Written evidence submitted by Intellect
ABOUT INTELLECT
Intellect is the trade association for the UK technology
industry. In 2007, the industries Intellect represents accounted
for 8% of UK GDP, £92 billion of Gross Added Value and employed
1.2 million people.
Intellect provides a collective voice for its members
and drives connections with government and business to create
a commercial environment in which they can thrive. Intellect represents
over 750 companies ranging from SMEs to multinationals. As the
hub for this community, Intellect is able to draw upon a wealth
of experience and expertise to ensure that its members are best
placed to tackle challenges now and in the future.
Our members' products and services enable hundreds
of millions of phone calls and emails every day, allow the 60
million people in the UK to watch television and listen to the
radio, power London's world leading financial services industry,
save thousands of lives through accurate blood matching and screening
technology, have made possible the Oyster system, which Londoners
use to make 28 million journeys every week, and are pushing Formula
One drivers closer to their World Championship goal.
In the past 12 months 14,500 people have visited
Intellect's offices to participate in over 550 meetings and 3,900
delegates have attended the external conferences and events we
organise.
INQUIRY QUESTION
RESPONSES
1. Whether the proposed method of spectrum
allocation promotes, or hinders, competition in the provision
of mobile broadband services;
Intellect response: The methods adopted by regulators
for releasing spectrum range between a "beauty contest"
approach and the holding of auctions. The beauty contest methodology
involves the regulator publishing a detailed call for proposals
(including business plans) and selecting the successful licensees
by scrutinising the various bids. In the past this has laid the
regulator open to criticism and challenge. Auctions have not completely
removed the threat of challenge. However on balance, Intellect
believes that the most appropriate methodology lies nearer to
the auction method as it enables the market to determine the licence
outcome based on the perceived economic and commercial value.
However, experience from previous auctions suggest that auctions
may not always deliver all public policy objectives such as on
competition (number of licensees) and facilitate new entrants.
Lack of sufficient spectrum and perceived market potential also
limit these objectives. Ensuring that the spectrum to be released
is ideally harmonised (common channel plan but no restriction
on use) at a European level is important. However other available
spectrum should not be held back and made available to the market
as early as possible.
The methodology for releasing spectrum for non commercial
applications (e.g military, emergency, public safety etc.) also
requires specific consideration. In these cases the end users
are often public sector organisations who may not be in a position
to bid for spectrum. The potential suppliers will not be able
to seek spectrum without certainty of customer contracts. In these
cases the pragmatic alternatives are for Government to set aside
spectrum for such public service applications or to enable spectrum
sharing between public service and commercial applications. While
there obviously needs to be spectrum for such societal applications
we believe that more innovative ways to share spectrum should
be considered before allocating spectrum to a particular use.
Whilst mobile broadband is a particular priority
currently, there is a diverse range of important wireless applications
which also rely on spectrum availability. Space applications have
a particular reliance on internationally harmonised spectrum.
Any properly integrated spectrum strategy needs to ensure that
all have reasonable access to spectrum.
Intellect recognises the difficulties and conflicting
factors faced by Ofcom. The Government's plans to update the Communications
Act is a useful opportunity to conduct a dialogue between Government
and industry to develop a set of principles to balance these various
factors in future spectrum releases beyond that already in place
for the 800 MHz/2.6 GHz award in 2012.
2. Whether the upcoming auction can provide
value for money for tax payers and how that should be balanced
with benefits for consumers;
The ultimate objective of spectrum releases should
be to ensure that the benefits of innovation in services, applications
and technologies can reach consumers as quickly as possible and
provide them better (commercial or social) value. It should not
be focussed on narrow and short term revenues
for the Treasury/Government. The benefits (and indeed revenue)
from the long-term sustained used will far outweigh the short-term
revenue gain from its actual release.
3. The potential for next generation mobile
internet services offered by the forthcoming availability of spectrum;
Mobile internet and data volumes are escalating.
In its Communications Market Report (Aug. 2010), Ofcom estimates
that mobile data traffic increased by 240 %, in the UK over 2009.
