Spectrum: Written evidence 1
House of Commons Culture, Media and Sport Committee
Spectrum
Written Evidence – at 13 July 2011
2 Spectrum: Written evidence
Spectrum: Written evidence 3
Index of written evidence
Page
Written evidence submitted by the Musicians’ Union (SP 01) ...... 4 Written evidence submitted by Barry McKeown, Datod Ltd (SP 02) ...... 7 Written evidence submitted by the Department for Culture, Media and Sport (SP 03) ...... 14 Written evidence submitted by Telefónica UK Limited (SP 04) ...... 19 Written evidence submitted by Inmarsat Group Limited (SP 05) ...... 25 Written evidence submitted by the Countryside Alliance (SP 06) ...... 30 Written evidence submitted by Hutchison 3G UK Ltd (Three) (SP 07) ...... 32 Written evidence submitted by the Federation of Communication Services (SP 08) ...... 39 Written evidence submitted by the Northumberland National Park Authority (NNPA) (SP 09) ...... 46 Written evidence submitted by the British Entertainment Industry Radio Group (SP10) ...... 54 Written evidence submitted by the Incorporated Society of Musicians (SP 11) ...... 62 Written evidence submitted by Vodafone (SP 12) ...... 64 Written evidence submitted by British Telecommunications plc (BT) (SP 13) ...... 71 Written evidence submitted by Aquiva (SP 14) ...... 77 Written evidence submitted by Network Rail (SP 15) ...... 86 Written evidence submitted by Ofcom (SP 16) ...... 88 Written evidence submitted by Everything Everywhere (SP 17) ...... 94 Written evidence submitted by Intellect (SP 18) ...... 100 Written evidence jointly submitted by BBC, ITV, Channel 4, Channel 5, S4C, Arqiva and SDN (SP19) ...... 104 Written evidence submitted by BSkyB (SP 20) ...... 110 Supplementary written evidence submitted by Arqiva (SP 21) ...... 112
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Written evidence submitted by the Musicians’ Union (SP 01)
1. The MU represents over 30,000 musicians working in all genres of music. As well as negotiating on behalf of our members with the major employers in the industry we also offer services tailored for the self-employed by providing assistance for full-time and part-time professional musicians of all ages. We are responding to this consultation in order to protect the interests of our members and will therefore focus on the question that affects them most.
The possible impact of the auction on alternative uses for spectrum
2. The proposal to clear channel 69 of PMSE has led to a severe decline, and in some cases near-halt, in sales of channel 69 equipment; those businesses that depend on these sales are consequently under threat. This is because under current proposals, anyone who buys channel 69 equipment subsequent to the publication of the 800 MHz consultation document will not be entitled to financial assistance. Therefore, those who would otherwise buy new equipment are reluctant to invest. In addition, suppliers of channel 69 equipment cannot offer alternative equipment until replacement spectrum is both confirmed and made available on a UK-wide basis.
3. Users who need to buy new channel 69 equipment (i.e. that can be used and licensed UK-wide) have no other option but to invest in equipment that is not future-proofed. Again, this is because (a) viable alternative spectrum, and hence equipment, are not available and (b) the date of publication of the 800 MHz consultation is the proposed cut-off point for entitlement to financial assistance.
4. In order to address these problems, Ofcom should accept that, in the absence of confirmation and availability of replacement frequencies and equipment, users who need new equipment have no option but to invest in equipment that operates in currently-available frequencies. We would also ask that Ofcom strongly encourages the Government to make provisions for those that have purchased and will need to purchase equipment before replacement options are confirmed and available.
5. We would also ask that it be confirmed, as soon as possible, that Channel 38 will be awarded to PMSE/band manager and that every effort is made to ensure that channel 38 is as widely available as possible for PMSE use, as soon as possible. This will involve significant engagement with incumbent radioastronomy users of channel 38.
6. As the replacement for channel 69 must at least replicate its current benefits to PMSE, we agree with Ofcom that none of the following would be acceptable: a) Interleaved spectrum (not UK-wide and no additional bandwidth), b) Channel 70 (more isolated than channel 69 and no additional bandwidth), c) FDD duplex split (no certainty that it will either exist or be useable for PMSE), d)1785-1805 MHz (isolation, lack of equipment availability, not UK-wide), e) 870-876 MHz and 915-921 MHz (isolation, interference issues and high opportunity cost). Spectrum: Written evidence 5
7. If the migration of PMSE from channel 69 and the provision of replacement spectrum is considered in isolation from the wider impact of the digital dividend on PMSE spectrum access, then it would be reasonable to conclude that channel 38 is an adequate replacement. It will be available on a UK-wide basis by 2012, has a low opportunity-cost (and hence licence fee attached to it) and lies in closer proximity to post-DSO (digital switchover) interleaved spectrum than channel 69 will.
8. However, the spectrum provided to PMSE/band manager must take into account the wider impact of the digital dividend on PMSE spectrum access. As BEIRG has demonstrated in its responses to the cleared and geographic consultations, Ofcom’s currently available white space maps show that there will be insufficient spectrum available in order to operate necessary quantities of PMSE equipment for large-scale musical productions to be staged at certain prime venues across the UK , including at theatres in Edinburgh, Bradford, Southend, Woking, Swansea, Nottingham, Stoke, Guildford and Tunbridge Wells . In addition, and as our models derived from Ofcom’s data show, equipment costs for touring theatre will increase by a minimum of 100% post-DSO due to the increased fragmentation of available spectrum.
9. Whilst Ofcom have agreed to update the white space maps, they will not be available for some time due to the clearance of channels 61-69. Until definitive white space maps are publicly available, it is impossible to determine whether the PMSE spectrum allocation is demonstrably interference-free and sufficient in terms of quality, bandwidth and continuity to meet the PMSE sector’s needs without imposing undue financial costs. Ofcom must accept that they must retain the ability to address any shortfalls in PMSE spectrum should they arise. In order to do so (and hence avoid the risk that the PMSE allocation will not be sufficient), Ofcom must do one of the following:
a) Award two additional cleared channels to the band manager in addition to channel 38. In this regard, BEIRG submitted a document to Ofcom in December 2008 which stated ‘We believe that channel 38 along with cleared channels 39 and 40 would offer the best replacement for channel 69. Alternatively, if channels 61 and 62 are cleared of DTT and DTT broadcasting has to spill over into channels 39 and 40, then channel 38 and the cleared channel 37, along with the interleaved spectrum in channels 39 and 40, would offer the best replacement for channel 69.’ Ofcom should explore this option as a method of prioritising PMSE, rather than PMSE being a consequence of other developments.
b) If the 600 MHz auctions are to take place before definitive white space maps are available, it would be a good idea to hold back the two additional cleared channels from sale until it is known for certain which interleaved frequencies will be available for PMSE. The channels could be awarded to the band manager if the interleaved allocation is insufficient, or auctioned if not. This option would both mitigate the risk to PMSE and ensure efficient spectrum allocation.
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c) Not release the lower cleared channels (i.e. do not hold the 600 MHz auctions) until definitive white space maps have been published and the PMSE sector has had sufficient time to ascertain the implications. Further to this, Ofcom will be able to address any shortfalls in spectrum availability or continuity by awarding additional spectrum to the band manager.
10. We welcome Ofcom’s commitment to ensure that ‘existing authorised and planned authorised users of channels 61, 62 and 69 do not bear extra costs that must reasonably be incurred to clear the spectrum’. In line with this, finance must be available when the costs to the PMSE sector arise in order to facilitate an orderly and efficient migration. The best solution would be an early Government commitment to set aside funds and ensure that an effective distribution mechanism is established.
May 2011
Spectrum: Written evidence 7
Written evidence submitted by Barry McKeown, Datod Ltd (SP 02)
Structure of Submission
1. Response to Terms of Reference issues 2. Other relevant matters arising 3. Supplementary relevant Datod published information 4. Contact Details 5. References 6. Appendix
1. Response to Terms of Reference Issues:
1.1 Whether the proposed method of spectrum allocation promotes, or hinders, competition in the provision of mobile broadband services;
1) Datod Response: The nature of the Electromagnetic Spectrum, inherently a mathematical model, being auction to the highest bidder permits scope for abuse of market dominance to arise by directly prohibiting innovative technology companies, who make technical breakthroughs, accessing the spectrum for the duration of the License, which in the case of 3G are for 20 years, without the consent of both the Licensee and OFCOM.
1.2 Whether the upcoming auction can provide value for money for tax payers and how that should be balanced with benefits for consumers;
1) Datod Response: Tax payers are consumers. Auctions inherently involve an abdication of responsibility. So the current arrangements do not provide best value for the tax payer who would be better served by a floating revenue charge based on the actual data traffic content application the customer (individual or business) is undertaking. This would necessarily involve a new tax regime.
2) Customers would be further served by the intended Auction Fees instead being spent on a more rapid roll out on infrastructure.
3) Fundamentally this situation arose due to the inability to foresee what actual services would be provided through direct transmission of data traffic compared with envisioned voice or video traffic, circa 2000, when in the then jargon no “killer app” was identified.
4) This lack of foresight is not the case today.
1.3 The potential for next generation mobile internet services offered by the forthcoming availability of spectrum;
1) Datod Response: It has been stated that 1G was built on voice, 2G was built on pornography and 3G on business traffic. Datod believes 4G will be built on mobile healthcare services. This new world wide industry has also been recognised by the
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GSMA World Mobile Congress, when the industry met in Barcelona this February. It established a supplementary forum, the mobile Health Summit, which is meeting in Cape Town, this July, to chart the way forward. It is the recognition of this market potential and the benefits to society, now, that shall enable an appropriate regulatory framework to be enacted. We note that this is not one of the five legacy issues raised with you by the Secretary of State.
2) The Datod view is that OFCOM is an obstacle to enabling this mobile healthcare industry being established in the UK and the UK becoming a leading global player to the detriment of the economic well being of the UK. The issues are dedicated spectrum and Net Neutrality.
1.4 Whether the upcoming auction can deliver improved mobile broadband coverage in rural areas, as well as cities;
1) Datod Response: No. The auction in itself and the apportioning off coverage either by people or geography to 95% or 97% is inherently exclusive.
2) The proffered OFCOM argument that the use of a lower frequency enables greater propagation range, while true, is misleading if actual transmitted power levels are not complementary maintained by changing technology and transmission standards. This is to misunderstand the limitations of the propagation models.
3) This is a technology platform, from smart device to smart device, delivery issue. Whereby a change to a regulatory regime permitting the network operators and communication companies being enabled to provide, in the License mix, a multiple of delivery mechanisms through adopting converged wireless, fixed line, satellite and future High Altitude Stratospheric Platform Stations (HAPS) pipelines can ensure that 100% coverage of both people and geography is attained, seamlessly, from smart device to smart device. One issue is to appreciate how the introduction of upgraded Internet Protocols, such as IPv6, shall facilitate such capability.
4) The key issues are safety critical applications and combating vested interests of the current stakeholders in fixed line and satellite infrastructure and in the healthcare infrastructure.
1.5 Whether license fees for mobile operators have previously been set at appropriate levels, and how this should be assessed;
1) Datod Response: Absolutely not. Witness the statements by Richards/Bowe before you from 3rd May on The Work of OFCOM as to how the current liberation of the 2G spectrum to enable higher valued 3G services is being mismanaged by OFCOM.
2) Historically, the UK 3G auction raised £22Bn for a 20 year License. This simple established monetary fact may be used as a benchmark for a true financial evaluation of the current commercial services provided by enabling a simple transposition of this actual price paid for the initial 3G spectrum amortized over the remaining period of the License less the 2G fee paid by the liberated network operators. The future auction fees Spectrum: Written evidence 9 attainable for 4G services are a red herring as these 3G services are being delivered now.
3) Provision for a comparison incorporating actual revenues accrued and not tax planning arrangements should be established.
4) It is foolhardy of OFCOM to assume 4G services shall be similar to 3G services and thus of a similar commercial value.
1.6 How the position of the UK compares with other countries, with regards to allocation and utilisation of mobile broadband spectrum;
1) Datod Response: We are at a disadvantage due to the Communications Act 2003 and OFCOM’s culture and practise. OFCOM should not be compared with the EU as OFCOM prefers but instead with the US. Inherently OFCOM has a conflict of interest between regulation and technical innovation and pursuing breakthrough research, which should not be confused with risk. In the US these remits are separated between the FCC and the NTIA. Whereas OFCOM consults and deliberates, the NTIA acts. Witness that during the US 4G 800MHz spectrum auction, begun in January 2008 by the FCC and raising $19Bn, the NTIA concurrently initiated a Spectrum Sharing Innovation Test Bed for developing Dynamic Spectrum Access technology adopting Spectrum Sensing techniques. Witness also the NTIA process underway for making available an extra 500MHz of spectrum.
