Written evidence submitted by the Department
for Culture, Media and Sport
The Committee has asked for submissions and views
on the following issues:
— Whether
the proposed method of spectrum allocation promotes, or hinders,
competition in the provision of mobile broadband services;
— whether
the upcoming auction can provide value for money for tax payers
and how that should be balanced with benefits for consumers;
— the
potential for next generation mobile internet services offered
by the forthcoming availability of spectrum;
— whether
the upcoming auction can deliver improved mobile broadband coverage
in rural areas, as well as cities;
— whether
licence fees for mobile operators have previously been set at
appropriate levels, and how this should be assessed;
— how
the position of the UK compares with other countries, with regards
to the allocation and utilisation of mobile broadband spectrum;
and
— the
possible impact of the auction on alternative uses for spectrum.
SUMMARY
We welcome this timely investigation into spectrum.
A Communications Review is currently underway in DCMS and all
the issues raised by this investigation are pertinent to the work
being undertaken.
SPECIFIC POINTS
1. Whether the proposed method of spectrum
allocation promotes, or hinders, competition in the provision
of mobile broadband services
The method of spectrum allocation is by market mechanisms,
specifically auctions, whereby the spectrum is allocated to the
user(s) who place the highest value on the spectrum to their business
(or use), thereby ensuring that the most efficient use of the
spectrum is promoted. Though this might seem at first to be a
competition-agnostic approach the regulator, Ofcom, as the relevant
competition authority, conducts assessments of the competition
effects of any spectrum auctions where relevant so that they can
be satisfied that the auction is designed in such a way as to
avoid distorting the market. The forthcoming European Radio Spectrum
Policy Programme contains an article dealing with competition.[2]
In the context of the forthcoming auction of 800Mhz
and 2.6GHz spectrum, Ofcom has been directed by the Government
to carry out a competition assessment with regards to the future
mobile broadband market and address any competitive distortion
in the design of the forthcoming auction. Ofcom has carried out
such an assessment and is consulting on its proposals to ensure
competition in the mobile broadband market. Specifically, Ofcom
is proposing an outcome where four viable mobile network operators
emerge from the auction. Viable in this instance means with sufficient
spectrum to be able to compete effectively in future mobile markets
and for that reason Ofcom is proposing to have caps and floors
on the amount of sub-1GHz spectrum and on the overall spectrum
holdings of each mobile network operator.
2. Whether the upcoming auction can provide
value for money for tax payers and how that should be balanced
with benefits for consumers
Ofcom's principal duty as set out in the Communications
Act 2003[3]
is to "further the interests of citizens in relation to communications
matters and to further the interests of consumers in relevant
markets, where appropriate by promoting completion". It is
not in their remit to maximise revenues, nor would that be legal
under European law. In line with their duties however, Ofcom will
seek to keep intervention to a minimum consistent with achieving
the desired levels of competition. An efficiently and effectively
run auction will deliver the greatest value to the citizen and
the taxpayer, through ensuring that spectrum is made available
to those best placed to maximise its use
3. The potential for next generation mobile
internet services offered by the forthcoming availability of spectrum
Current mobile internet technology is generally referred
to as 3G (third generation, referring to a technology called UMTS).
The accepted 4G technologies are LTE ("Long Term Evolution")
and WiMax. Both deliver substantially greater bandwidth (faster
downloads) but require larger contiguous blocks of spectrum, which
is an issue for most operators using existing spectrum allocations.
The combined auction of 800MHz and 2.6GHz will deliver an additional
250MHz of spectrum suitable for the delivery of next generation
mobile broadband services. The spectrum is suitable for allowing
coverage over wide areas (800MHz) with capacity to deal with areas
of high demand (2.6GHz). It is expected that the release of this
spectrum into the market will enable the roll-out of next generation
mobile services from 2013 onwards.
4. Whether the upcoming auction can deliver
improved mobile broadband coverage in rural areas, as well as
cities
The 800MHz spectrum being auctioned has characteristics
that are particularly suitable for coverage so may result in improved
rural coverage. In addition, Ofcom is proposing a coverage obligation
on one of the 800MHz licences, to provide services to 95% of the
population. Ofcom believes that this level is proportionate, balancing
the costs of providing the level of coverage against the benefits
that would result. Ofcom does recognise that this would still
deny services to a number of people, it has therefore invited
views, along with any relevant evidence, on whether additional,
perhaps more localised coverage obligations, should be set. The
House of Commons recently passed a motion urging Ofcom to increase
the coverage obligation to 98% of the population.
5. Whether licence fees for mobile operators
have previously been set at appropriate levels, and how this should
be assessed
The Radiocommunications Agency (the predecessor to
Ofcom) went through due process when it originally set the level
of licence fees in 1998. Ofcom likewise followed due process when
it reviewed the level of those fees in 2004. We have no reason
to doubt that the method used was appropriate or correctly applied.
In accordance with the Secretary of State's direction Ofcom of
December 2010, Ofcom is to re-assess the level of licence fees
for 900MHz and 1800MHz spectrum after the auction. That is an
appropriate time to do so as at that stage the value for similar
spectrum will be known and this will be used by Ofcom as part
of the process to determine new licence fees for 900MHz and1800Mhz.
