Appendix: Ofcom's response
Letter from Ed Richards, Chief Executive, Ofcom
Ofcom is pleased to have the opportunity to respond
to the Committee's recent report into spectrum (HC 1258). The
report contained a number of recommendations relating to Ofcom's
duties and responsibilities. This response is confined to those
specific recommendations.
RECOMMENDATION 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.
The Government has directed Ofcom to revise the level
of annual licence fees applying to the 900MHz and 1800MHz spectrum,
including the spectrum to be divested by Everything Everywhere,
to reflect "full market value" following the auction.
A substantial proportion of the value of this spectrum should
consequently be secured by the Treasury through this route. As
recommended by the Committee, we have investigated whether we
could compel Everything Everywhere to ring-fence a proportion
of any proceeds of sale for investment in its network. We do
not currently consider that we have the power to require the proceeds
of a spectrum trade to be applied in a specified manner as the
Committee envisages.
RECOMMENDATION 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 offset 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.
In our March 2011 consultation[1]
we proposed that one of the 800MHz licences to be awarded should
include a coverage obligation. We recognised this might lead
to consumers' and citizens' choice of supplier being somewhat
limited, but considered in practice other operators might also
offer similar levels of coverage.
We now propose to include a more extensive coverage
obligation than set out in the March consultation (see responses
to Recommendations 8 and 9 below). We believe this proposed extended
coverage obligation should be placed on at least one licensee
in order to secure within a reasonable timescale a 4G service
in all areas, including those beyond the current 2G footprint.
An important factor in this consideration is the
extent to which the provision of new infrastructure under the
Government's Mobile Infrastructure Project (MIP)[2]
might improve the business case for rolling out 4G services in
areas beyond the current 2G footprint. An improved business case
could provide an incentive for multiple operators to serve those
areas, thus matching the coverage of the operator with the obligation
and providing consumers with a choice of supplier. However, the
details of the MIP procurement are yet to be finalised. It will
not necessarily be the case that every site in the MIP infrastructure
will support all technologies and it is unlikely to be cost-effective
to oblige an operator to use unsuitable sites. Also, it is possible
that some sites will support only one 4G operator. The existence
of the MIP infrastructure may therefore help provide a choice
of 4G service provider in some of the areas currently unserved
by 2G but it may not be the complete answer.
We have therefore considered whether we should include
in all licences the obligation to provide service beyond 95% in
order to guarantee a choice of supplier, and to ensure that consumers
from other areas, irrespective of their supplier, could access
services in areas currently outside their supplier's 2G footprint.
Our current view is that there is the risk that imposing the
obligation on all would be inefficient as it could require the
duplication of network equipment in areas where there was no commercial
justification. It could also be difficult to enforce compliance
with the obligation if it applied to multiple operators where
there was limited access to infrastructure in particular areas
and it was impractical or inefficient for all operators to install
their own equipment.
In any case, we will need to ensure that our approach
to the coverage obligation is consistent with the arrangements
for access to the MIP infrastructure. It may not necessarily
be the case, for example, that the holder of the coverage obligation
would have preferential rights of access to MIP sites. This could
mean that an operator other than the one with the coverage obligation
might deploy 4G network equipment at an MIP site such that the
operator with the obligation was unable to use that site for mobile
broadband (because the site had limited space for 4G network equipment).
In such circumstances, it might be appropriate to waive the coverage
obligation at that site.
Given our concerns with the approaches set out in
the preceding three paragraphs, we have also considered whether
it would be proportionate to supplement the primary coverage obligation
with an obligation on the relevant licensee to provide other operators
with wholesale access to its network in those areas beyond existing
2G coverage which it was obliged to serve. There may be a case
for requiring wholesale access in order to ensure that there is
the potential for consumers in such areas to have a choice of
suppliers, without the need for inefficient duplication of sites.
However, there may be costs and regulatory difficulties with
such a wholesale access obligation. These costs include the additional
costs of ensuring the network equipment is capable of supporting
wholesale access. They also include the potential for the availability
of wholesale access to undermine the incentive for wider network
roll-out by others.
