Joint Committee on the Draft Communications Bill Minutes of Evidence

Examination of Witness (Questions 120-139)


MONDAY 27 MAY 2002

  120. Would you see advantages in contracting out?
  (Mr Goddard) As I say, we have already contracted out where there is no detailed technical work—finding individual frequencies for individual users for example, for some shipping services, radios on ships, in the amateur radio service for example, those services have become contracted out.

  121. You say that you co-operate very well and have done over the past series of years. I put again my question: what then are the advantages in combining with them in one body when you are working so well already?
  (Mr Goddard) I might have implied that we are working well but there is always the possibility in complex and difficult organisations that there may be lobbying into different parts of the government and the regulators. If there is a seamless, single communications regulator, we will be able to produce a coherent policy internally and speak that with one voice for the benefit of the industry.

Lord McNally

  122. We have received a lot of evidence already that despite all the fluffy end of the business you are the boys that deal with where the real money is, where the power is, etcetera, and this is the important part of what OFCOM is going to do. Have you got enough powers within this Bill to do your job?
  (Mr Goddard) I believe so. Certainly the role of spectrum management is very important. You said yourself from the evidence that it supports an enormous industry and enormous wealth of the country, but the Bill is quite clear in terms of the responsibilities to balance all the potential users of the radio spectrum in the overall interests of the users.

  123. The parts of the Bill that cover your area—is this mainly a transfer of EU legislation or is it separate UK legislation?
  (Mr Goddard) It is a combination of things. It is firstly bringing force to the EU legislation as it applies to licensing in the various spectrum areas. Secondly, it transfers the functions that we are carrying at the moment which we do under the authority of the Secretary of State. They need to be explicitly laid down in some detail in the provisions of Bill so there are detailed provisions there that replicate what we are doing at the moment. There are then some new powers dealing with spectrum trading and what we call Recognised Spectrum Access. So it is a combination of the transfer of existing functions and some new powers.

  124. But you have resisted any attempt to gold-plate the EU stuff, which is often an accusation levelled at Whitehall?
  (Mr Goddard) I do not think we would be accused of gold-plating. We have supported the legislation in terms of its transparency and fairness for dealing with the policy that we manage. We have tended always to move ahead of a lot of the countries in Europe in terms of the openness of our policy strategy. We were the only country in the world until very recently that produced a complete strategy for how we manage the radio spectrum. In terms of openness, fairness and transparency, we are carrying out policies already which are consistent with the Directives. That puts that firmly into policy.

  125. To go back to the question of Lord Pilkington, you are the fifth regulator that has told us that you are happy with the Bill, that you are happy with the powers and that you are happy with the staff that you are going to be given under this, and yet this is a Bill that the Government tells us is going to be lighter of touch, slimmer, etcetera. Do you not think we should start smelling a rat somehow about this Bill?
  (Mr Goddard) I am not sure that is for me to answer. Certainly, as I said earlier, we are seeing a lot of our existing functions and activities transferred over. Already in the field of radio spectrum management, we have been developing a lighter touch than we did in the past. We did regulate very heavily and we worked on the basis many years ago of deciding how spectrum should be used. Now we are moving back to not determining who has a licence but perhaps putting the spectrum out on the market through auction or whatever. In the future with spectrum trading we expect many more of the decisions to be taken in the market-place and less by the regulator. If we were still working the way we were 10, 15 or 20 years ago, the Radiocommunications Agency would have to be double its current size. Although we have increased in size, the number of licences we issue and the complexity of the management of the spectrum and the business has grown enormously, and I do not think the size of the Agency has increased proportionately to that at all.

Mr Lansley

  126. Clause 124 is a clause designed to permit you to make regulations to bring in a new structure of spectrum trading. We are coming to the stage where you might tell us something about the process by which you propose to make regulations under 124. How confident are you that clause 124 has the structure that is right for all the purposes that you might need in order effectively to bring in spectrum trading?
  (Mr Goddard) I do not think we can ever be totally confident as to what the future will bring. This is a completely new tool that has been planned. It is one that the Government has committed itself to for some time now. In fact, we have been taking the lead in Europe to ensure EU legislation includes spectrum trading. We are waiting to see whether it will give more freedom to users to get the best out of the licence they hold for the spectrum. It will allow that licence either in whole or part to be transferred to another user, which is not possible at present, and we see that as a much more efficient use of the radio spectrum. To some extent we have to second guess how to sort it out, but we believe we have got the provisions there that will work in practice that will give us a framework which will work effectively as an enabling power for the future.