In any event, the direction specifically requires Ofcom to have
particular regard to the sums bid for the 800MHz and 2.6GHz licences.
Ofcom has set out their initial proposals for how they intend
to proceed in the consultation document on the auction.
6. How the position of the UK compares with
other countries, with regards to the allocation and utilisation
of mobile broadband spectrum
The UK has a competitive mobile communications market
with four major competing mobile network operators proving voice
and data services, specialist wireless broadband suppliers, several
virtual mobile operators (such as Tesco Mobile and Virgin Mobile).
The position with regard to spectrum allocations is one that has
arisen as a result of the history of mobile development in this
country.
Initially, spectrum at 900MHz was first allocated
to the two (at the time) mobile operators. Later when 1800MHz
became available it was awarded to four operators (with the bulk
going to the new operators that are now known as T-Mobile and
Orange, recently combined to form Everything Everywhere). In 2000
the UK ran an auction for 3G spectrum at 2100MHz and designed
it in such a way as to result in five successful different bidders.
The existing four operators were successful plus Three joined
the market as a new entrant.
Operators without access to 900MHz have been unhappy
that their spectrum with different characteristics to 900MHz (higher
data rates but reduced coverage) has left them at a perceived
disadvantage and have lobbied for 900MHz spectrum to be redistributed
or auctioned. With the recent liberalisation of 900MHz and 1800MHz
spectrum (to allow 3G technology to be used at those frequencies)
there were additional concerns over possible competitive advantage
of those holding such frequencies. Ofcom's competition assessment
(contained within the current consultation) concluded that operators
would in future need a reasonable portfolio of spectrum at different
frequencies to be credibly competitive. This is a key factor behind
the proposal to introduce spectrum caps and ensure that four operators
with appropriate portfolios result from the auction.
The tables below detail spectrum holdings at the
main 3 bands used for mobile telephony (and broadband) but broadband
can be delivered at other frequencies. In the UK there is spectrum
allocated the UK Broadband at frequencies over 3GHz.
Paired spectrum allocations as at May
2010
| UK | Vodafone
| O2 | Everything Everywhere
| H3G |
| 900 MHz | 2x17.4 | 2x17.4
| 0 | 0 |
| 1800 MHz | 2x5.8 | 2x5.8
| 2x45* | 0 |
| 2100 MHz | 2x14.8 | 2x10
| 2x20 | 2x14.6 |
| *Merger conditions include that JV must release 2x15MHz
|
| Finland* | DNA
| Elisa | TeliaSonera
|
| 900 MHz | 2x13.4 | 2x13.4
| 2x13.4 |
| 1800 MHz | 2x24.8 | 2x24.8
| 2x24.8 |
| 2 GHz | 2x19.9 | 2x19.9
| 2x19.9 |
| 2.5 GHz | 2 x20 | 2x25
| 2x25 |
| Germany | T-Mobile
| Vodafone | O2
| E-Plus |
| 900 MHz | 2x12.4 | 2x12.4
| 2x5 | 2x5 |
| 1800 MHz | 2x5 | 2x5.4
| 2x17.4 | 2x17.4 |
| 2 GHz | 2x10 | 2x10
| 2x10 | 2x10 |
| Italy | Telecom Italia
| Vodafone | Wind
| H3G |
| 900 MHz | 2x12.6 | 2x12
| 2x9.8 | 0 |
| 1800 MHz | 2x15 | 2x15
| 2x15 | 0 |
| 2100 MHz | 2x15 | 2x15
| 2x15 | 2x15 |
From the tables above it can be seen that there are similarities,
in particular with Italy where H3G as the newest entrant again
only has 3G spectrum. Ofcom's assessment has been that the current
differences in spectrum holdings between operators is unlikely
to lead to consumer harm from a material distortion of competition
in the short term. However, the auction design currently being
consulted upon is designed to ensure that four viable competitive
operators with sufficient spectrum holdings to be a credible spectrum
wholesaler, emerge from the auction, thereby allowing operators
to address perceived imbalances or disadvantages.
7. The possible impact of the auction on alternative uses
for spectrum
The spectrum at 800MHz and 2.6GHz is most suitable for mobile
broadband services and it is on this basis that it is being made
available.
Demand for spectrum is increasing for a range of services other
than mobile broadband. There is however other spectrum coming
available that would be suitable for a range of services, for
example broadcasting. This includes spectrum at 600MHz (part of
the digital dividend) and geographic interleaved, sometime referred
to as white space spectrum. Ofcom intend to conduct auctions for
this spectrum at a future date.
Increasingly licences are being made transferable and liberalised,
which will allow future users to enter into commercial arrangements
to acquire to have access to spectrum they require. A nascent
spectrum market is still evolving in the UK and both Ofcom and
the Government are taking a keen interest in how efficiently it
evolves.
June 2011
2
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0471:FIN:EN:HTML Back
3
http://www.legislation.gov.uk/ukpga/2003/21/contents Back
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