1.7 The possible impact on alternative uses for spectrum.
1) Datod Response; The strategic key issue is ensuring that mobile healthcare, both infrastructure and services, are available to the NHS, to enable best value to the tax payer to be attained. This issue should not be left to the mercy of the network operators to deliver. Putting it simply; with an ageing population we cannot provide millions of extra hospital or care beds so therefore mobile healthcare shall have to take the strain.
2) The foresight issue is in establishing the worst case real time spectrum bandwidth application, for this we turn to the opposite end of the age spectrum.
3) In appendix A are two scanned pages extracted from Professor Stuart Campbell’s book “Watch me grow” on ultrasound imaging. The key statement from the Behaviour Patterns section is: “For about 10% of the time the foetus is “awake” when there will be continuous movements of the body and limbs, the eyes will be moving and the heart-rate will be fast. It is during this time that the face of the baby will be very expressive and yawning, blinking and sucking will occur”. This occurs from week 31 till tem and equates to roughly 3 hours of bonding activity per day or 100 hours till birth. In February the US FDA approved the first 2D (slice) ultrasound smart-phone. However, for such an application to come to fruition shall require wearable device technology broadcasting into the cloud and back to the user specified display on either a 3G or 4G smart device. The issue OFCOM has failed to address is what bandwidth is required for the uplink of 3D raw real time unprocessed volumetric data instead of processed downlink video images.
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4) Such an application shall raise cultural and philosophical issues as to when human life begins to the wider public consciousness.
2. Other Relevant Matters Arising
1) The latest OFCOM commissioned research into technology enhancements that 4G shall bring was published on the 12th May. An extract from their web site summarises the key findings thus:
“4G mobile technologies will be able to send more information than 3G, for a given amount of spectrum. This increased efficiency means that 4G networks will be able to support increased data rates and more users. The research that we commissioned indicates that early 4G mobile networks with standard configurations will be 3.3 times (230%) more spectrally efficient than today’s standard 3G networks. To put this in context, a user on an early 4G network will be able to download a video in around a third of the time it takes today on a 3G network. It is anticipated that this efficiency will increase to approximately 5.5 times (450%) by 2020.” and “The research revealed that the capacity gain from the increased spectral efficiency of 4G technologies will not on its own be sufficient to meet the expected growth in demand for mobile data. As well as using existing spectrum more efficiently, more spectrum itself is also needed, some of which will be gained from the auction of new spectrum at 800 MHz and 2.6 GHz in 2012 – the largest ever single auction of additional spectrum for mobile services in the UK, equivalent to three quarters of the mobile spectrum in use today. Finally, mobile networks will also need to be designed intelligently to ensure the best use of spectrum. In particular, the research anticipates a greater use of small cells to meet demand in specific areas.”
2) However, this OFCOM position fails to take into consideration the consequences of breakthrough technologies emerging.
3) Accordingly, we present a Technical Challenge for the Select Committee to consider bring to the attention of OFCOM in order to determine OFCOM’s technical competence. The attached Excel file contains a string of numbers comprising 1000 samples of time domain data representing baseband spectrum composed from 11 non- integer spectral components.
4) The issue to ascertain is can OFCOM provide you with an accurate estimation of the spectral component parameters (amplitude, frequency and phase) to two decimal places. The ability of Spectrum Sensing technology to achieve this seemingly simple technical feat will provide the basis for the enabling signal processing technology to deliver a capacity gain of 100 times to be achieved. Please note that experts at both the NTIA and Stanford University (Stanford is Silicon Valley) were provided with a similar exercise and also a far harder technical challenge which both institutions failed. The test provided is for OFCOM alone.
5) What is at stake is the technical ability to process fractional or non-integer frequencies. Current spectrum processing is based on periodic or integer frequencies. Spectrum: Written evidence 11 i.e. 1,2,3,4, etc cycles per second completed over the Observation Interval. Spectrum processing of non-integer based i.e. 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 3.0 cycles per second over the Observation Interval shall enable a 10 times capacity gain and processing 2.10, 2.11, 2.13, 2.14, 2.15 etc cycles per second shall enable a 100 times capacity gain over existing techniques to be engineered.
6) In the following figure is graphed the Datod Test Signal data form the attached data file with the preferred technology the NTIA considers state-of-the art applied for spectrum estimation. . Datod Test Signal: DFT with Flat-Top Window Spectrum
20
0
-20
-40
-60
-80
-100
-120 0 20 40 60 80 100 120 140 160 180
The green lines coincide with the actual spectral frequencies in the attached data file.
7) If OFCOM cannot accurately identify these spectral components the issue they shall have to explain to you is why not and hence not just the system engineering consequences that such a technical capability shall bring but also the economic consequences.
8) The correct parametric answers with the background information leading to this development shall be published in a forthcoming Electronics World magazine article. The far harder exercises are as yet to be presented to the readership. The clear cut issue is that if OFCOM don’t understand the technical problem presented they cannot be part of the solution; as there is still some way to go to engineer a communication system.
3. Supplementary Relevant Datod Published Information
The following Datod published articles in Electronics World magazine are relevant:
a) The Spectrum Anomaly: Volume 116 Issue 1892 August 2010 b) Net Neutrality and a New Communications Act: Volume 117 issue 1898 February 2011
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4. References a) The Spectrum Anomaly: Electronics World Volume 116 Issue 1892 August 2010 b) Net Neutrality and a New Communications Act: Electronics World Volume 117 issue 1898 February 2011 c) Health and Well-Being in the Home: A Global Analysis of Needs, Expectations, and priorities for Home Health Care Technology: Commissioned by Philips and conducted by the RAND Corporation. The report is available at www.rand.org/pubs/occasional_papers/OP323.html
d) FCC: Chairman Julius Genachowski, Remarks as prepared for delivery: The Cloud: Unleashing Global Opportunities: March 24 2011 : www.fcc.gov
e) NTIA: The Spectrum Sharing Innovation Test-Bed Pilot Program Fiscal Year 2010 Progress Report: Lawrence E. Strickling, Assistant Secretary for Communications and Information: March 2011: www.ntia.gov
f) NTIA : Plan and Timetable to make available 500MHz of Spectrum for Wireless Broadband :Gary Locke, Secretary and : Lawrence E. Strickling, Assistant Secretary for Communications and Information: October 2010: www.ntia.gov
g) NTIA : Radio Spectrum Estimates Using Windowed Data and the Discrete Fourier Transform : NTIA Technical Report TR-10-470 by Roger Dalke : September 2010
h) OFCOM: The latest OFCOM commissioned survey into potential 4G spectrum technology: The reports are available at: http://stakeholders.ofcom.org.uk/market-data- research/technology-research/2011/4G-Capacity-Gains/
i) First FDA approved Ultrasound Smartphone details are at: http://www.mobilehealthnews.com/10165/fda-approves-mobisantes-smartphone- ultrasound/
j) Wearable device technology: web searchable keywords:- E-Textiles, Smart shirt
5. Appendix
The following two scanned pages are extracted from Professor Stuart Campbell’s book “Watch me grow” ISBN 9781-903258-85-5 and provide the relevant information.
Spectrum: Written evidence 13
14 Spectrum: Written evidence
Written evidence submitted by the Department for Culture, Media and Sport (SP 03)
The Committee has asked for submissions and views on the following issues:
• Whether the proposed method of spectrum allocation promotes, or hinders, competition in the provision of mobile broadband services; • whether the upcoming auction can provide value for money for tax payers and how that should be balanced with benefits for consumers; • the potential for next generation mobile internet services offered by the forthcoming availability of spectrum; • whether the upcoming auction can deliver improved mobile broadband coverage in rural areas, as well as cities; • whether licence fees for mobile operators have previously been set at appropriate levels, and how this should be assessed; • how the position of the UK compares with other countries, with regards to the allocation and utilisation of mobile broadband spectrum; • the possible impact of the auction on alternative uses for spectrum.
Summary We welcome this timely investigation into spectrum. A Communications Review is currently underway in DCMS and all the issues raised by this investigation are pertinent to the work being undertaken.
Specific points
1) Whether the proposed method of spectrum allocation promotes, or hinders, competition in the provision of mobile broadband services;
The method of spectrum allocation is by market mechanisms, specifically auctions, whereby the spectrum is allocated to the user(s) who place the highest value on the spectrum to their business (or use), thereby ensuring that the most efficient use of the spectrum is promoted. Though this might seem at first to be a competition-agnostic approach the regulator, Ofcom, as the relevant competition authority, conducts assessments of the competition effects of any spectrum auctions where relevant so that they can be satisfied that the auction is designed in such a way as to avoid distorting the market. The forthcoming European Radio Spectrum Policy Programme contains an article dealing with competition.1
In the context of the forthcoming auction of 800Mhz and 2.6GHz spectrum, Ofcom has been directed by the Government to carry out a competition assessment with regards to the future mobile broadband market and address any competitive distortion in the design of the forthcoming auction. Ofcom has carried out such an assessment and is consulting on its proposals to ensure competition in the mobile broadband market. Specifically, Ofcom is proposing an outcome where 4 viable mobile network operators
1 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0471:FIN:EN:HTML Spectrum: Written evidence 15 emerge from the auction. Viable in this instance means with sufficient spectrum to be able to compete effectively in future mobile markets and for that reason Ofcom is proposing to have caps and floors on the amount of sub-1GHz spectrum and on the overall spectrum holdings of each mobile network operator.
2) whether the upcoming auction can provide value for money for tax payers and how that should be balanced with benefits for consumers;
Ofcom’s principal duty as set out in the Communications Act 20032 is to “further the interests of citizens in relation to communications matters and to further the interests of consumers in relevant markets, where appropriate by promoting completion”. It is not in their remit to maximise revenues, nor would that be legal under European law. In line with their duties however, Ofcom will seek to keep intervention to a minimum consistent with achieving the desired levels of competition. An efficiently and effectively run auction will deliver the greatest value to the citizen and the taxpayer, through ensuring that spectrum is made available to those best placed to maximise its use
3) the potential for next generation mobile internet services offered by the forthcoming availability of spectrum;
Current mobile internet technology is generally referred to as 3G (3rd generation, referring to a technology called UMTS). The accepted 4G technologies are LTE (“Long Term Evolution”) and WiMax. Both deliver substantially greater bandwidth (faster downloads) but require larger contiguous blocks of spectrum, which is an issue for most operators using existing spectrum allocations. The combined auction of 800MHz and 2.6GHz will deliver an additional 250MHz of spectrum suitable for the delivery of next generation mobile broadband services. The spectrum is suitable for allowing coverage over wide areas (800MHz) with capacity to deal with areas of high demand (2.6GHz). It is expected that the release of this spectrum into the market will enable the roll-out of next generation mobile services from 2013 onwards.
4) whether the upcoming auction can deliver improved mobile broadband coverage in rural areas, as well as cities;
The 800MHz spectrum being auctioned has characteristics that are particularly suitable for coverage so may result in improved rural coverage. In addition, Ofcom is proposing a coverage obligation on one of the 800MHz licences, to provide services to 95% of the population. Ofcom believes that this level is proportionate, balancing the costs of providing the level of coverage against the benefits that would result. Ofcom does recognise that this would still deny services to a number of people, it has therefore invited views, along with any relevant evidence, on whether additional, perhaps more localised coverage obligations, should be set. The House of Commons recently passed a motion urging Ofcom to increase the coverage obligation to 98% of the population
2 http://www.legislation.gov.uk/ukpga/2003/21/contents
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5) whether licence fees for mobile operators have previously been set at appropriate levels, and how this should be assessed;
The Radiocommunications Agency (the predecessor to Ofcom) went through due process when it originally set the level of licence fees in 1998. Ofcom likewise followed due process when it reviewed the level of those fees in 2004. We have no reason to doubt that the method used was appropriate or correctly applied. In accordance with the Secretary of State’s direction Ofcom of December 2010, Ofcom is to re-assess the level of licence fees for 900MHz and 1800MHz spectrum after the auction. That is an appropriate time to do so as at that stage the value for similar spectrum will be known and this will be used by Ofcom as part of the process to determine new licence fees for 900MHz and1800Mhz. In any event, the direction specifically requires Ofcom to have particular regard to the sums bid for the 800MHz and 2.6GHz licences. Ofcom has set out their initial proposals for how they intend to proceed in the consultation document on the auction.