  127. One of the general duties back in clause 3 relates to the optimal use of the spectrum for wireless frequency purposes. How do you think you will be able to interpret that? Does it relate directly back to section 2 of the Wireless Telegraphy Act? Is it that kind of set of purposes that you would apply?
  (Mr Goddard) It is a very difficult issue to define. We are in the business of balancing a lot of different conflicting requirements—the commercial use of spectrum, non-commercial, scientific, research, hobby, and so on—and certainly when I go to international meetings there is often a definition of consensus that everybody is equally happy, or maybe everybody is equally unhappy. To some extent it has to be measured by feedback. We consult extensively—and you have heard from Oftel—on virtually all our major policy decisions. It is a question of getting the balance so that users are satisfied and we are meeting the needs of different communities. How one measures whether you have got that balance absolutely right is a very difficult question.

  128. By its very nature left to its own devices the market with respect to spectrum trading will seek to appropriate the best use of that spectrum for particular individuals or undertakings, but the structure of the general duty is "in the interests of all persons", so you are going to have to use the powers in clause 124 to try and operate a control over the use of that spectrum and who it is traded to and what its purposes are and so on. I am trying to get a sense of what is the structure in the legislation after this Bill is passed that you will look to say, "This is how we interpret `optimum use'". Is it Section 2 of the Wireless Telegraphy Act because that was there for the purposes of administrative pricing of wireless telegraphy licences? Has it been used as the basis of a judgment in relation to the auctions and will it be used as a judgment in relation to spectrum trading?
  (Mr Goddard) Let me say, first of all, on spectrum trading we would not envisage having trading across the whole spectrum from day one. It is an enabling power where we would be looking through consultation at the process of applying spectrum trading selectively as we have done in spectrum pricing, in that it would apply in certain areas initially, probably phasing against some experience with it. In terms of the defining of the basic objectives of spectrum management, it has to be a subjective assessment and if we are getting it right, then we are satisfying the different communities.

  129. At the risk of tiring the Chairman, I do not think you have answered my question. We are not setting up a subjective judgment by OFCOM, we are setting up a judgment by OFCOM on the basis of statute. In statute what will be the judgment you are applying? Is it the judgment of the matters which are set out in section 2 of the Wireless Telegraphy Act which apply to administrative pricing? Have they been applied to auction as part of the third generation? Are they going to be applied as a consequence of the structure of the legislation that is presented to us to the exercise of spectrum trading?
  (Mr Goddard) Excuse me one second. Those provisions you refer to in section 2 of the Wireless Telegraphy Act are specific to spectrum pricing. Those are statutory conditions for the specific purpose of spectrum pricing—

  130. I think we will have to come back to it because during the course of the Standing Committee, which I for my sins was on, the then Minister expressly said that an amendment was unnecessary because the matters referred to in section 2 would automatically apply to section 3, that is to the auction. Perhaps we should have a note from the Agency and the Bill team about that.
  (Mr Goddard) We can certainly do that.

Baroness Cohen of Pimlico

  131. Before I start asking anybody anything about spectrum, I have to declare an interest. I am the senior Non-Executive Director, indeed there are only two of us, on the Defence Logistics Organisation of the Ministry of Defence and in as much as the Defence Communications Agency are part of Defence Logistics, although they operate MoD-wide, as it were the MoD spectrum is mine. So you need to consider any questions of mine against that background. As I understand it, the current position is that the MoD does in fact pay something for its spectrum use and clause 119 allows payment for use of radio spectrum by the Crown. There is a set of questions around this. The first technical one is why is it provided that the amounts will be fixed by the Secretary of State rather than by OFCOM? If we are going to start liberating the spectrum and persuading people to use it efficiently, there being no suggestion that the MoD do not, why should OFCOM not be in charge of pricing? Why has this to be left to the Secretary of State?
  (Mr Goddard) You are right in saying that the MoD pays for spectrum now. The Radiocommunications Agency does not and, indeed OFCOM will not in the future manage the MoD spectrum; it manages most of the non-defence spectrum. The basis of the payment in the past before the 1998 Act was very much on recovery of some of the direct costs that the Radiocommunications Agency incurred. We, for example, represent Ministry of Defence interests in international negotiations. We notify to the international bodies concerned in Geneva, military satellites, for example, and co-ordination with other countries, so we have for a very long time charged direct costs. In the 1998 legislation which enabled spectrum pricing, the Government agreed that government users would pay on a comparable basis. We introduced an increase in the fee charged of the Ministry of Defence at that time. At the same time as we introduced spectrum pricing for fixed and mobile services, we did it on a comparable basis. That power in the legislation is just a continuation of what we have been doing for a considerable period of time.

