Written evidence submitted by British
Telecommunications plc (BT)
EXECUTIVE SUMMARY
— BT
is pleased to provide this input to the Inquiry into Spectrum.
Our response addresses the terms of reference for the Inquiry,
to the extent that they are relevant to BT.
— In
summary, we are content with the current EU and UK regulatory
framework for spectrum, and the general approach that Ofcom takes
in relation to its spectrum duties within that framework.
— We
are content with the basic approach of Ofcom's proposed auction
of 800/2600MHz spectrum, although commenting on certain details
in our submission to Ofcom on 31 May 2011. We are keen to see
the spectrum out in the market as soon as possible.
— We
do not take a position on the issue of spectrum fees for mobile
networks, but have provided some general comments in relation
to how spectrum pricing may be used, including in relation to
fixed radio links.
— We
see a need for close coordination and interworking between Government
and Ofcom in relation to the foreseen release of at least 500MHz
of Government spectrum.
INTRODUCTION
1. BT is a significant user of radio spectrum,
both on a licensed and licence-exempt basis. Our use spans applications
including fixed radio links, satellite communications and mobile
applications and services. BT holds spectrum licences acquired
in past auctions (eg the 32GHz fixed links spectrum auction in
2010), as well as a large number of individual wireless licences
that are subject to annual charges. BT and its customers make
extensive use of low power licence-exempt technologies, including
cordless phones, and WiFi technology for mobile broadband in homes,
business premises and public places, with many millions of devices
in use on a daily basis.
BT'S VIEWS
ON THE
SPECIFIC ISSUES
UNDER EXAMINATION
BY THE
COMMITTEE
Whether the proposed method of spectrum allocation
promotes, or hinders, competition in the provision of mobile broadband
services;
2. An auction is the best approach to award the
new mobile spectrum licences at 800/2600 MHz, since the spectrum
will be available to those that value it most and are, therefore,
most likely to put it to the most economically efficient use.
An auction should also support the legal requirements to assign
spectrum in an objective, transparent, non-discriminatory and
proportionate manner. If properly designed it can also promote
innovation and competition that should benefit consumers. It is
the detailed design of the auction that is important and it should
give the possibility for potential new entrants as well as existing
players to participate.
3. Ofcom's consultation proposals that closed
for comments on 31 May appear to be a generally reasonable approach.
However, we have suggested to Ofcom that certain details would
need to be modified in order to ensure that the possibility for
innovation and participation by new players beyond the existing
four national mobile network operators is encouraged.
4. BT is unconvinced that ensuring four competing
national wholesale competitors is sufficient or can be guaranteed
to be realized in the way Ofcom may envisage. We have suggested
that other safeguards may be appropriate in the event that the
outcome does not deliver the level of competition at the wholesale
mobile network level that Ofcom would like to see; this could
be addressed in licence conditions.
5. Ofcom's proposal to make some spectrum available
for sub-national networks using some shared low power 2.6GHz spectrum
is an interesting concept. It has potential to enable wider participation
in the delivery of mobile services. It could also lead to innovative
solutions being introduced and an efficient use of spectrum that
is consistent with the general trend to move to small cell systems
to cope with rapid growth in capacity demand. It would be necessary
to secure wholesale access to national mobile networks to provide
services beyond the small cell systems. Sufficient spectrum would
need to be reserved for this purpose and the technical conditions
and auction rules would need to be appropriately specified.
Whether the upcoming auction can provide value
for money for tax payers and how that should be balanced with
benefits for consumers
6. The detailed design of the auction is likely
to have an impact on the revenue that may result from the award
process. For example, caps on the amount of spectrum that a given
player can bid for or the provision of minimum spectrum packages
for four national wholesale competitors, have potential to lead
to lower prices than if these measures were not in place. Inclusion
of measures to promote competition and innovation would be expected
to benefit consumers and the absence of such measures could be
detrimental to consumer interests in the longer term, for example
if prices for services are higher or new technology was deployed
later because of less competition.
7. Relevant EU and UK legislation is focused
on ensuring the assignment of spectrum in an objective, proportionate,
non-discriminatory and transparent manner, as well as promoting
competition via efficient investment in infrastructure, promoting
innovation and encouraging efficient use of radio frequencies.