6) how the position of the UK compares with other countries, with regards to the allocation and utilisation of mobile broadband spectrum;
The UK has a competitive mobile communications market with 4 major competing mobile network operators proving voice and data services, specialist wireless broadband suppliers, several virtual mobile operators (such as Tesco Mobile and Virgin Mobile). The position with regard to spectrum allocations is one that has arisen as a result of the history of mobile development in this country.
Initially, spectrum at 900MHz was first allocated to the two (at the time) mobile operators. Later when 1800MHz became available it was awarded to four operators (with the bulk going to the new operators that are now known as T-Mobile and Orange, recently combined to form Everything Everywhere). In 2000 the UK ran an auction for 3G spectrum at 2100MHz and designed it in such a way as to result in 5 successful different bidders. The existing four operators were successful plus Three joined the market as a new entrant.
Operators without access to 900MHz have been unhappy that their spectrum with different characteristics to 900MHz (higher data rates but reduced coverage) has left them at a perceived disadvantage and have lobbied for 900MHz spectrum to be redistributed or auctioned. With the recent liberalisation of 900MHz and 1800MHz spectrum (to allow 3G technology to be used at those frequencies) there were additional concerns over possible competitive advantage of those holding such frequencies. Ofcom’s competition assessment (contained within the current consultation) concluded that operators would in future need a reasonable portfolio of spectrum at different frequencies to be credibly competitive. This is a key factor behind the proposal to introduce spectrum caps and ensure that 4 operators with appropriate portfolios result from the auction.
The tables below detail spectrum holdings at the main 3 bands used for mobile telephony (and broadband) but broadband can be delivered at other frequencies. In the UK there is spectrum allocated the UK Broadband at frequencies over 3GHz.
Spectrum: Written evidence 17
Paired spectrum allocations as at May 2010
UK Vodafone O2 Everything H3G Everywhere 900 MHz 2x17.4 2x17.4 0 0 1800 MHz 2x5.8 2x5.8 2x45* 0 2100 MHz 2x14.8 2x10 2x20 2x14.6 *Merger conditions include that JV must release 2x15MHz
Finland* DNA Elisa TeliaSonera 900 MHz 2x13.4 2x13.4 2x13.4 1800 MHz 2x24.8 2x24.8 2x24.8 2 GHz 2x19.9 2x19.9 2x19.9 2.5 GHz 2 x20 2x25 2x25 *National networks only
Germany T-Mobile Vodafone O2 E-Plus 900 MHz 2x12.4 2x12.4 2x5 2x5 1800 MHz 2x5 2x5.4 2x17.4 2x17.4 2 GHz 2x10 2x10 2x10 2x10
Italy Telecom Vodafone Wind H3G Italia 900 MHz 2x12.6 2x12 2x9.8 0 1800 MHz 2x15 2x15 2x15 0 2100 MHz 2x15 2x15 2x15 2x15
From the tables above it can be seen that there are similarities, in particular with Italy where H3G as the newest entrant again only has 3G spectrum. Ofcom’s assessment has been that the current differences in spectrum holdings between operators is unlikely to lead to consumer harm from a material distortion of competition in the short term. However, the auction design currently being consulted upon is designed to ensure that 4 viable competitive operators with sufficient spectrum holdings to be a credible spectrum wholesaler, emerge from the auction, thereby allowing operators to address perceived imbalances or disadvantages.
7) the possible impact of the auction on alternative uses for spectrum.
The spectrum at 800MHz and 2.6GHz is most suitable for mobile broadband services and it is on this basis that it is being made available.
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Demand for spectrum is increasing for a range of services other than mobile broadband. There is however other spectrum coming available that would be suitable for a range of services, for example broadcasting. This includes spectrum at 600MHz (part of the digital dividend) and geographic interleaved, sometime referred to as white space spectrum. Ofcom intend to conduct auctions for this spectrum at a future date. Increasingly licences are being made transferable and liberalised, which will allow future users to enter into commercial arrangements to acquire to have access to spectrum they require. A nascent spectrum market is still evolving in the UK and both Ofcom and the Government are taking a keen interest in how efficiently it evolves.
June 2011
Written evidence submitted by Telefónica UK Limited (SP 04)
Summary • Ofcom’s proposed Combinatorial Clock Auction (CCA), with safeguard caps, will address the competition concerns identified by Ofcom both to this Committee and in the consultation. • The proposed spectrum floors cannot be justified, based on the proposition put before this Committee and contained within the consultation. They will distort the prices paid in the auction could give rise to £1bn of unlawful state aid to “hugely resourced global corporations”3. • If policymakers include a coverage obligation, then they should also ensure that suitable backhaul products are available nationally, otherwise the objective of the obligation will not be achievable. Submission 1. Telefónica UK Limited welcomes this opportunity to respond to the CMS Committee’s call for evidence to its spectrum inquiry. Telefónica trades under the “O2” brand in the UK mobile market, serving 22.3 million customers. Our network also provides services to other “virtual” network operators, such as Tesco Mobile, which has a further 2.6 million customers. Telefónica has the smallest volume of spectrum available on a “per customer” basis. Equitable access to further spectrum for 4G is therefore of particular importance to us. Whether the proposed method of spectrum allocation promotes, or hinders, competition in the provision of mobile broadband services. Ofcom’s position before the Committee 2. An open auction should determine the most efficient assignment of scarce resources by allocating those resources to the bidders that value them the most. Ofcom’s view is that a completely open auction might lead to negative competitive outcomes. As Mr Richards put it: “We should design the auction to support four [operators] and we should let competition unfold from there..... If you didn’t do that, in a sense, you might as well just have a spectrum free-for-all, but the consequence of a spectrum free-for-all, it is almost a racing certainty that you would move to three quite quickly and possibly to two in due course. I think consumers, both ordinary individuals and businesses, would pay for that in the long term.” (3 May 2011) 3. The underlying assumption behind Mr Richards’ comment is that it is only the number of licensees that determines the intensity of competition in the market. If this were the case, the European Commission would not have approved the T- Mobile UK / Orange UK merger, as a priori, a reduction in the number of competitors would have reduced competitive intensity. The equation that determines competitive intensity is much more complex than Ofcom suggests. 4. In Ofcom’s view, the auction design itself should not be a trigger for a market consolidation to take place. Whilst Ofcom would like there to be “four players”,
3 Uncorrected oral evidence to the Committee (3 May 2011)
20 Spectrum: Written evidence
under the proposed rules if it transpires that only three players have viable investment cases and were willing to pay the reserve prices, only three players would emerge. If bidders do not have viable investment cases, it is not a legitimate concern for Ofcom. It is not Ofcom’s place to prop-up businesses with unsustainable business models. 5. Ofcom consulted on two competition remedies for the Combined Award. They are proposed in order to remove the competition concern articulated by Mr Richards: a. Safeguard caps, which limit the total holdings of specific classes of spectrum (to which Telefónica does not object); and b. Spectrum floors, which effectively ensure that there will be two “guaranteed winners” of minimum quantities of spectrum in the auction.4 On Ofcom’s reasoning this gives rise to “four players” being on the 4G market (however defined) when Telefónica and Vodafone are included. No strategic behaviour possible 6. Ofcom’s argument for the spectrum floors rests entirely on the contention at Annex 6 §5.8 of the consultation: “Those national wholesalers who currently have spectrum holdings that may enable them in the future to provide higher quality data services may have an incentive to pay more in the auction, in order to keep other national wholesalers from being able to match the services they can offer. Because of this, we consider there is a material risk that only three national wholesalers (or possibly even only two) may emerge from the combined award with spectrum portfolios that allow them an unmatchable competitive advantage in the provision of higher quality data services that are likely to be valued by consumers.” [our emphasis] 7. Ofcom’s technical analysis seeks to show that Telefónica and Vodafone have (uniquely) “spectrum holdings that may enable them in the future to provide higher quality data services”, ie it is the bidding behaviour of Telefónica (and Vodafone) which is of concern to Ofcom. 8. This appears an odd justification, as Ofcom has specifically chosen a type of auction that minimises the ability of bidders to act in such a strategic manner (it relies on this, in terms). Furthermore, the “safeguard caps” limit Telefónica to no more than 2x10MHz 800MHz in the auction. Telefónica’s bidding is therefore not pivotal to the auction outcome. It could not undertake a foreclosure strategy even if it wanted to (which it does not). 9. There is no “free-for-all”, which was Mr Richards’ primary concern. Ofcom’s CCA design and safeguard caps remove the ability for strategic bidding by Telefónica or Vodafone. 10. The CCA and safeguard caps are an efficient mechanism to allocate scarce resources to those that place value on them. There is no justification to go beyond these remedies and introduce spectrum floors.
4 The spectrum floors are specifically designed to ensure that Telefónica and Vodafone are not guaranteed to win any 4G spectrum on the erroneous presumption that their existing spectrum holdings will suffice. Spectrum: Written evidence 21
Technical justification for discriminating against Telefónica is also flawed 11. Mobile communications technology and the whole issue of spectrum is particularly complex, as Ofcom’s Chair identified to the Committee5. With regard to the issue of 2G liberalisation, reaching an evidence based decision took six years and 2,000 pages of analysis by Ofcom. Ofcom’s position quite rightly and properly moved significantly, as the factual matrix became clearer to it. This experience demonstrates the risk of regulatory failure inherent in such a complex subject. Intervention must be kept to a minimum and be soundly based in fact. 12. Ofcom’s technical analysis attempts to demonstrate that the 900MHz holdings of Telefónica and Vodafone (2x17.4MHz each) create the incentive effect set out at Annex 6 §5.8 of the consultation. 13. It is easy to demonstrate that it is not the volume of spectrum an operator has that counts, but what can be done with that spectrum. Ofcom’s presumption rests on large volumes (2x15MHz or more) of 900MHz spectrum providing Telefónica or Vodafone each with a competitive advantage in a hypothetical future 4G market. However, whilst we have 2x17.4MHz of 900MHz, the standards for LTE900 are such that only a 2x10MHz carrier is (and will be) supported in the standards, network equipment and devices. 14. There is a simple reason for this; only three6 out of around one hundred operators in Europe have more than 2x10MHz of 900MHz. Manufacturers will not make devices or equipment for such a small market of operators, there being no scale economies. This crucial fact undermines the whole basis for discriminating against Telefónica and Vodafone through the spectrum floors proposal. 15. It is unclear to us why Ofcom has not alighted on this fact in preparing its competition assessment. Negative consequences for competition and consumers arising from spectrum floors 16. If, by virtue of the auction rules, operators cannot gain access to spectrum assets they are willing to purchase, their network costs will be driven up. Less spectrum equates to more base stations, which leads to higher costs which will be passed through to consumers; whereas if others are allocated resources that they are not otherwise willing to pay for, they will accrue windfall gains. These gains will either accrue to shareholders or be ploughed back into the retail market thus distorting competition. Whether the upcoming auction can provide value for money for tax payers and how that should be balanced with benefits for consumers. 17. The “spectrum floors” proposed by Ofcom mean that at least two bidders will each be guaranteed a “minimum quantity” of spectrum. This may have three effects: a. Those bidders might only bid for the minimum quantity and acquire it at the reserve price, whilst other bidders will pay the price determined by the level of competition in the auction (this effect is recognised in the consultation); or b. If acquiring more than the minimum quantity becomes too expensive as the auction prices rise, “guaranteed winners” have the option to reduce
5 “It is simultaneously somewhat complex but exceedingly important” (3 May 2011) 6 Telefónica UK, Vodafone UK and Mobilkom Austria
22 Spectrum: Written evidence
their demand such that they acquire the minimum quantity at the reserve price, a strategy not open to other bidders; and c. The bidding activity of those bidders guaranteed to pick up spectrum (potentially only at the reserve) will still have inflated the prices paid by those bidders not guaranteed to pick up spectrum. 18. It is our strong view that this would amount to a state aid. Ofcom would be selling assets to one set of bidders at preferential rates, whereas other bidders – competing on the same market and in the same geographical areas – would be sold the same inputs at the full price determined by the auction. 19. Whilst the courts have stated that it is acceptable for the same type of spectrum to be sold at different prices7, the courts have been clear that it is not open to Member States to award spectrum to one group of licensees based on one pricing mechanism (or set of rules) and to award the same asset to another group based on a different pricing mechanism8. 20. In its consultation document Ofcom helpfully estimates the potential market value of the spectrum to be awarded. By deducting the reserve prices from these estimates, we can project the magnitude of the state aid. On this basis, the level of state aid granted would be around £1billion of tax payers’ assets. 21. We believe that such state aid is unlikely to be compatible with the EU Treaty. If such state aid were to be contemplated, then it would have to be notified to the European Commission, which recently published guidelines regarding state aid in the delivery of broadband infrastructure (the relevant product market). Those guidelines clearly state: “The Commission has taken an overwhelmingly favourable view towards State measures for broadband deployment for rural and underserved areas, whilst being more critical for aid measures in areas where a broadband infrastructure already exists and competition takes place.”9 [our emphasis] 22. If Ofcom constructs the auction so that state aid arises, it is unlikely to be compatible with the internal market. Consequently the auction would be declared null and void, causing significant delay. We would also expect there to be substantial litigation, as both winners and losers in the auction will have already disclosed their preferences and valuations, potentially distorting any future award. The potential for next generation mobile internet services offered by the forthcoming availability of spectrum. 23. The move from 3G to 4G is analogous to the migration from copper based ADSL to fibre based broadband in the fixed internet. The capacity, quality and speed of the bearer technology is vastly improved. The 2x100MHz spectrum to be sold in the Combined Award represents a c.50% increase in the supply of resources. In the long run, when all mobile spectrum migrates to 4G we would expect the total
