Supplementary evidence from OFCOM
NOTE ON THE VALUE OF SPECTRUM RELEASED BY
DIGITAL SWITCHOVER
The Committee asked for further information
on the value of the spectrum that might be released by digital
switchover ("DSO").
It is important to emphasise at the outset that
it is not the aim of Ofcom to raise revenue for HM Treasury. Ofcom's
duties in relation to management of the radio spectrum are set
out in statute, and relate principally to securing optimal use
of the spectrum for the benefit of the citizens and consumers
in the UK. Ofcom's primary concern when assigning spectrum, whether
through spectrum auctions or otherwise, is to maximise the social
and economic benefits that can be generated from the use of spectrum.
Ofcom's general policy is to prefer auctions
as a means of assigning spectrum because auctions are (in general)
an efficient, transparent, objective, and non-discriminatory mechanism
for assigning scarce resources. The revenue effects of auctions
are not, therefore, a consideration to which Ofcom has regard
in taking regulatory decisions about spectrum.
The best estimates currently available of the
social and economic benefits likely to be generated by DSO are
those compiled by the DTI and DCMS for the regulatory impact assessment
of digital switchover published in September 2005. Based on the
completion of DSO in 2012, DTI and DCMS assessed the likely benefits
to be:
|
| Benefit | NPV £ million (2004)
|
|
| Benefit of extending DTT to current non-DTT areas
| 2,725 |
| Benefit from additional services in retained spectrum
| 659 |
| Benefit from re-use of released spectrum |
1,011 |
| Imputed benefit of compulsory migration |
657 |
| Benefit from savings on analogue transmission
| 1,191 |
| Total benefits | 6,244
|
|
The total costs of digital switchover were similarly assessed
to be £4,551 million NPV (2004), and hence the net benefits
to be £1,692 million NPV (2004).
It is worth noting that, on this assessment, only about 16
per cent of the benefits of DSO relate to re-use of the released
spectrum, while about 44 per cent relates to the provision of
DTT in areas currently unable to receive it, and 19 per cent relates
to the cost savings for broadcasters from no longer having to
broadcast in analogue. The benefit of extending DTT to areas not
presently served by DTT derives principally from the additional
channels available on DTT. It reflects the fact that about two-thirds
of the spectrum that will be released by switching off the analogue
signal has already been assigned to achieve near-universal coverage
for DTT.[4]
The proceeds of any auction for the released spectrum will
depend on two sets of factors that are logically distinct but
both highly uncertain at present.
The first is the estimates that bidders make of the benefits
that they can derive from use of the spectrum. This will depend
on a wide range of factors, including:
— what they plan to use the spectrum for, the business
model they plan to use, and the synergies (if any) with their
existing business;
— how much competition they expect to face in downstream
markets;
— how efficient they expect to be in capturing the
value available; and
— the cost of any alternative means of achieving
similar benefits.
Bidders' view of these (and similar) factors will determine
how much they would be willing to pay for the spectrum, as a maximum.
The second set of factors concerns how much they judge that
they should actually bid in the auction. Bidders will obviously
seek to pay the minimum that they can to secure an asset, and
should always aim to pay less than the full amount of the future
benefits, as otherwise they will make no surplus.
How much the successful bidders actually pay will therefore
depend on factors such as:
— the degree of competition for the spectrum at
the time of the auction;
— the detailed design of the auction; and
— market expectations as to the availability of
alternative spectrum in the future.
Given the uncertainties involved in relation to all these
points, and given that raising revenue is not an objective of
management of the spectrum, Ofcom has made no attempt to estimate
the revenues from an auction of the released spectrum.
January 2006
4
Broadcasting of the five main analogue TV channels on DTT could
be done using a single DTT multiplex, requiring only 48MHz of
UHF spectrum. Hence if no other spectrum were assigned to DTT,
analogue switch-off would release 320MHz. However, nearly two
thirds of this released spectrum (208MHz) has already been pre-assigned
to DTT, to permit the transmission of five additional DTT multiplexes.
Hence only a little over a third of the spectrum released by analogue
switch-off (112MHz out of 320MHz) is being released for other
purposes. Back
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