This appears to be the correct focus for the spectrum auction.
However, this should be within a framework that allows market
forces to determine the best allocation outcome, whilst achieving
sufficient competitive tension in the auction so that prices reflect
the wider market value of spectrum, rather than producing a distorted
outcome leading to inefficient spectrum use. Since Ofcom proposes
taking into account the values bid in the auction when setting
annual fees for other existing spectrum (as required by a Government
Direction), it is all the more important to understand how the
auction design may affect the auction prices. When finalising
its auction rules, Ofcom must ensure a balance between promoting
competition and ensuring that the true value of the spectrum is
identified.
The potential for next generation mobile internet
services offered by the forthcoming availability of spectrum
8. The new mobile spectrum bands to be released
in the Ofcom auction are undoubtedly well suited to the provision
of high speed mobile broadband services with globally standardised
technologies available, notably the LTE technology standards.
Roll out of services using this technology has started in other
European countries already (eg Germany). These so called "4G"
mobile technologies can deliver higher speeds than current 3G
systems, but higher speeds and increased network capacity are
not simply a matter of more spectrum and new technology. The use
of smaller cell systems and off-loading of traffic from wide area
mobile networks to WiFi technologies connected to the fixed broadband
network will also have a role to play.
9. In order to see new high-speed mobile services
made available in the UK, the spectrum should be awarded as soon
as possible, but in an appropriate manner promoting innovation
and competition and leading to timely network roll-out. The use
of the spectrum will, we understand, initially be constrained
by existing radar systems in spectrum adjacent to the 2.6GHz band
and at 800MHz by the completion of the analogue-digital switchover
and reconfiguration of the TV band. Potential interference issues
between new mobile services and TV reception may also require
attention and, we understand, will be subject to further consultation
by Ofcom.
Whether the upcoming auction can deliver improved
mobile broadband coverage in rural areas, as well as cities
10. The 800MHz spectrum is undoubtedly well suited
to rural coverage and this is recognised in the draft decision
of the European Parliament and of the Council establishing the
first radio spectrum policy programme that is currently undergoing
approval. In the absence of specific obligations it is a question
of economics and commercial plans as to the extent to which coverage
of new networks will materialize. It should be noted that even
in rural areas it is not simply a question of coverage of networks
but whether they have sufficient capacity to deliver services
at adequate speed when multiple users simultaneously require services.
11. We have examined Ofcom's proposals to place
a population coverage obligation on one 2x5MHz package of 800
MHz spectrum and are very doubtful that the specified obligation
could be achieved (with significant take up of service) without
significant additional spectrum being available to the licensee.
This capacity challenge could be particularly significant in cases
where fixed broadband services are not available.
12. Any obligations on mobile broadband coverage
that go beyond the extent of coverage that might otherwise be
commercially viable may be expected to result in a lower auction
value for the relevant spectrum. This is effectively a public
subsidy to the holder of the relevant 800MHz licence to support
broadband delivery to rural homes. The holder will benefit from
valuable spectrum holdings of spectrum in urban areas, for which
it will have paid a reduced price. This is a cross-subsidy to
rural broadband, where the licence holder will have to pay for
the costs of coverage. This is an anti-competitive subsidy against
other rural broadband technologies, in particular fixed broadband
lines or satellite broadband.
13. It should be noted that indoor mobile broadband
can be achieved with fixed networks and WiFi. In BT's view it
would be better to have an explicit subsidy mechanism through
the work of BDUK to make best use of the public support available
for rural broadband of all types, rather than a hidden subsidy
in the form of a cheaper spectrum licence.
Whether licence fees for mobile operators have
previously been set at appropriate levels, and how this should
be assessed
14. Under relevant EC and UK legislation, licence
fees should both promote efficient spectrum use and support other
objectives such as promoting competition. These principles apply
to mobile networks as well as other uses of spectrum, such as
BT's fixed microwave links, Professional Mobile Radio systems
and satellite Earth stations. Incentive pricing has also been
applied to some Government uses of spectrum.
15. To date the fees for mobile spectrum (and
other cases such as fixed links) have been set based on consideration
of the marginal opportunity cost (ie the cost of using more efficient
equipment, additional equipment or alternative technology) to
deliver the same service with less spectrum.