7 For example, in France the original 3G spectrum award process led to an unsold licence, which was later sold at a lower price than the licences in the original award process. 8 See in particular the CFI in Cases T-474/04 Bouygues SA v Commission [2007] II-02097 and C-431/07P Bouygues SA v Commission [2009] ECR I-02665 at §110 of the CFI’s judgment “if the national authorities decide as a general principle that licences will be awarded free of charge, or awarded by means of public auctions or awarded at a standard price, there is no aid element, provided these terms are applied to all the operators concerned without distinction.” [our emphasis] 9 §9 of http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2009:235:0007:0025:EN:PDF Spectrum: Written evidence 23
available mobile broadband capacity in the UK to increase by between 20-40 times from what we see today. Whether the upcoming auction can deliver improved mobile broadband coverage in rural areas, as well as cities. 24. We believe that ensuring the broadest possible ownership of 800MHz spectrum will secure competition in rural coverage provision. This is why we have proposed a 2x10MHz 800MHz cap, as happened in the Swedish auction. 25. Whist coverage obligations are superficially attractive, they can have the effect of deterring entry by new players and therefore potentially reduce the level of competition in the auction. The higher the obligation (in terms of %pop. coverage and/or shorter timescale), the larger the entry deterrent effect. There is a clear trade-off to be made between encouraging more competition and securing more coverage than the market might otherwise deliver (an externality). 26. In addition, any coverage obligation will distort network investment incentives in pursuit of an arbitrary objective. We note the research from eBay regarding the untapped potential for m-commerce in both rural areas (due to coverage) and some urban areas (due to reliability and capacity issues)10. This research demonstrates the diffuse nature of the network investment challenge. 27. eBay’s commercial interest in better 4G coverage shows that there are other well funded actors in the value chain that have the incentive to contribute towards network investments. Business models will emerge that tap into these incentives. If coverage is a key driver of value for eBay and others then they should use their commercial relationships with the networks to drive investment in (their) desired level of quality and coverage. We do not believe that eBay and other content providers should leave the burden of funding the coverage externality to the taxpayer (through lower auction receipts). 28. If, notwithstanding the above, coverage obligations are included in licences then, to be effective in delivering rural mobile broadband coverage, they must go hand-in- hand with the availability of cost effective backhaul11 solutions from BT, plus the ability to use BT’s “ducts and poles”. There is little value in forcing mobile operators to build masts when those masts cannot be connected back to the core network with a fit for purpose backhaul solution. Whether the licence fees for mobile operators have previously been set at appropriate levels, and how this should be assessed. 29. Ofcom is required to have a sound factual and empirical basis for determining future spectrum fees. Ofcom’s view is that the auction may provide an indicator of “full market value” that would allow proportionate spectrum fees to be calculated. How the position of the UK compares with other countries, with regards to the allocation and utilisation of mobile broadband spectrum; what is the possible impact on alternative uses for spectrum? 30. All countries in the EU have broadly the same volume of available spectrum for mobile services, but very different numbers of potential mobile customers (i.e.
10 http://www.ebay-mediacentre.co.uk/Latest-News/ACT-NOW-ON-M-COMMERCE-TO-UNLOCK-1-3BN-BOOST-TO- ECONOMY-EBAY-fa.aspx 11 Backhaul refers to the connection between the base station and the main network of the operator. In order to move from 2G/3G to 4G, such connections will need to be upgraded to fibre based solutions in order to deliver the higher speeds and throughput.
24 Spectrum: Written evidence
population). Countries with large populations, therefore, tend to have mobile networks that are more capacity constrained than smaller Member States. This means that mobile spectrum is a particularly scarce and valuable resource for the UK’s mobile sector. 31. If there were less spectrum available more base stations (masts) would have to be built to make up for the shortfall in capacity. There is therefore a substantial environmental benefit for citizens in securing as much spectrum as possible for mobile uses. Conclusions 32. We recognise that Ofcom is keen to avoid strategic behaviour in its auction. This is achieved by a CCA plus the safeguard caps proposed in the consultation. The case for spectrum floors, as put forward by Ofcom, isn’t supported by the evidence and goes beyond what is necessary, based on the justification put forward. 33. We believe that an auction without spectrum floors will secure four players, if there are four players with viable 4G investment cases. An open and transparent auction is the best way to allocate scarce resources – taxpayers’ assets. The regulator is not best placed to predetermine which operator should get what, which is the effect of Ofcom’s spectrum floors proposal. Ofcom simply cannot second guess the efficient market outcome, it lacks sufficient technical expertise and the private information known only to bidders. The proposed provision of £1bn of state aid for, most likely, Hutchison and Everything Everywhere is unlawful and, in any event, wholly inappropriate given the current economic climate. 34. If Ofcom wishes to revisit its spectrum floors proposal, then it will need to consult on a new factual basis. Whatever remedy it proposes must not distort the prices paid in the auction. 35. Ensuring the broadest possible access to 800MHz spectrum12 will, in our view, create a sufficiently competitive environment for rural 4G coverage over time. If policymakers wish to accelerate the delivery of that coverage, through licence obligations, then the auction must allow bidders to clearly express the cost of the obligation in their bids, the current design does not do that. Any coverage obligation must be accompanied by certainty of supply for the backhaul necessary to deliver a 4G experience to rural customers. Without that piece of the jigsaw, rural customers will remain in the data slow lane.
June 2011
12 A 2x10MHz 800MHz cap in the auction, meaning that at least three players will have either LTE800 or LTE1800 to deploy nationally. Spectrum: Written evidence 25
Written evidence submitted by Inmarsat Group Limited (SP 05)
1. For over three decades, Inmarsat has been the leading provider of mobile satellite communications services around the globe. From its headquarters in London, Inmarsat has contributed significantly to the national economy and provided an ever-growing set of services, including advanced plans for mobile broadband for use at sea, on land and in the air. The life-blood of all these services is access to radio spectrum for sophisticated satellites that cost many hundred millions of pounds to build, launch and operate. For this reason, Inmarsat welcomes the opportunity to provide written evidence to the Committee as part of its inquiry into spectrum.
2. This submission concerns the following four points:
• Spectrum is critical to the satellite communications industry
• The satellite communications industry is important to the UK economy – when identifying broadband spectrum, the UK also should take into account this and other industries
• Satellite communications should be an integral component of the UK broadband plan
• Satellite operators provide other critical services in addition to mobile broadband
Introducing Inmarsat
3. We are the leading provider of global mobile satellite communications services (“MSS”). We provide data and voice connectivity to end-users for use at sea, on land and in the air.
4. Inmarsat’s mission started as an Inter-Governmental Organization providing MSS to maritime users, which include companies engaged in merchant shipping, passenger transport, fishing, energy and leisure, as well as government and maritime patrol organisations (such as navies and coast guards). Inmarsat subsequently has expanded its service portfolio and provides MSS as well to the land mobile and aeronautical sectors, with users such as government entities, media users, aid agencies, the oil and gas industries, and commercial airlines.
5. Today, as a privatised entity, Inmarsat is in the forefront of developing sophisticated new technology for satellite services. We currently operate three generations of satellites, starting with three Inmarsat-2 satellites launched in the early 1990s, five Inmarsat-3 satellites launched between 1996 and 1998, and three Inmarsat-4 satellites launched in March and November 2005 and August 2008. Each of our Inmarsat-4 satellites is up to 60 times more powerful, and has up to 16 times more
26 Spectrum: Written evidence
communications capacity than an Inmarsat-3 satellite, and the Inmarsat-4 satellites are expected to extend the commercial life of our satellite fleet beyond 2020.
6. Inmarsat is one of the two operators selected through EU procedures to provide MSS across Europe, using 2 GHz frequencies. The selection of Inmarsat’s EuropaSat system is part of EU policy to facilitate the introduction of innovative pan-European satellite communications services. In adopting the selection procedure, the European Parliament and the Council recognised that this type of new MSS system is an innovative alternative platform, which should contribute to enhanced competition and efficient investment. They explicitly referred to MSS improving coverage of rural areas and anticipated that new MSS applications will emerge in the coming years.
Spectrum is critical to the satellite communications industry
7. Use of radio spectrum is the “life blood” of satellite communications because highly expensive and sophisticated satellites must be designed for operation in the harsh space environment to operate over a lengthy lifespan using spectrum coordinated through a complex international process. Inmarsat uses spectrum below 3 GHz (the so-called “sweet spot”) and will continue to do so in the long term future.
8. For example, in November 2007, Inmarsat entered into a contract with Astrium for the construction of a new satellite called Alphasat to be deployed over the European and Middle East region. The Alphasat satellite will provide our services across the complete 41 megahertz of MSS spectrum available over this region. Alphasat's advanced digital processor capability and optimised antenna coverage will allow up to 50 percent more capacity for our services. The total cost of the Alphasat programme, including manufacture and launch of the satellite, is expected to be in the region of £215 million.13
9. Inmarsat already is planning ahead for its next generation of satellites (the “Inmarsat-5” constellation). For instance, in 2013 we expect to commence offering our “Global Xpress” service, in downlink frequencies between 18 and 22 GHz and uplink frequencies between 27 and 31 GHz. These frequencies are often referred to as the “Ka-band”. Inmarsat plans to offer connectivity at speeds of up to 50 Mbps to small antennas via our Inmarsat-5 satellites using the Ka-band.
10. These kinds of investment and technology development can only be made if there is suitable assurance that spectrum will be available during the lifetime of the satellite. Satellite registrations to obtain international recognition through the International Telecommunication Union have a lead time of up to seven years before the satellite is placed into service. Today’s sophisticated communications satellites have lifespans up to fifteen years or longer. Once launched, satellites cannot be “retuned” or modified to operate using other spectrum assignments. A threat to the availability of the appropriate spectrum means that substantial
13 This amount is taken from Inmarsat Group Limited’s 2010 Annual Financial Information Disclosure Report, with sums originally expressed in US$ converted to GBP at the prevailing exchange rate on 7 June 2011. Spectrum: Written evidence 27
investments simply cannot be made. Regulatory certainty is an important element for high upfront business planning in the satellite sector.
11. Satellite operators must also assess the availability of spectrum across the entire “footprint” of the satellite. Moreover, unlike terrestrial mobile phone operators who can choose from a variety of spectrum allocations within any single country, satellite operators must rely on a fairly narrow set of internationally coordinated spectrum bands. If a single country within the footprint decides to make spectrum available in ways inconsistent with its neighbours, it can either create unacceptable interference for satellite operations or impede the economic viability of the business case for the satellite services, or both. A failure by one regulatory authority to take into account the unique benefits of satellites services can thus deny those services to users across Europe.
The satellite communications industry is important to the UK economy
12. When identifying broadband spectrum, the UK also should take into account this and other industries. These activities are a large component of the UK Space industry, which itself makes significant contributions to the national economy. Policymakers have already recognised this contribution:
• In March this year, the Parliamentary Space Committee welcomed UK Chancellor George Osborne’s budgetary support for the Space industry in “The Plan for Growth”. The latter recognises the Space industry as “an expanding industry”, and highlights the UK Space sector’s growth average of 10% per year over the last decade. A quarter of these revenues come from the satellite telecommunications sector.
• In the foreword to the UK Space Innovation and Growth Strategy (the “IGS”) in February 2010, the Minister for Science and Innovation, stated that “the UK Space sector is a genuine success story. We’re responsible for world-class science in our laboratories and on international missions. We manufacture many of the satellites surrounding the Earth, and are experts in software design and systems integration. The sector contributes £5.6 billion to the economy and supports 68,000 jobs.”
13. Inmarsat is an important part of this Space industry that contributes significantly to the UK economy. Our 11 in-orbit satellites are licensed under the UK Outer Space Act. The majority of our 500+ employees work in London. During 2010, revenues from Inmarsat Global were £465.4 million, an increase of £42.2 million, or 10.0%, compared with 2009 (translated at 7 June 2011 exchange rate).
