Select Committee on BBC Charter Review Minutes of Evidence

Supplementary evidence from OFCOM


  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:

NPV £ million (2004)

Benefit of extending DTT to current non-DTT areas
Benefit from additional services in retained spectrum
Benefit from re-use of released spectrum
Imputed benefit of compulsory migration
Benefit from savings on analogue transmission
Total benefits

  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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