  132. I suppose the right question then is, is this satisfactory that Secretaries of State, as it were, fix payment for the Government's use of spectrum and OFCOM fixes the prices for the rest? Does this make sense?
  (Mr Goddard) I think the strict wording is that the Secretary of State will make the payments of such amounts as he considers appropriate. The way we do it at the moment is in the same way in which we consult with the private sector on spectrum prices—we sit down with the Ministry of Defence and effectively negotiate a price, and that is done by mutual agreement based on the comparative charges per unit to spectrum that we charge in the private sector. I believe this is simply taking forward that same principle—that the clause provides for payment to be made by the Secretary of State.

  133. And that will work? When you start trading spectrum what does that do to this structure?
  (Mr Goddard) I believe the provision would allow any spectrum which is under the control and management of the Ministry of Defence—and there will be provisions using this provision of spectrum access for the Ministry of Defence to effectively purchase the equivalent of a licence—to be traded if they have the spare capacity and to sell it off to the private sector. They would need spectrum access which is the equivalent to a licence, which they do not of course need now because they are Crown exempt.

  134. If OFCOM are in charge of licensing, will they be taking a view on how much spectrum the MoD should have?
  (Mr Goddard) Taking a view, yes, but not having the power itself to change. That is exactly the same as the present arrangement where the Radiocommunications Agency can put pressure on the Ministry of Defence to change the spectrum—and we do that quite regularly—but the actual decision will be through Whitehall and government as to how the spectrum is bought and as to what proportion.

  135. So none of that structure is established by the Bill?
  (Mr Goddard) We would expect that same Whitehall machinery to continue although it does not need to be on the face of the Bill itself.

Paul Farrelly

  136. I take it from the evidence that you think spectrum is a good in itself and not a good way of bolstering the Treasury's coffers. If OFCOM is excluded from having any say in the vast MoD spectrum—and we have all been impressed by the MoD's ability to manage large contracts on budget and on time—how do you know that the MoD is managing its vast share and indeed Lady Cohen is managing her share of the spectrum efficiently and not depriving my colleague the Chancellor of vast amounts of money?
  (Mr Goddard) Two answers if I may. At the working level we have built up an extremely good working relationship with our defence spectrum management colleagues. The reason for that is, as you say, we need to understand how they use the spectrum so that we can make judgments, in particular because a large and increasing amount of spectrum is shared between defence and non-defence users. We have to know to a fair extent the details of MoD spectrum usage. The other way in which it is done more formally is, as I said already, there is an inter-departmental Cabinet Office committee which is co-chaired, quite unusually, by the Chief Executive of the Radiocommunications Agency and a senior colleague from the Ministry of Defence, and that Committee has other government departments represented. That is the ultimate authority at official level, for example of spectrum use and determining UK spectrum strategy, so the tensions between defence users and commercial users can come out at that level, and clearly that feeds up to Ministers.


  137. Are you absolutely convinced in your own mind that the mechanism you have, and the mechanism that is proposed brings sufficient pressure to bear on the MoD to get the spectrum they need as opposed to the spectrum they want?
  (Mr Goddard) I think the evidence has shown over the last decade or so that we have been able to exert a lot of pressure on the Ministry of Defence to use the spectrum not on an exclusive basis but on a shared basis. Most of the new spectrum that has become available in competition in telecommunications, whether it is fixed wireless access or additional mobile radio spectrum, has come from spectrum that was previously exclusively defence, so that is evidence that the present mechanism works, and from my own experience of what happens in other countries I think we have a very good arrangement for making sure that that continues to work.

  Chairman: In fairness to the question, if you go back historically, that was not always the case and that is why there may be a certain doubt in Mr Farrelly's mind. We will move on. Tom?

Lord McNally

  138. I think the reason is we take the motto of the Ministry of Defence as "what we have, we hold"!
  (Mr Goddard) I think we are seeing that spectrum pricing is having some impact.

Baroness Cohen of Pimlico

  139. If I may, Chairman, there is an in-built tension between how much licence you give the MoD which they can then trade with the spare bits and how much you take the spare bits off them. I do not know whether anybody has thought about that.
  (Mr Goddard) I can say from my own contacts with colleagues in the Ministry of Defence—and perhaps I should not be speaking on their behalf—the message that is coming back is that if there is spare spectrum they would rather hand it over to the regulator to manage rather than be involved in trading it themselves. That is the informal comment I have heard from colleagues.

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