14. These positions highlight that there are numerous UK policy and legislative initiatives related to spectrum that should be considered as part of spectrum policy. These different societal policies must be assessed together with broadband planning to ensure the right mix of spectrum uses is fostered.
28 Spectrum: Written evidence
Satellite communications should be an integral component of the UK broadband plan
15. A central part of this inquiry is to assess how best to provide mobile broadband services, in particular for rural areas where normal networks have not been rolled out. Policymakers recognise that satellite communications must be an integral part of planning for broadband networks:
• In December 2010, the Government released “Britain’s Superfast Broadband Future,” laying out strategy for ensuring the UK’s broadband networks. The summary acknowledges that “a mix of technologies – fixed, wireless and satellite – will be needed to deliver superfast broadband throughout the UK.” It notes that satellite “will need to be a part of any solution aiming at universal coverage”.
• Most recently, on 31 May 2011, European Commission Vice President and Digital Agenda Commissioner Neelie Kroes said that satellites will play a role in achieving EU digital agenda goals. She noted that satellite communications “can provide a great contribution to deliver the important goal of basic broadband for all”. She also raised an important notion that “supporting a range of fixed and mobile solutions promotes competition among technologies, allowing them to develop their comparative advantages and ensuring that in future we can select from the best possible range of options”.
• This same thinking is well-developed in the United States. As recently as January this year, the Federal Communications Commission (FCC) recognised that the network of the U.S. satellite MSS licensee LightSquared “will be able to provide mobile broadband communications in areas where it is difficult or impossible to provide coverage by terrestrial base stations …, as well as at times when coverage may be unavailable from terrestrial-based networks (such as during natural disasters)”.
Satellite operators provide other critical services in addition to mobile broadband
16. The focus of this inquiry on mobile broadband should not obscure that many other services rely on spectrum in the same portion of the radio frequency spectrum that mobile terrestrial operators seek. Among the recommendations of the IGS that we noted above is that the Government should take full account of the wider value of Space-enabled services when engaged in activities relating to radio frequency spectrum allocation. The spectrum most in demand below 3 GHz has been a prime focus for mobile terrestrial operators, but it also is used by many other users and regulated safety services. A sophisticated approach to “co-habitation” amongst the different services is required to maximise welfare for all users.
17. As we have noted above, Inmarsat provides a wide range of services in addition to mobile broad band using its satellite fleet in frequency bands below 3 GHz: Spectrum: Written evidence 29
• In the maritime area, Inmarsat supports position reporting as a key component of fishery management and ocean resource conservation. We also provide safety services for distress purposes, some of which are required by the International Maritime Organization for cargo ships over a certain size and for all passenger vessels.
• Military and government agencies constitute the largest end-users of our services in the land mobile sector and demand reliable, high quality services. Inmarsat provides important links to support relief missions in response to natural disasters.
• Aeronautical users rely on Inmarsat satellite communications services for Air Traffic Control safety services, while aircraft crew and air traffic controllers use our services for data and voice communication between the flight deck and ground-based control facilities.
18. These are but a few of the examples of services that Inmarsat provides using spectrum in the traditional bands below 3 GHz. As part of our mission to innovate with new technology approaches, however, we also are working to expand operations in higher spectrum bands, such as the Ka-band service described above. Although part of the band is shared with fixed links, any future oriented policy for this band should also consider the use by satellite communications. Some mobile terrestrial operators seek to use these same frequencies for backhaul purposes (i.e. carrying traffic from masts back to network control centres for further onward transmission, and not between customer handsets directly). This approach needs to be addressed reasonably to ensure continued growth of the satellite sector while balancing needs of terrestrial operations.
In summary: 19. It is timely and important for the Committee to review UK policy towards the use of radio spectrum. It must consistently be kept in mind that many different industry sectors rely on spectrum, some as the major input into their services, and those industries in turn contribute very substantially to the national economy. The provision of broadband service is a compelling goal, especially to rural areas where the contribution of satellite networks can be substantial. The satellite industry also contributes to wider goals, providing services that cannot be obtained through any other networks and as a real, competitive alternative. International aspects of this industry must also be taken into account, because of the complex international regulatory structures and the export opportunities that UK satellites offer. We welcome a careful balancing of these different needs for spectrum as part of the UK broadband plan.
June 2011
30 Spectrum: Written evidence
Written evidence submitted by the Countryside Alliance (SP 06)
1. In May 2008, Ofcom published a report which assessed television, radio, internet and communication habits across the regions and nations. The report found that rural households were more likely to have broadband connections than those who live in urban areas, indicating that 59% of rural households had broadband services, compared to 57% in urban homes. There is clearly a high demand for broadband in rural areas, however rural towns and villages do not benefit from the level of competition common in urban areas due to low consumer density and poor existing infrastructure.
2. Broadband service in rural areas is often poor. The National Farmers Union ran a poll last year regarding broadband access in rural areas and results indicated around 40% of respondents reported that they couldn’t get broadband at all, while 90% who could access broadband didn’t get a reliable connection.
3. The Countryside Alliance therefore supports Ofcom's proposal to structure the release of 800 MHz and 2.6 GHz spectrum to ensure the continuation of four-player wholesale mobile broadband market.
4. It is vital that rural communities and businesses have access to effective and affordable broadband if the digital divide is not to grow even wider and rural economies are going to grow and prosper. Reliable broadband is imperative for competitive and successful enterprises in a growing digital economy. The Coalition Government has made clear its desire to make more public services available online, which provides a more cost effective means of accessing public services. However online access to public services will only work if they are accessible to all and do not exclude those in remote areas, who already struggle to access public services.
5. Farming businesses are increasingly required to meet certain obligations online, such as VAT returns, animal movements and applying for agriculture support. Farming businesses and other rural businesses can only meet these obligations if they have a decent and reliable broadband connection.
6. The Countryside Alliance therefore supports Ofcom’s proposals to apply a coverage obligation to one of the 800MHz licences, however we have urged Ofcom to increase this from 95% to 98% population coverage.
7. It is important that there is competitive roll out of broadband services, if the current problems of high prices and poor service in rural areas are to be overcome. The Alliance would like to see the spectrum auction designed to maintain as much competition as possible in the marketplace, allowing operators to compete on a level playing field to ensure market growth, which benefits consumers and ensures greater choice for those living in rural areas.
8. It is hoped that the sale will take place in late 2011. Any delay will seriously jeopardise the ability of this Government to meet a universal service commitment. The auction of the radio spectrum provides a huge opportunity Spectrum: Written evidence 31
for all the mobile companies to provide better broadband at competitive prices. However, if the auction is not structured to maintain competition, a duopoly may emerge and rural coverage will suffer whilst prices for ‘non profitable’ areas increase. Set up costs for the mobile companies to increase coverage is not going to be huge as it will just be an expansion of coverage over their current masts. There is no need to dig up the countryside which is expensive, time consuming and riddled with planning concerns.
9. Valuable low-frequency spectrum will be required to make mobile broadband accessible and affordable in the countryside, but rural users must not be left in a position where the low-frequency spectrum is monopolised by a few operators, and where only two players have the amount of low frequency spectrum required to deliver universal broadband at 2mbps.
10. The Countryside Alliance has urged Ofcom to ensure that an outcome of the auction is a competitive market to support universal coverage at 2mbps in all parts of the UK.
June 2011
32 Spectrum: Written evidence
Written evidence submitted by Hutchison 3G UK Ltd (Three) (SP 07)
Introduction
Hutchison 3G UK Limited (“Three”) is the UK's fourth mobile network operator (fifth before the merger of Orange and T-Mobile in the UK), having won the 3G licence reserved for the new entrant in the 2000 spectrum auction. Three has been instrumental in both increasing competition in the UK mobile phone market and in driving the migration to 3G technology which delivers a range of mobile broadband services. Three is the UK’s leading provider of mobile broadband carrying 50% of all mobile data (according to independent estimates) and has over 97% population coverage for its mobile data services.
Summary i. The internet is now mobile. Government and regulatory policy must therefore preserve a competitive mobile market that maximises benefits for consumers and citizens, including rollout of mobile data across the UK and enables Government to better target funding to those areas where the market will genuinely not deliver mobile broadband, such as rural areas. ii. The combined auction for 800MHz and 2600MHz spectrum must be seen in the context of the competitive distortion caused by the January 2011 liberalisation of 900MHz and 1800MHz spectrum. O2, Vodafone and Everything Everywhere each received significant benefits from liberalisation. Yet Ofcom’s proposed method of allocation does not mention this link. This distortion must be remedied through minimum spectrum packages that provide performance at least equivalent to that which O2 and Vodafone can achieve through the low frequency spectrum gifted to them. iii. Three strongly supports Ofcom’s view that competition between a minimum of four wholesale mobile operators is essential to future competition in mobile markets. Against a background of consolidation in the UK and US this is a clear and strong commitment that will stimulate investment and protect consumers. To achieve this policy objective requires a minimum spectrum portfolio that gives wholesale operators the ability to compete credibly, or Ofcom risks the possibility of other operators marginalising Three or forcing it out of the market completely. iv. Ofcom must also impose a linkage between the licence fees for liberalised spectrum and the auction prices payable in this auction. Without such a linkage, operators who benefit from liberalised spectrum will gain a financial advantage which could undermine the positive competition benefits which would otherwise arise from a reasonable spread of spectrum holdings. v. Mobile internet services are the most cost effective means of serving rural areas where there is typically no fixed internet. Improved mobile broadband coverage will be provided to rural areas in an auction that maintains a competitive market and effectively remedies the market distortion caused by liberalisation of 900MHz spectrum.
Spectrum: Written evidence 33 vi. Three supports the proposed national coverage obligation and proposes that this is further extended subject to suitable minimum spectrum portfolio. Three would be prepared to support an increased coverage obligation of 97% indoor population coverage at 2Mbps. This would guarantee mobile data services to an additional 1.2 million people compared with the 95% proposal. With government funding allocated to broadband, it may be possible to achieve over 98% national coverage.
1. Does the proposed method of spectrum allocation promote, or hinder, competition in the provision of mobile broadband services?
1.1. While Three agrees with much of the proposed method of spectrum allocation there remains the concern that the proposed allocation will fail to address the distortion of competition in the mobile market caused by liberalisation of 900MHz and 1800MHz spectrum in January 2011.
1.2. In seeking to ensure that Ofcom achieves its stated policy objectives, Three considers that Ofcom should apply three tests to ensure the preservation of competition:
• Will the Combined Auction remedy the competitive distortion arising from O2 and Vodafone's preferential access to low frequency spectrum? • Will the spectrum awarded under the Combined Auction ensure that at least four national wholesale operators are credible and sustainable competitors? • Will the Combined Auction avoid spectrum being a source of competitive distortion in the future?
1.3. Will the Combined Auction remedy the competitive distortion arising from O2 and Vodafone's preferential access to low frequency spectrum?
1.4. Ofcom’s method of allocation does not make the link between the 2012 auction of 800MHz and 2.6GHz spectrum and liberalisation. Prior to liberalisation, 3G capability (using the 2.1GHz 3G spectrum exclusively) was relatively evenly distributed between operators following allocation by competitive auction in 2000. This created a level playing field which stimulated competition between operators resulting in increased 3G rollout, lower prices and innovation and investment in new mobile services.
1.5. In January, Ofcom lifted the restriction on the use of lower frequency 2G (900 MHz) spectrum, along with higher frequency 2G (1800MHz) spectrum. Lower frequency spectrum is particularly effective in providing connections over a wider geographic area compared to existing 3G 2.1GHz spectrum. Liberalisation led to a 150% increase in the total 3G spectrum in the UK mobile market. However, the benefits have not been distributed evenly across the market and liberalisation has caused a fundamental shift in the balance of 3G capabilities of the various operators, without the benefit of a competitive process.
1.6. O2, Vodafone and Everything Everywhere (EE) have each received significant benefits from liberalisation. Three is the only wholesale mobile operator whose share of 3G capable spectrum is much less now than before liberalisation. Indeed, its share of 3G capable spectrum has dropped hugely, from 25% to just 10%.
34 Spectrum: Written evidence
Furthermore, without any holdings of 900MHz spectrum, Three and EE are the only operators that do not have access to valuable low frequency 3G capable spectrum.
1.7. Ofcom’s current proposals will not remedy the distortion in relation to access to low frequency spectrum because they may result in the fourth operator lacking sufficient spectrum to match the performance of O2, Vodafone and Everything Everywhere in terms of capacity, speed or coverage.