This is one of our principal reasons for our current
view that wholesale access would not be appropriate in the case
of coverage provided across most of the population of the UK,
albeit we consider this likely to be less of an issue in the case
of roll-out beyond existing network coverage. Our current assessment
is that such an obligation is not proportionate, but we remain
open to imposing such an obligation if evidence from stakeholders
suggests that the benefits would outweigh the costs. We are currently
consulting on that basis.
In conclusion, we currently consider that an extended
coverage obligation should be placed on one licensee only. This
would meet our primary objective of ensuring the provision of
4G services to the vast majority of the UK population within a
reasonable timescale. Commercial incentives, we believe, will
drive other operators to provide competing services in most areas,
thereby providing consumers with a choice of supplier.
RECOMMENDATIONS 8 AND 9
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.
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.
In the March 2011 consultation, our view was that
the incremental costs of imposing a requirement to meet coverage
levels materially above 95% were likely to be disproportionate
given the likelihood that a significant number of new sites would
need to be built.
In the March 2011 consultation, we recognised the
role direct public funding could play, but considered a coverage
obligation would be better suited to securing our objective of
ensuring mobile broadband coverage of a substantial section of
the UK population, dispersed over large geographic areas. Nevertheless
we recognised that direct funding could have an important role
in supporting the achievement of more challenging coverage targets
and that there was the option of combining the two.
The possibility of using direct funding to promote
provision of infrastructure has been boosted by the Government's
decision to invest up to £150m to improve mobile coverage
in the UK. In announcing its decision the Government stated that:
'This investment will improve the coverage and quality of mobile
services for the 5 to 10 per cent of consumers and businesses
that live and work in areas of the UK where existing mobile coverage
is poor or non-existent. The Government will aim to extend mobile
service coverage to 99 per cent of the UK population. The procurement
of additional mobile phone mast sites to increase coverage will
begin in 2012.'
Following the Government's announcement, the Department
for Culture, Media and Sport has established a Mobile Infrastructure
Project (MIP), under which BDUK is running the procurement process,
and will announce further details in due course. We are supporting
BDUK in its development of the project, including the provision
of coverage information and technical analysis
BDUK is currently developing the delivery model and
procurement options for the use of Government funding, in order
to develop or extend mobile infrastructure in areas where there
is an insufficient commercial case. Given the early stage of the
process several procurement options are under consideration, including,
but not limited to: (a) the procurement of the appropriate support
infrastructure to enable increased mobile network coverage and
service quality, or (b) the procurement of increased mobile coverage
and service quality as a service.
The Government's programme will allow development
of new infrastructure independently of the auction. There may
be a number of organisations that could be interested in building
the basic infrastructure needed to support extended mobile coverage,
but might not be interested or successful in bidding for an 800
MHz licence. It is therefore possible that the organisation (or
organisations) appointed to develop new infrastructure will not
be a (4G) mobile service provider. Regardless of the identity
of the infrastructure builder, it is likely that there will need
to be arrangements that allow network operators access to the
new infrastructure, and this is likely to provide a means for
one or more network operators to deploy network equipment capable
of supporting mobile broadband at least at some of the MIP sites.
More particularly, we expect that MIP funding will be targeted
at those areas at the edges of or outside the current 2G coverage
footprint. The primary focus of the MIP is likely to be on extension
of mobile voice coverage but some if not all of the resulting
infrastructure is likely to be capable of supporting the provision
of mobile broadband services in the same areas.
In light of the responses to the March 2011 consultation
and the Government's initiative we have looked at options for
a coverage obligation materially in excess of 95% indoors.
The establishment of the MIP materially changes the
case for a coverage obligation more extensive than the one we
proposed in the March 2011 consultation. Although the contribution
of £150m is likely to be focused on delivering improved voice
coverage, the MIP is also likely to support the delivery of mobile
broadband on infrastructure that does not form part of existing
2G networks, and could therefore materially reduce the costs of
extending coverage beyond 95%. It could therefore support an obligation
that goes materially further than the 95% UK population target
we previously proposed.
One approach would be for this obligation to be a
straightforward 98% UK population coverage obligation, as recommended
by the Committee and as many responses to our March 2011 consultation
advocated. Under this option, it would be open to a licensee
to make use of suitable infrastructure provided as part of the
MIP to reach the 98% target, although there would not be any obligation
to do so. While this could afford the licensee flexibility, there
would be a risk that the licensee would not make use of some MIP
sites even though the MIP had determined that those sites delivered
significant benefits to consumers and citizens.