This trend is likely to continue for the foreseeable future, with
the increasing uptake of smart devices and tablets. Even the least
optimistic forecast shows very strong Compound Annual Growth Rates
(CAGR) of worldwide mobile broadband traffic (ranges from ~40%
to ~100% CAGR).Thus there is certainly considerable demand for
the 800 MHz and 2.6 GHz spectrum. Spectrum license auction delays
are costly to a nation's economy (billions of pounds in lost revenue
for each year of delay) and without additional spectrum, congestion
will eventually creep in, curtailing growth. The experience of
recent auctions in these bands conducted in Europe and elsewhere
tends to suggest that the 800 MHz spectrum (with better coverage
characteristics) is currently valued higher (per MHz, per population)
but with increased demand for broadband services this could be
subject to readjustments into the future.
4. Whether the upcoming auction can deliver
improved mobile broadband coverage in rural areas, as well as
cities;
The coverage characteristics (ie need for smaller
number of base stations due to the larger cell sizes) of 800 MHz
band is well suited to provide rural coverage in sparsely populated
rural areas. However the limitation in the amount of spectrum
available to operators will severely limit the data speeds and
numbers of users that can be accommodated in a given location.
The 2.6 GHz band while offering potential for rural
coverage has two important limitations: the need for a larger
number of base stations and reduced in-building penetration. That
said, the 2.6 GHz band is better suited for urban broadband deployments
where 800 MHz band becomes capacity constrained due to the same
propagation characteristics which enable greater cell sizes.
The delayed timescales (Q1 2012 at the earliest)
for the 800 MHz/2.6 GHz auctions will complicate matters for any
operators wishing to use these bands for wireless solutions as
part of the Government/Broadband Delivery UK's initiative to enable
superfast broadband infrastructure in rural areas. This is because
the availability of these spectrum bands will be uncertain within
the timeframe of some of the broadband project bids.
5. Whether licence fees for mobile operators
have previously been set at appropriate levels, and how this should
be assessed;
Intellect understands that Ofcom plans to review,
following the 800 MHz and 2.6 GHz auction, the licence fees for
mobile operators using other, nearby spectrum bands for similar
mobile broadband applications with a view to ensuring equitable
charges. Whilst understanding the need to review spectrum fees
periodically and the requirements of the Government direction,
Intellect wishes to reiterate that such fees are in place to incentivise
operators to use spectrum efficiently and should take into account
other policy objectives including ensuring effective competition
and should not be used as a tax on operators. In reviewing such
spectrum however, Ofcom should recognise the different usage conditions
that are present in the existing bands to be reviewed. Thus the
review of fees should take into account a number of factors including
the legacy usage (such as voice telephony) in the existing bands
as well as the impact of the prices paid in the auction.
6. How the position of the UK compares with
other countries, with regards to the allocation and utilisation
of mobile broadband spectrum;
Many of our counterparts in Europe as well as US,
China, Hong Kong, India, Brazil etc have already conducted their
release of spectrum for mobile broadband. Having been at the forefront
of previous developments in mobile allocations, UK is now lagging
our counterparts. Intellect believes that the Government/Ofcom
should ensure that no further delays occur.
7. The possible impact of the auction on alternative
uses for spectrum.
In preparing for the deployment of mobile broadband
services in the 800 MHz and 2.6 GHz spectrum, there will be a
need for consideration given to the protection of existing services
(TV broadcasting and radars) in adjacent bands. Intellect is disappointed
that Ofcom has not concluded the necessary considerations and
arrangements sooner and with greater clarity.
Finally, whilst recognising the importance of (terrestrial)
mobile broadband and the Select Committee's reasons for focussing
on the auctions at this time, Intellect wishes to highlight the
demands for spectrum from a range of other uses, from satellite
communications applications to emergency services. Ensuring suitable
access to these crucial services is also important and Intellect
hopes the Committee will give due consideration to the wider applications
of spectrum (and the relevant regulatory challenges) also.
June 2011
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