16. More recently the competition aspect has
received greater attention where it is necessary to look at the
costs of existing spectrum that was assigned administratively,
compared with the costs of new spectrum that may be auctioned
and hence charged at full market value. We have noted Ofcom's
proposals to more clearly link auction prices of new mobile spectrum
and future annual fees for existing spectrum in line with the
Government's Directions to Ofcom. This Direction requires that
fees for existing 900/1800MHz spectrum are charged annually at
full market value, to be set taking into account the prices bid
in the auction. In the case of BT's fixed links we feel that,
based on the outcome of the auction of fixed links spectrum in
2010, some of our annual fees may in fact be too high.
17. Turning to the question of whether mobile
operator fees have previously been set at "appropriate"
levels, and how it should be assessed, it is necessary to first
consider what objective is to be fulfilled. If the aim is to recover
full market value then it is unlikely that past fees have achieved
this, especially since the fees were set at a fraction of the
calculated full opportunity cost. If the aim is to promote efficient
spectrum use then it is not possible to say, particularly as no
spectrum has been given up as a result of the fees charged. The
spectrum has also not been tradable so that incentive to release
spectrum where someone else places higher value on it has not
been a relevant factor as more spectrum could not be acquired
by MNOs.
18. BT takes no position on whether or not mobile
operator fees have been set appropriately in the past. For the
future, fees should promote efficient use and not distort competition.
The requirement to base annual charges for spectrum that was not
auctioned on the full market value of similar spectrum awarded
by auction may achieve a similar equivalent cost for the different
types of spectrum (auctioned and administratively assigned) over
the longer term. This seems sensible. We have urged Ofcom to do
this also for fixed links spectrum since, based on auction prices,
it appears that annual fees may be set at too high a level.
How the position of the UK compares with other
countries, with regards to the allocation and utilisation of mobile
broadband spectrum
19. The UK has in the past (eg 3G mobile) led
the rest of Europe in the award of spectrum for mobile broadband
and has been a champion of innovation and competition, including
allowing WiFi technologies to be used in public as well as private
networks and opening additional bands (5GHz for WiFi). For the
next tranche of spectrum releases at 800MHz and 2600MHz some other
countries are moving ahead faster than the UK, notably Germany
where this spectrum is already awarded and France where an award
process is planned to be completed this year.
20. The UK was at the forefront of promoting
use of licence-exempt spectrum for public WiFi networks and has
one of the most extensive networks of public WiFi in Europe. The
same technology is used in millions of UK homes to supply mobile
broadband connectivity on the end of a fixed broadband connection.
The UK is now at the forefront of work to make more spectrum available
for licence-exempt use in the so called "TV White Spaces"
spectrum.
21. Given unresolved radar interference issues
with the 2.6GHz spectrum and that the 800MHz spectrum is not cleared
of TV nationwide, arguably the delay to the awards has not been
too problematic as the spectrum is anyway not available for use.
The possible impact on alternative uses for spectrum
22. The mobile auction proposals are based on
the principles of technology and service neutrality and thus offer
a degree of flexibility as to how the spectrum can be used. Nevertheless
the new use for mobile services will be at the expense of other
services that previously used the spectrum, notably wireless cameras
at 2.6GHz and digital TV in the case of 800MHz. The new use may
have some impact on adjacent band services, notably TV reception
below the 800MHz band and radar systems above the 2,600MHz band.
We understand that the licensing conditions would protect these
adjacent band uses and as such we have no particular concerns
to raise.
OTHER MATTERS
23. Many of the important areas of focus for
spectrum management in the coming years are identified in the
first Radio Spectrum Policy Programme that is currently passing
through the EU Council and European Parliament. The UK should
press for the early adoption of this draft Decision and work to
implement this programme once approved.
24. In general we are content with how Ofcom
manages spectrum and the existing EU and UK legislative framework.
RECOMMENDED ACTIONS
25. We have no suggestions for changes to the
present EU and UK regulatory framework in relation to spectrum
and are broadly content with the way in which Ofcom operates with
this framework.
26. We are aware of Government plans to release
at least 500MHz of spectrum for civil use over the coming years
and would suggest that this is coordinated closely with Ofcom,
for example in the timing and methods of spectrum release and
in preparing international harmonisation work to make the spectrum
as useful as possible.
June 2011
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