An alternative approach would be to link the coverage
obligation more directly to the MIP. The licensee or licensees
with the coverage obligation would be required to provide a mobile
broadband service (to a quality standard to be defined) with coverage
comparable to the 2G mobile voice coverage delivered by today's
2G mobile networks (in combination), plus the extended mobile
voice coverage achieved as a result of the MIP, to the extent
that the MIP infrastructure is capable of supporting 4G network
equipment. On balance, we currently prefer this approach. It
has two key advantages: it would increase the benefits flowing
from the Government's investment in mobile infrastructure, leveraging
this investment not only to provide better mobile voice coverage
but also better mobile broadband coverage; it would also make
it more likely that mobile broadband services would be provided
in those locations where they were most valuable.
In either case, and in line with the recommendation
of the Committee, we would expect coverage to be provided to approximately
98% of the population without imposing an undue level of cost
that might be passed on to consumers. We are currently consulting
further on the various options set out above.
RECOMMENDATION 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.
The Government's Mobile Infrastructure Project (MIP)
is being led by Broadband Delivery UK (BDUK) to ensure synergies
are captured between backhaul roll-out supporting the superfast
broadband project and investment in new infrastructure to improve
mobile coverage. Ofcom is supporting BDUK closely on the MIP project.
RECOMMENDATION 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.
The future needs of the emergency services are being
examined under the Emergency Services Mobile Communication Programme
led by the Home Office. Ofcom is actively supporting that programme
and helping to explore spectrum options for how future needs could
be met, including options that do not rely on the ability to access
spectrum via auction, but still encourage efficient use of what
is a scarce and valuable resource.
RECOMMENDATION 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.
Public sector spectrum users have been very co-operative
in providing access to frequencies which are to be used at the
London 2012 Games. The spectrum resources they have made available
are crucial for the success of the Games.
When seeking to meet the spectrum requirements at
major events Ofcom's standard approach is to supplement the normal
PMSE bands with others borrowed from public sector and other users.
JFMG is our agent for PMSE licensing and Ofcom and JFMG have well-established
processes for requesting short-term sharing of spectrum in these
circumstances. We acknowledge the willingness of all spectrum
users to agree to such arrangements where these do not interfere
with their operations, and we expect this collaborative approach
to continue.
In the future we expect spectrum to be used more
intensively, for example through the forthcoming award of UHF
spectrum and the MOD's disposal of some of their holdings. However
Ofcom believes that the needs of future major events, such as
the Glasgow 2014 Commonwealth Games, the 2017 World Athletics
Championships and the annual Grand Prix, will be met through this
established process of short-term spectrum sharing.
RECOMMENDATION 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.
We have undertaken extensive analysis and testing
of the potential for new services in the 800MHz band to cause
interference to PMSE and other users in neighbouring bands. In
light of that work, we consider that the technical and other licence
conditions that we will include in the new 800MHz licences will
give neighbouring users an appropriate level of protection from
harmful interference. We also have the powers to require licensees
to engage in specific co-ordination with other licensees to manage
interference. In any event, all licensees are required to avoid
causing harmful interference, failure to comply with which could
be grounds for licence revocation.
RECOMMENDATION 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.
We understand that spectrum use is crucial to many
industries and services. Arrangements are in place to enable spectrum
access through a variety of means aside from participation in
auctions. Ofcom manages a large number of spectrum bands in which
we provide a range of licence products that are designed to meet
the varying needs of different sectors and which are available
on demand on a first come first served basis. Large amounts of
spectrum (in excess of 100MHz bandwidth below 4GHz) are reserved
for, and used by, Emergency Services. The spectrum requirements
of the international maritime sector and maritime safety are met
through licence products which align with maritime allocations.
In the case of the Olympics, a huge, cross-Government effort
has gone into securing large amounts of temporary access to spectrum
to meet the needs of the Games.
February 2012
1 http://stakeholders.ofcom.org.uk/binaries/consultations/combined-award/summary/combined-award.pdf Back
2
http://www.hm-treasury.gov.uk/press_112_11.htm
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