1.8. Almost all other Western European countries took steps, when conducting the liberalisation, to re-allocate or re-auction spectrum between operators in a more balanced way. The UK has failed to do so and has thereby given certain operators a substantial unearned competitive advantage.
1.9. Will the spectrum awarded under the Combined Auction ensure that at least four national wholesale operators are credible and sustainable competitors?
1.10. Three strongly supports Ofcom’s view that competition between a minimum of four national wholesale mobile operators is essential to future competition in the mobile market - maximising consumer and citizen benefits and the UK’s economic and social growth.
1.11. Given the increasing importance of being able to provide high quality mobile data in the current market, a credible national wholesaler will need access to sufficient spectrum to provide high quality national coverage to consumers. The other existing national wholesale operators have strong incentives to support a reduction in competition and a realistic possibility of achieving it by limiting Three’s access to new spectrum. With Three having driven 3G rollout out and lowered consumer prices the other operators would benefit substantially if Three ceased to be an effective competitive force.
1.12. It is for this reason that Ofcom must enact measures to promote competition by ensuring that there are at least four national wholesalers with a “minimum spectrum portfolio” needed to compete credibly in a sustainable manner. Three considers that the minimum packages required to provide performance at least equivalent to that which O2 and Vodafone will be able to achieve with their 900MHz spectrum are 2x15MHz of 800MHz spectrum; or 2x10MHz of 800MHz spectrum plus either 2x15MHz of 1800MHz spectrum or 2x20MHz of 2.6GHz spectrum.
1.13. Will the Combined Auction avoid spectrum being a source of competitive distortion in the future?
1.14. In addition to a minimum spectrum portfolio that enables sustainable competition, Ofcom needs to do more to avoid large disparities between holdings of different operators. Large holdings will tend to encourage inefficient hoarding of spectrum, to the detriment of competition. To address competition in the future Ofcom is proposing the introduction of spectrum caps on the amount of spectrum that operators can hold. Ofcom should revise its proposed overall spectrum cap to 2x95MHz at most rather than 2x105MHz. This would limit the largest possible spectrum holding to 33% of total available spectrum.
Spectrum: Written evidence 35
2. What is the potential for next generation mobile internet services offered by the forthcoming availability of spectrum?
2.1. New technology and applications, as well as growing consumer demand, will require ever greater amounts of spectrum. Further spectrum liberalisation will provide faster download speeds to mobile broadband customers across a wider area of the UK and support the take up of mobile broadband.
2.2. Developments over the last three years, since Three led the market to develop mobile broadband (MBB) as a mass-market proposition, have shown how rapidly the market can develop. Three anticipates that the pace of change will increase over the coming decade with the launch of 4G/LTE networks.
2.3. Over the past two years internet traffic on mobile networks has exploded, with Ofcom reporting a 2,200% increase in data traffic on mobile networks in 2009 alone. This is being fuelled by the rapid uptake of smartphones and tablets by citizens and businesses alike. Efficient, equitable spectrum allocation is necessary to sustain this growth and to provide continued connectivity to the public at fair prices.
2.4. The competitiveness of the future market will depend on operators having the right spectrum, and enough of it, to be able to service the demand. Consumers and the economy will suffer, possibly irretrievably, if the wrong decisions are made now. In particular, UK consumers will no longer receive leading, high quality mobile services at reasonable prices.
2.5. To realise the potential of next generation mobile internet services, next year’s UK spectrum auction must ensure the competition that existed prior to the decision to allow legacy 2G spectrum to be used for 3G is re-established. Before liberalisation in January Three handled 50% of UK mobile data traffic with 25% of 3G spectrum, secured in a competitive auction. After January Three now handles 50% of UK mobile data traffics with just 10% of available 3G spectrum. If the auction fails to address the spectrum imbalance created in January 2011, then there is a very real risk of higher prices, stalled rollout of new technology and market stagnation.
2.6. The chart below illustrates operators’ spectrum holdings following liberalisation in January.
36 Spectrum: Written evidence
3. Can the upcoming auction deliver improved mobile broadband coverage in rural areas, as well as cities?
3.1. Mobile internet services are the most cost effective means of serving rural areas where there is typically no fixed internet. Lower frequency spectrum can be used to deliver mobile broadband and address ‘not spots’ in rural and urban locations as well as increased in-building penetration. Improved mobile broadband coverage will be provided to rural areas in an auction that preserves and enhances competition by ensuring access to lower frequency spectrum for all operators.
3.2. As a new entrant into the mobile market Three has invested heavily in its network to extend 3G coverage. Three currently provides outdoor 3G coverage to 97% of the UK population. With just under 13,000 base stations Three possesses the infrastructure required to support low frequency spectrum and extend coverage to rural areas. If 800MHz was deployed over Three’s network 96% of the UK’s population would enjoy indoor mobile broadband coverage overnight.
3.3. Three supports the government’s objective of providing 95% indoor coverage at 2Mbps (based on a lightly loaded cell). However, under Ofcom’s proposal only speeds of around 1Mbps can be provided; speeds of 2 Mbps could be provided using 2X10MHz 800MHz. Furthermore this allocation could deliver 97% indoor population coverage without likely effect on auction prices, and enable funding from BDUK to be more effectively targeted to hard to reach areas.
3.4. Three would therefore be prepared to support an increased coverage obligation of 97% indoor population coverage at 2Mbps. This would guarantee mobile data services to an additional 1.2 million people compared with the 95% proposal. With government funding allocated to broadband, or acceptance of slightly lower auction prices, it may be possible to achieve over 98% national coverage.
Spectrum: Written evidence 37
4. Have licence fees for mobile operators previously been set at appropriate levels, and how should this should be assessed?
4.1. 900MHz 2G spectrum was gifted to Vodafone and O2 in the 1980s. It is a valuable public asset for which Vodafone and O2 each pay an annual fee of just over £12.4m. Everything Everywhere pay an annual fee of just over £33.2m for the 1800MHz spectrum they hold. Ofcom recently told this Committee that the fees should be a ‘multiple’ of this as the effect of liberalisation was to increase the value of this spectrum.
4.2. Three re-iterates the importance of maintaining the linkage proposed by Ofcom between the licence fees for liberalised spectrum and the auction prices payable in this auction. Without such a linkage, operators who benefit from liberalised spectrum will gain a financial advantage which could undermine the competition benefits which would otherwise arise from a reasonable spread of spectrum holdings.
4.3. Three supports the linkage suggested by Ofcom (800MHz prices for 900MHz and the average of 800MHz and 2.6GHz prices for 1800MHz) but notes the need to address the considerable first-mover advantages associated with early availability of this spectrum.
4.4. 900MHz spectrum is significantly more valuable in the short and medium term due to (i) earlier availability, (ii) lack of legacy problems and (iii) earlier availability of handsets. We estimate that the potential incremental cash flows for operators with 900MHz spectrum could be around GBP80–100 million per annum over the next five years, with diminishing benefits afterwards.
4.5. This translates into a net present value (NPV) of around GBP500 million over the next ten years. This is consistent with international benchmarks as higher prices were paid in recent auctions for 900MHz spectrum (Hong Kong) than for 800MHz or equivalent (Germany and US).
5. How does the position of the UK compare with other countries, with regards to the allocation and utilisation of mobile broadband spectrum?
5.1. In 1999, the UK took the lead in transforming its mobile communications market, announcing that competition was the key to the future of next generation mobile phones and seeking to encourage the entry into the market of new 3G entrants. Twelve years later, the UK's belief in the power of increased competition has been vindicated. In addition to the benefits brought by encouraging 3G market entry, Three strongly believes that a mobile market with four or more competitors is of significant benefit to consumers. The UK now benefits from materially lower prices and greater penetration of new and innovative mobile communications services.
5.2. Where 3G market entry has been successful, the revolution in 3G mobile communications has clearly demonstrated the benefits of creating effective and sustainable competition. In contrast, many other large Western European economies have not tried or have failed to support 3G market entry and create effective or sustainable competition in mobile communications services – and this has resulted in much higher prices and lower availability of new mobile services.
38 Spectrum: Written evidence
5.3. The UK is in the fortunate position in which it currently has a mobile market with four active national wholesalers, one of which is a 3G market entrant. From the evidence available, this would appear to be the optimal competitive situation, to the benefit of UK consumers. However, following 2G liberalisation, the UK now has the most unequal holdings of mobile spectrum in Western Europe. It may be argued that the UK is now at risk of becoming an anti-competitive market. Ofcom must remedy this via the combined auction.
5.4. The lack of speed with which the UK has sought to allocate spectrum to facilitate the provision of 4G services risks its status as a world leader. The US currently offers 4G LTE services yet the UK is still some way off achieving this. Further legal challenges by operators could delay spectrum allocation even further. Parliament must support Ofcom, even if opposed by other operators, in the timely allocation of spectrum to ensure that the UK remains competitive.
6. What is the possible impact on alternative uses for spectrum?
6.1. There exists a number of alternative, valuable uses for spectrum with particular regards to PMSE use (800MHz) and Olympic use (2.6GHz). Three respects the right to alternative uses of spectrum and fully supports Ofcom's measures to make spectrum available for such uses. However this must not further delay the availability of 800MHz and 2.6GHz spectrum for mobile use, as required by international harmonisation commitments.
June 2011
Spectrum: Written evidence 39
Written evidence submitted by the Federation of Communication Services (SP 08)
Summary The FCS understands the objective of releasing the 800 MHz and 2.6 GHz spectrum is to ensure rapid and maximum deployment of mobile broadband. • The FCS is concerned that there will continue to be barriers to entry into the UK mobile broadband market. • The spectrum packages should contain adequate spectrum for each national licensee and a minimum of 2x10 MHz of 800MHz spectrum to enable a healthy fourth operator to compete effectively. • There is concern that the proposed coverage obligations do not appear to guarantee better geographic coverage than currently achieved for voice services. We propose that the obligations are extended to include geographic coverage of important public transport routes. • The licences should include an obligation to support roaming between providers. This may help to improve the service coverage available to consumers. • Rapid delivery of services requires regulatory oversight and FCS suggests wholesale access obligations on the licensees and national roaming between the networks. • FCS supports an allocation for sub-national RANs to encourage niche services and argues that there may be a role for setting aside sufficient spectrum to ensure that the Critical National Infrastructure has broadband spectrum for the future, following the example of the USA. • The use of auctions for spectrum assignment may not be appropriate in cases of services of public interest such as the Critical National Infrastructure. • The band 821-832MHz is not included in the current award. This is clearly a potentially important future opportunity into which other types of services could be deployed. We would expect that a full analysis of other uses, particularly services of public interest, will be necessary prior to any policy of a future auction of this spectrum being established.
Introduction The Federation of Communication Services, FCS, is the trade association for the communications services industry representing 320 member companies who deliver products and services by means of wireless, copper and fibre. The majority of FCS members are affected in some way by this consultation and we are pleased to have the opportunity of offering this response. The views that we put forward are from FCS members who are: Existing and potential new entrant mobile licensees Mobile service providers and resellers of mobile services who wish to deliver mobile broadband to their customers Providers of services to the critical national infrastructure and business radio Each of these companies is able to support the government’s growth agenda by delivering service either to business customers or the general public or both.
40 Spectrum: Written evidence
Key issues In its recent consultation, Ofcom has carefully set out its objectives and stresses the importance of promoting competition and delivering wide coverage of services, which we applaud. These objectives combine to deliver both UK Government and European requirements for mobile broadband. However it is unclear when full mobile broadband service will be delivered. Once the spectrum is released and network operation is started commercial delivery is probably up to 5 years away and the challenge is to ensure rapid deployment.
Spectrum packages Ofcom’s own research in The Measuring Mobile Broadband in the UK report [May 2011]: http://stakeholders.ofcom.org.uk/market-data-research/telecoms- research/broadband-speeds/main/mobile-bb-10 demonstrates that dongles and data cards have limitations when delivering data over 3G and that, even though network optimisation can maximise service, there is increasing customer demand. The spectrum released by the proposed auction should support projected demands into the next decade.
Ofcom has proposed that in line with the current public mobile market there should be a minimum of 4 national wholesale licensees and up to 10 shared low power licensees14, which maintains Ofcom’s infrastructure competition policy.
In this scenario, Ofcom’s high level rules for spectrum floors, safeguard caps and spectrum set aside for sub-national operators appear reasonable.
The spectrum packages proposed in this award could be combined with existing spectrum holdings of the four current national wholesalers and/or those released by the Everything Everywhere entity. All providers would need to be able to support an equivalent service to maintain the fair infrastructure competition principle. A healthy fourth operator will require a minimum of 2x10 MHz of low frequency spectrum to be able to compete effectively as Ofcom says it wishes.
