Spectrum - Culture, Media and Sport Committee Contents

Written evidence submitted by British Telecommunications plc (BT)


—  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.


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.


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.


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.


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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Prepared 3 November 2011