Spectrum Efficiency Through Pricing Mechanisms. Stephen Talbot - Ofcom CSMF October 2017

Transcription

1 Spectrum Efficiency Through Pricing Mechanisms Stephen Talbot - Ofcom CSMF October 2017

2 1 There are generally three types of spectrum fees Free typically licence exempt or where the cost of collection of the fee would form a disproportionate amount of the fee Cost-based pricing: typically where spectrum is not scarce set to the costs of spectrum management Administered Incentive Pricing (AIP): where spectrum is scarce (in excess demand) - set to reflect the long term (marginal) cost of spectrum Ofcom consulted in 2010 on a strategic review of spectrum pricing focusing on AIP

3 Figure 6: Steps in setting AIP spectrum fees 2 Typical process for deciding whether is AIP applicable Determine current and alternative uses of the band Step 1: identify existing and alternative uses for the band Yes AIP applicable Is there excess demand for the band from either of those uses? No Administrative cost-based fee applicable Step 2: is the band in excess demand?

4 3 When setting AIP fees we need to recognise that spectrum is not homogeneous The value of spectrum is likely to exhibit discontinuities A range of factors influence spectrum value Value ( /MHz) Harmonised and equipment readily available Spectrum in one band may not be substitutable with that in another: Physical characteristics Equipment availability and cost Technical licence conditions Regulatory constraints Harmonisation status Unharmonised so equipment expensive Major technical restrictions to protect other use Frequency (MHz) There is no one spectrum market, but a series of discrete submarkets

5 4 What is the role of AIP? AIP is a complementary regulatory tool Absent AIP there would be less incentive for licensees to use spectrum optimally AIP must be set with the intention of promoting optimal use AIP is designed to provide a long-term signal of the (long-term) value of spectrum In contrast, where the cost /benefit of a change of use is clear substantive and immediate: we would consider the benefits of intervention Principle 1: Role of AIP

6 5 When should we apply AIP? AIP is a regulatory tool designed to be used where demand for spectrum is greater than supply We consider excess demand from either: those services currently having access to the band (existing uses), or those services that might be able to use the spectrum, but that currently do not have access to the band (alternative uses) Are alternative uses realistic and feasible, over the relevant timeframe? practically possible in the relevant timeframe (excess) demand exists (now or in the future) for new spectrum for the alternative use Principle 2: When AIP should be applied?

7 6 What is long-term, or the relevant timeframe? AIP is a long-term signal that is intended to influence licensees as part of their normal investment cycle but. Long-term therefore is a term relative to users investment cycles All decisions about AIP should, if practicable, be considered over the same timeframe However, our ability to forecast demand for radio-based services can often be limited to a shorter timeframe Principle 3: The relevant timeframe for AIP

8 7 Is AIP necessary for licences that are tradable and liberalised? Our review of trading has initially concluded that: at present, trading is unlikely to be sufficiently effective to enable AIP to be dispensed, with the highly coordinated nature of some interference environments or market failures of different sorts may continue to limit the ability of trading to promote optimal use of spectrum There remain a number of barriers to trading, some of which we are looking to address through: Simplification of trading consultation Spectrum information consultation Some users may be less responsive to trading than AIP Principle 4: AIP and spectrum trading

9 8 Should AIP be set at a level that promotes wider policy objectives? Many uses of spectrum generate social benefits, both commercial and public uses Market failures can arise where the market left to itself would not deliver some services in sufficient quantity (or at all) to meet societal needs In general it is more efficient to secure these services directly through funding (e.g. NHS) or regulation (e.g. requirement to offer 999 services) because reducing spectrum fees: creates risk of distorting licensees choices But does not ensure that the services will be provided Principle 5: AIP and wider policy objectives

10 9 Should we use AIP to promote innovation? Innovation is one of the matters we are required to have regard to when setting fees In general AIP should be conducive to innovation as it should relieve spectrum scarcity and in combination with spectrum trading make spectrum available for new uses We have non-operational licences available for test and development and technical trials Concessions (on AIP fees) would provide some operators access to scarce spectrum with incentives that could distort their choice of frequency band and/or decisions on the amount of spectrum to use Principle 6: AIP and the promotion of innovation? Not really justified

11 10 Should we make greater use of auction outcomes or trading prices to inform AIP fees? There are three principal potential sources of direct market-based information on spectrum value: Information from auctions Prices in spectrum trades Share prices of companies using spectrum In principle highly relevant, but: Auctions like-for-like comparisons difficult; potential distortion of bidding incentives Trading prices not required to be revealed to us; thin trading market Share prices spectrum assets are rarely, if ever, valued separately We will investigate the use of market prices both to help set fees directly and to act as a cross-check on our own estimates Principle 7: Use of market valuations

12 11 How should we account for uncertainty in market values when setting fees? Balance of risk between setting fees too high compared to the market price and too low Loss of consumer and citizen benefits whether too high or too low Too high? Too low? The effect of setting fees too low can be mitigated by trading, if an effective market exists higher value users buy out lower value users Principle 8: Setting AIP fees to take account of uncertainty

13 12 Case Study Revised Fees for mobile operators Directed by Government in 2010 to revise these fees to reflect full market value For 900 and 1800 MHz (which were not originally auctioned in UK) Total fees payable by operators from 2015: 199.6m per year Assessment of data points and consultation Based on earlier proposals; final fees for the 1800 MHz band were 3% lower the final fees for the 900 MHz band were 24% lower, reflecting the discount rate reduction and the prices paid in the German auction Decision under appeal

14 13 Cost-based fees Cost-based fees are set when spectrum is not scarce Set to reflect our costs of spectrum management, including common costs Set, typically, at a flat rate for licences regardless of amount of spectrum and geography used In 2014 we consulted on a Framework for setting cost based fees:

15 Thank you 14