Mobile competition at the retail level The FCS believes it is crucial to ensure a healthy competitive retail market so that customers across the UK can easily access current and new services and applications. The FCS retains the view that there continue to be barriers to retail competition in the mobile sector that are not experienced in the fixed broadband market.
Wholesale access obligations to ensure rapid delivery Ofcom and Government are clear that this award is critical to the delivery of mobile broadband, but receipt of services by customers is not certain. The FCS is inclined to favour fair and equivalent regulated access to national wholesalers either as a spectrum licence condition or as a consequential regulatory measure in the event that wholesale access is not forthcoming for the scenario of competing national licensees.
National roaming A national roaming obligation among competing licensees would ensure that mobile broadband is delivered where needed. There are already roaming obligations for access to 999 and 112 calls, which demonstrates that this is technically possible. Ofcom would
14 It is not clear how the number of 10 low-power licences was determined. Spectrum: Written evidence 41
need to ensure that fair termination rates are set without any delays due to reference to the Competition Appeals Tribunal, but this approach would help to satisfy “not spots” and “patchy access”. Mandatory national roaming would avoid consumers having to purchase mobile services from a particular carrier on the basis of coverage; it would also reduce the problem of consumers being sometimes reluctant to port away from one network operator to take advantage of new services on a different network in case the coverage of the new operator is not as good.
Role of auctions While auctions will be suitable for the national commercial wholesale operators, as in this case to encourage roll out and use of mobile broadband, we do not support allocation of spectrum by auction for every type of licence and noted that in Ofcom’s draft annual plan 2011/12 section 3.8 et al, Ofcom now recognise “The market alone is unlikely to secure efficient allocation and use of public assets like spectrum and numbering in all cases”.
Once spectrum is released by auction into the market place it is difficult to recover unless rules on “hoarding without use” are brought into play.
Other licensees Ofcom accepts that national wholesalers may act to constrain entry by sub national RANS and as the competition regulator should act to negate this tendency.
We believe that there is demand for sub national RAQNS/low power licences. DECT guard band licences acquired by auction in May 2006 are in use and providing useful services to consumers and business customers in niche markets. The proposal for 10 licences (although this number is not clearly justified) would be supported by existing and potential new licensees. The FCS Mobile 200 group of DECT guard band licensees has demonstrated that competing licensees can work together to develop an engineering co-ordination code of practice which currently operates effectively for the licensees. This template could be brought into play for the new low power spectrum licensees.
Ofcom has not considered the requirements of other potential licensees that require national coverage but for whom the service levels of public mobile telephony services are inadequate for some of their functions. The Critical National Infrastructure community including the utilities, transport and emergency services require certain access to spectrum to fulfil their primary legal obligations. Each of these sectors has time limited obligations set by government and European policy, where communications that are both self provided and publicly available are required.
The railways are one example and quoting from the submission to Ofcom’s consultation by Network Rail:
“The railway, in common with other critical national infrastructure, relies on high- quality, highly reliable telecommunications. The quantity and quality of information needed to run the network safely and efficiently is set to continue to grow as signalling, passenger information and train management become increasingly sophisticated to deliver the railway Britain’s economy needs.
42 Spectrum: Written evidence
Currently, GB mainland railway operational communications, to train drivers and key staff, is delivered using legacy analogue radio systems, which are gradually being replaced by GSM-R. All of these systems are built upon a common foundation of good quality, dedicated radio spectrum. This is however just one system element required to deliver a mobile communication system fit for purpose. The next generation of operational mobile communications, such as Automatic Train Operation and In-Cab CCTV, will require even more intensive data flows.
Auctioning spectrum to commercial users makes sense if we want to maximise government’s revenues. However, requiring providers of critical national infrastructure to compete with mobile telephone operators risks either under- providing essential spectrum, or over-paying for it.
Maximising income from the auction must be set against the cost to essential public services of doing so. Network Rail’s income is made up of direct grant from government and income from train operators, many of whom are in receipt of public subsidy. Most other critical national infrastructure is publically funded; forcing competition between essential public services and commercial operators is unlikely to deliver value for money.
One way to proceed would be to reserve sufficient spectrum for critical national infrastructure. This approach has been followed in the United States and ensures that revenue from commercial operations is maximised and the public interest protected.
If this approach is not followed, in favour of a conventional price-led auction, it is likely that critical national infrastructures may have to buy mobile data services from commercial operators. This would be problematic, because the specifications of the two types of use are quite different. The railway requires extremely reliable and high-quality communications, well beyond what is required for mobile telephone networks. If a mobile telephone signal is weak it is an irritation; if a train with in-cab signalling loses contact with the control centre it would cause significant delays to multiple trains; in the worst-case scenario it could become a safety risk.
In summary, we believe that auctioning spectrum is appropriate for commercial users but not critical national infrastructure or emergency services users. The different specifications required, as well as value for money for taxpayers, mean that to require Network Rail and others in a similar position to compete with mobile telephone services risks under-specifying or over-paying, or both. Reserving a proportion of the spectrum for critical national infrastructure would enable the government to maximise revenue from commercial operators without denying essential public services’ rather different telecommunications needs. This approach could either be achieved through direct access to suitable spectrum, or by applying public service commitments to some of the auctioned spectrum”
Spectrum: Written evidence 43
Answers to specific questions
1 Whether the proposed method of spectrum allocation promotes, or hinders, competition in the provision of mobile broadband services;
The FCS stresses the importance of competition at the retail level.
For either of the spectrum package scenarios set in Ofcom’s consultation the crucial means of delivering mobile service to customers is to ensure a healthy competitive retail market so that customers across the UK can easily access current and new services and applications. The FCS retains the view that there continue to be barriers to retail competition in the mobile sector that are not experienced in the fixed broadband market.
The FCS notes that the assignment of spectrum through an auction process may be efficient in economic terms for commercial uses such as public mobile telephony however, it is not the only way to assign spectrum. Were any part of the spectrum to be considered to be valuable for other services the FCS would recommend that other assignment processes be used for that part. In the particular case of spectrum to be used for services of public interest the FCS believes that auctions are inappropriate and a more “directed approach” to satisfying these needs be taken.
2 Whether the upcoming auction can provide value for money for tax payers and how that should be balanced with benefits for consumers;
The Ofcom approach appears to only consider assignment by means of an auction process. There appears no substantive wider consideration of the total value to the UK that might be achieved by this spectrum were some of it to be used for other purposes. This approach may be in danger of failing to identify other uses that might provide better value for tax payers.
The use of some of the spectrum to provide services of public interest that UK citizens will need for the foreseeable future and which may be very difficult to support by other means is a case in point. The 800MHz spectrum bands could provide excellent geographical coverage opportunities for these services at modest cost. Whereas, the auction appears to seek to place these frequencies into the same class of use as the 900MHz band which today does not provide total geographical coverage. The coverage obligations within the Ofcom consultation proposals will not (and are not intended to) guarantee good coverage on a geographical basis. Therefore it is not clear why improved geographical coverage should be expected as a result of this auction, especially for broadband services which will require even higher levels of infrastructure investment.
In addition to the points relating to operational efficiency in Network Rail’s response to the Ofcom consultation (noted above), the needs of rail passengers to use broadband services while travelling are important. There is likely to be strong economic advantages to the UK to having the rail passengers to work efficiently while travelling. This will require good coverage along the railway lines which include rural geographies. The specification of coverage in terms of population density may not align well with the UK Government’s growth agenda. The use of mobile communications and especially mobile broadband communications may be extensive while travelling on trains (for
44 Spectrum: Written evidence example). Coverage for on-train communications is already acknowledged to be inadequate (see section 6.7 of Ofcom’s consultation) and the proposed coverage specification appears to not address this.
To alleviate this potential shortfall it may be preferable to examine a coverage obligation that seeks a high level of population to be addressed while at the same time specifically providing adequate broadband service to the railway and other critical transport routes throughout the UK. Thus the 800MHz licensee may be obligated to meet the population coverage requirement with specific geographical obligations also (perhaps along transport route lines). As an incentive they may be offered more radio spectrum.
3 The potential for next generation mobile internet services offered by the forthcoming availability of spectrum;
The FCS wishes to highlight the opportunity presented by having low-power assignments included in the available packaging. Shared access could be arranged in similar to the DECT guard band licensees through the development of an engineering code of practice co-ordinated by their trade association and in addition would benefit from mandated roaming. It is not clear how Ofcom settled on the total of 10 low power licences and we suggest that there is no limit on the number of low power licence holders if they are to be allocated by auction. However Ofcom’s policies to encourage competition and maximum spectrum use should not be restricted by limiting leasing and trading among the low power licensees. We question whether 2Mbps is sufficient and whether 6Mbps would be a more suitable threshold
4 Whether the upcoming auction can deliver improved mobile broadband coverage in rural areas, as well as cities;
The FCS notes that the proposed packaging of the spectrum is rather small for some of the options in the 800MHz band. This will severely curtail the extent to which good mobile broadband services can be delivered to many users outside the reach of the 2.6GHz network. In other words, the FCS is concerned that the proposed packaging arrangement will make a two-tier society quite likely in the UK. The urban-based group would have access to mobile broadband where they live but the other group would not able to take advantage of those same service levels. Taking in to account that these same people may remain similarly challenged in getting quality broadband access through wired means for the foreseeable future, this is a very serious impediment for the realisation of the UK Growth Agenda.
The FCS notes it may very well be possible to deliver services at a relatively slow data rate to many places using this spectrum. But, this slow rate will restrict the available services and consequently the uptake. The operators having licences for these smaller 800MHz packages will thus be placed in a difficult commercial position and their customers will remain largely poorly served if that spectrum is all they have to rely upon.
The FCS urges that the smallest 800MHz package sizes are reconsidered and a minimum of 2x10MHz introduced (as suggested under Option 2 noted in table 5.1 the Ofcom Consultation). Spectrum: Written evidence 45
5 Whether licence fees for mobile operators have previously been set at appropriate levels, and how this should be assessed;
The FCS makes no comment on this.
6 How the position of the UK compares with other countries, with regards to the allocation and utilisation of mobile broadband spectrum;
The FCS makes no comment on this.
7 The possible impact on alternative uses for spectrum.
Ofcom has not considered the requirements of other potential licensees that require national coverage but for whom the service levels of public telephony services are inadequate for some of their functions. The Critical National Infrastructure community including the utilities, transport and emergency services require certain access to spectrum to fulfil their primary legal obligations. Each of these sectors has time limited obligations set by government and European policy, where communications that are both self provided and publicly available are required.
It is also noted that the specification of coverage by population significantly reduces the likelihood that the public networks resulting from this award will be usable for mission- critical communications by the emergency services (and others). Whilst these users will no doubt continue to use public services on a best-efforts basis, the coverage specification proposed within the award appears to confirm that a further series of spectrum arrangements will be necessary to meet the future needs of the emergency services.
In relation to indoor reception, the current rules restricting the use of cell enhancers etc. imply that the mobile network operator must make provision for indoor coverage. This may prove challenging at 2.6GHz due to the high frequency and the absorption of the signal by modern building materials.
In this context it is important to note that measures taken under the carbon agenda to improve temperature control by shielding the glass (for example in railway carriages and commercial and domestic buildings) have the unfortunate side effect of reducing the likelihood of adequate signal reception. Broadband connectivity has been achieved within carriages by some Train Operators through the use of access equipment but this has been done with WiFi technologies and not mobile technology. Mobile radio network reception has been left unaddressed due to the regulations banning enhancers.
The band 821-832MHz is not included in the current award. This is clearly a potentially important future opportunity into which other types of services could be deployed. We would expect that a full analysis of other uses, particularly services of public interest, will be necessary prior to any policy of a future auction of this spectrum being established.
June 2011
46 Spectrum: Written evidence
Written evidence submitted by the Northumberland National Park Authority (NNPA) (SP 09)
Submission This submission is provided by the Northumberland National Park Authority (NNPA).
NNPA has the responsibility to look after Northumberland National Park - one of ten national park authorities – special purpose local authorities established to conserve the landscape, heritage and wildlife of the area and to provide opportunities for people to enjoy and understand it. We are also committed to supporting the local economy in and around our borders to ensure a thriving, living countryside for future generations. The issues and suggested solutions NNPA raise for Northumberland National Park are relevant to the other English National Parks and this submission is made on behalf of the English National Park Authorities Association.
Our concern is specifically focused on the question of whether the upcoming auction can deliver improved mobile broadband coverage in rural areas.
NNPA was advised by GreySky Consulting Ltd on the specific technical issues involved in this submission.
