned that that
cost could be transferred to consumers. Therefore we support the
unanimous decision made by the House in May 2011 and recommend
that Ofcom imposes a coverage obligation of 98% on one or more
of the 800 MHz licences being auctioned. (Paragraph 70)
Rural broadband: infrastructure
10. We
are encouraged to hear that mobile network operators are sharing
their infrastructure in order to achieve a cost-effective solution
to expanding their coverage. We believe that imposing a 98% coverage
obligation will stimulate competition and the need for all operators
to increase coverage. In turn, we think this will encourage more
sharing and collaboration among the mobile network operators.
(Paragraph 76)
11. Backhaul infrastructure
that connects mobile base stations with the main network is a
vital component of mobile service provision. Lack of backhaul
must not become a reason—or an excuse—for mobile network
operators not to extend coverage into rural areas. We recommend
that Ofcom and BDUK work closely with each other to ensure that
backhaul is taken into account in any policy decisions relating
to mobile network provision or extending access to broadband.
(Paragraph 78)
12. Market competition
has led to mobile network operators, and others, coming up with
innovative solutions to problems such as mobile not-spots. We
welcome the Government's decision to invest £150 million
to increase mobile coverage and we
welcome projects such as Everything Everywhere and BT's rural
pilot in Cornwall, and Vodafone's femtocell technology. We note
that other mobile network operators have not been using femtocell
technology and we are disappointed that they have chosen not to
offer this service to their domestic customers.
(Paragraph 91)
Public sector spectrum
13. We
welcome DCMS's consultation on the release of public sector spectrum.
We urge DCMS to work closely with Ofcom and with the relevant
international bodies to ensure that the spectrum that is released
is internationally harmonised. (Paragraph 97)
14. We are concerned
that, because the emergency services are not in a position to
bid for spectrum at auction, they could be overlooked in spectrum
policy. It is vital that Ofcom and DCMS take into full account
the spectrum needs of the emergency services in their spectrum
policies. (Paragraph 98)
Programme-Making and Special Events and interference
15. Ofcom's
ability to procure public sector spectrum is vital for the success
of the London 2012 Olympic Games, and might also provide a model
of spectrum lending that could be used for other special events.
We recommend that DCMS and Ofcom look into whether this could
be done for other special events. (Paragraph 101)
16. We welcome the
Government's compensation regime for the relocation of PMSE spectrum
use from channel 69 to channel 38, and the trial in Cambridge
looking at interference by white space devices. However, these
measures do not address the real problem of new spectrum users
in the 800 MHz band causing disruptive interference to the PMSE
sector. We recommend that Ofcom includes in the new 800 MHz licence
conditions a provision that any significant interference to adjacent
users be considered grounds for that licence to be revoked. (Paragraph
109)
Satellite spectrum use
17. Given
the growth, and consumer benefits, of mobile broadband provision,
it is understandable that this has been the focus of recent spectrum
policy. However, spectrum use by other sectors is also crucial
to many industries and services including the emergency services,
maritime services, and special events including the London 2012
Olympics. Some spectrum users are not in a position to bid competitively
for spectrum and therefore it is even more important that their
needs are not overlooked. (Paragraph 113)
18. We are sympathetic
to the concerns we have heard from the Programme-Making and Special
Events sector. However, we think that Ofcom and DCMS are taking
their concerns seriously and we welcome the trial in Cambridge
that is looking at white space devices. (Paragraph 114)
19. Given that spectrum
is a finite resource, it is inevitable that some interference
and inconvenience may occur for users as certain sectors expand
faster than others. We are concerned about potential interference
on digital terrestrial television caused by 4G mobile services,
but we are satisfied that Ofcom is taking appropriate measures
to mitigate this. (Paragraph 115)
20. Spectrum is a
valuable resource that many industries depend on. Ofcom has a
very difficult role to play in balancing the interests of consumers,
businesses and the public purse. On the whole, we believe that
Ofcom is striking the right balance with regards to spectrum policy
and management. However, we recommend that the Government widens
Ofcom's remit to ensure that it will safeguard the interests of
British business abroad as well as the interests of consumers
and citizens, a measure that would not require legislation. (Paragraph
116)
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