Our submission is informed by data on 2G and 3G mobile service access obtained as a part of our residents’ survey completed as part of our intelligence used to update planning policies under the local development framework for the Northumberland National Park. This survey shows that many of the communities in the National Park suffer from an absence of any mobile phone coverage (see Map 1).
We believe that without changes to the current proposals the communities of our rural areas are again likely to miss-out from access to modern communication technology which is ironically becoming increasingly necessary in these areas as the cost of providing essential public services in the more traditional manner becomes less cost effective.
In addition, England’s National Parks offer recreational and holiday experiences for over 100m visits pa. This forms a vital component of the national tourism offer. This business sector is increasingly competitive and without access to new generation technology the sector (dominated by private sector micro-businesses) will undoubtedly suffer and miss growth opportunities.
We also believe that with a small number of modest but important changes the current draft proposals offer a generational opportunity to enable rural areas to move forward with the rest of the country and address past inequalities. These recommendations are summarised on the following page and the rationale is explained in the body of the main report.
Spectrum: Written evidence 47
Summary of Recommendations
Recommendation 1 Bidders for the A3 frequency block of the 800 MHz spectrum are required to submit plans as to how they will achieve the 95% coverage obligation detailed to local (county) level.
Recommendation 2 Changing the specification of the obligation to require a minimum signal strength, rather than 90% probability of indoor reception.
Recommendation 3 The holder of the A3 frequency block in the 800 MHz spectrum must be required to provide open retail access to the wholesale services delivered over this frequency.
Recommendation 4 Bidders for the A3 frequency block of the 800 MHz spectrum should be required to submit details of how they will deliver open retail access to the wholesale services they provide over this frequency block, and to allow wholesale providers of geographically complementary services to access this open retail market.
Recommendation 5 The geographic coverage obligation of the A3 block in the 800 MHz spectrum should also have an obligation to provide wholesale access to these services to all retailers – including the retail arms of their wholesale competitors.
Recommendation 6 The “90% probability of indoor reception” element of this specification is not easily verifiable and should be replaced by a definition as a minimum signal strength which can be more transparently measured as a 90% probability of indoor reception for the 800 MHz frequency. This represents the same level of coverage, but in a more easily verifiable form.
Recommendation 7 There should be a local (county) level breakdown of the overall national delivery to allow effective verification at local level.
Recommendation 8 Bidders are required to submit competitive plans at local (county) levels as a part of the bidding process for block A3 of the 800 MHz spectrum.
Recommendation 9 Other wholesale providers should be enabled to have access the full retail market.
Recommendation 10 That provision of 4G services in rural areas should be significantly enhanced by establishing a central trading capability to enable all retail providers to access wholesale services delivered through the A3 block and encourage innovative solutions.
Recommendation 11 To include the requirement to provide retail access to wholesale services in rural areas with the other obligations associated with the A3 block.
Recommendation 12 To require bidders for the A3 block of the 800 MHz spectrum to submit as a part of their bid the technical and operational details of how they will ensure open retail access to services delivered over the A3 frequency block, and how they will allow wholesale providers of geographically complementary service to access the same retail market.
48 Spectrum: Written evidence
Map 1
Lack of Mobile Phone Usability in Northumberland National Park 2010
Spectrum: Written evidence 49
Summary Ensuring the maximum geographic coverage of the 800 MHz spectrum is of critical importance to rural communities and the rural economy.
We support Ofcom’s proposal to include a geographic coverage obligation with the A3 frequency block of the 800 MHz spectrum as an effective way of ensuring efficient investment in infrastructure in the 4G mobile market.
We support Ofcom’s proposal to set the level of the obligation at 95% of the UK population and 2 Mbps downlink speed.
Recommendation 1 We suggest that bidders for the A3 frequency block of the 800 MHz spectrum are required to submit plans as to how they will achieve the 95% coverage obligation. These should be detailed to local (county) level to enable more equitable solutions to be delivered across the whole of the country. The plans for the winning bidder would form an integral part of the specification of their obligation.
Recommendation 2 To improve verifiability of the obligation, we recommend changing the specification of the obligation to require a minimum signal strength, rather than 90% probability of indoor reception.
We do not support Ofcom’s belief that ensuring four credible national wholesale competitors is sufficient in itself to ensure retail competition in rural areas.
Recommendation 3 We believe that the holder of the A3 frequency block in the 800 MHz spectrum must be required to provide open retail access to the wholesale services delivered over this frequency.
Recommendation 4 We suggest that bidders for the A3 frequency block of the 800 MHz spectrum should be required to submit details of how they will deliver open retail access to the wholesale services they provide over this frequency block, and to allow wholesale providers of geographically complementary services to access this open retail market.
It is important that the terms, conditions and obligations of the licences are effectively enforced. We support Ofcom’s proposals to include effective and proportionate penalties to ensure their ability to enforce the licence requirements.
Overview
Our review of the approach proposed by Ofcom for the upcoming auction of 800 MHz and 2.6 GHz spectrums is focused on their impact in rural areas, and whether the approach is appropriate to the specific demands of rural areas.
Two issues are of paramount concern in our review – the impact of the approach to maximise geographic coverage of services to consumers, and the impact of the approach on competition, particularly retail competition, and specifically in rural areas.
50 Spectrum: Written evidence
Our comments are principally focused on these two areas, with additional comments regarding enforceability.
The 800 MHz spectrum is of greatest significance in rural areas due to the technical characteristics of the frequency compared to the 2.6 GHz spectrum. Our comments are restricted to the auction of the 800 MHz spectrum.
Competition
Retail competition is essential to the provision of affordable, innovative services to consumers. The consultation document focuses on the requirement to have four credible national wholesale competitors as a means to ensure wholesale competition, and as a result retail competition. We believe this is credible for urban areas. However, in rural areas we believe this is unlikely to serve the needs of consumers in the short term, or be sustainable in the long term.
We believe it is unlikely, and undesirable that four credible national wholesale competitors will exist in rural areas.
The expectation that four national wholesale competitors is sufficient to maintain retail competition in rural areas appears to require the assumption of a single UK-wide market to be correct. We believe this assumption is already fragile, and will not be sustained in the medium and long term without additional measures to those proposed. We believe that the approach to ensure widespread geographic coverage will put direct pressure on the single UK-wide market at the wholesale level, forcing a split between urban and rural markets. This position is already beginning to emerge in the fixed broadband market and we expect 4G mobile services to follow without further measures to avoid this.
If the rural provision of wholesale 4G mobile services becomes a separate market at wholesale level, then the current proposals appear to have no mechanisms to ensure any retail competition in this market.
Since wholesale providers maintain 42% and retail providers only 17.5% of the overall value in the mobile communications market, we believe that even if a level of retail competition is maintained, it may not be sufficient to ensure competitive pricing in rural areas without an effective UK-wide market condition.
The A3 block in the 800 MHz spectrum is critical to the provision of rural services. The factoring of the geographic coverage obligation into this frequency block ensures that the holder will be required to deliver services to many rural areas. It will be inefficient if competitive forces require other wholesale operators to replicate this service provision in areas of low demand capacity. Better to encourage them to provide geographically complementary service provision.
Recommendation 5 We believe that the geographic coverage obligation of the A3 block in the 800 MHz spectrum should also have an obligation to provide wholesale access to these services to all retailers – including the retail arms of their wholesale competitors. We believe this is necessary to maintain a single UK-wide market at retail level, and central to maintaining effective retail-level competition. Spectrum: Written evidence 51
Geographic Coverage
The principal objective in terms of geographic coverage is to achieve maximum geographic reach for the majority of consumers.
We are concerned that the past arrangement for 2G and 3G failed to address issues of market failure in deep rural areas – including the 10% of England covered by the national parks. In Northumberland National Park many of the communities suffer from an absence of any mobile phone coverage. This information is from our residents’ survey completed as part of our intelligence used to update planning policies under the local development framework. In some cases those areas without mobile phone coverage are where mobile phone masts were granted planning permission but the telecom companies failed to install the infrastructure – i.e. clear evidence of market failure.
The consultation document suggests that 2G mobile services have achieved 97% coverage of the UK population. This is not supported by our research. We believe that this is the aggregated coverage of all wholesale service providers and does not represent the coverage achieved by consumers. We suggest that coverage should be measured in terms of what a normal consumer with a single retail contract can experience. Our research identified that in many areas that do have some mobile phone coverage, local businesses are required to have up to five handsets to ensure access – this clearly is no way to expect businesses to operate in the 21st Century.
2G mobile services are delivered principally by four national wholesale competitors. These are supplemented by many more retail competitors. This is very effective in urban areas, but far less effective in rural areas. Retail choice for rural consumers is constrained by the coverage profile of wholesale providers in their area. We suggest that this situation should be avoided as far as possible in the mechanism for the 4G spectrum auction and subsequent management.
We support the proposal for a geographic coverage obligation on only one frequency block in the 800 MHz spectrum presents an opportunity for a far more efficient infrastructure investment model for rural areas than is currently observed in UK mobile markets. This proposal will also enable government to focus its ‘subsidy’ incentive to the areas of greatest market failure.
To ensure effective bidding for the A3 block, it is important that the cost and commercial return of satisfying the geographic coverage obligation is easily evaluated as part of the bidders’ preparations. Ofcom’s analysis suggests that 95% of the UK population can be covered using the 800 MHz spectrum from existing mobile sites. We support Ofcom’s proposal that 95% coverage of the UK population is an appropriate level for the obligation.
For the obligation to be effective, it must be clearly specified at the outset, verifiable and enforceable. Ofcom’s proposed specification is largely effective:
52 Spectrum: Written evidence
“An obligation to serve by the end of 2017 an area in which 95% of the UK population lives, while providing a sustained downlink speed of 2Mbps with a 90% probability of indoor reception.”
Recommendation 6 However, the “90% probability of indoor reception” element of this specification is not easily verifiable. We suggest that this is better defined as a minimum signal strength. This can be calculated to correspond to 90% probability of indoor reception for the 800 MHz frequency, and so represent the same level of coverage, but in a more easily verifiable form.
Recommendation 7 Although the 95% national coverage is verifiable, this verification would represent a significant undertaking at national level. We suggest that a local (county) level breakdown of the overall national delivery will allow effective verification at local level. These two changes (recommendation 6 and 7) would empower local communities and their elected representatives to hold large multi-national companies to account for their delivery of vital access services.
Imposing geographic coverage levels at local levels will impose different restrictions for different potential bidders depending on the distribution of their existing sites – essentially imposing a greater than 95% coverage obligation. This is not considered appropriate.
Recommendation 8 We suggest that bidders are required to submit competitive plans at local (county) levels as a part of the bidding process for block A3 of the 800 MHz spectrum. This would seem to be consistent with the government’s wider localism agenda. These plans will present how they will achieve 95% coverage of the UK population. This flexibility will allow all bidders to compete on an equal basis, and the submitted plans will form a part of the specification of the locally verifiable coverage obligation for the winning bidder.
Ensuring access by all retail providers to wholesale services in the A3 frequency block is necessary to ensure efficient market investment in infrastructure in rural areas. We believe this will allow further investment in rural areas to be geographically complementary, though further measures will be required to encourage this.
In the UK fixed broadband market, BT is the dominant operator of infrastructure in rural areas. Because BT wholesale allows retail access to their infrastructure, strong retail competition persists and good utilisation is made of their infrastructure. However, other wholesale providers are not able to access this retail market. Consequently there is little wholesale competition in rural areas and differential retail pricing is emerging between rural and urban areas. It is also difficult for small-scale infrastructure projects to provide greater geographic reach because they do not have access to the retail ISPs to sell services over their networks.
Obliging the A3 frequency block holder to provide retail access to its services will ensure that 4G services match the position of the fixed broadband market by ensuring all retail service providers have access to good geographic coverage through a single efficient infrastructure investment.
Spectrum: Written evidence 53
Recommendation 9 We believe it is also highly desirable to encourage other wholesale operators to provide geographically complementary infrastructure, and selected areas of competitive infrastructure in rural areas where there is strong capacity demand. We believe this will be most strongly encouraged if other wholesale providers can access the full retail market.
In the fixed broadband market, BT does not allow other infrastructure providers to use its platform for connecting ISPs (the retail providers) with its infrastructure.
Recommendation 10 We believe that provision of 4G services in rural areas will be significantly enhanced by establishing a central trading capability. This capability will allow all retail providers to access wholesale services delivered through the A3 block. It will also allow other wholesale operators to “sell in” wholesale capacity into the single platform used by retail providers to obtain services – providing a trading mechanism to ensure efficient utilisation of geographically complementary infrastructure investment. We believe this will encourage innovative solutions to evolve and for them to be commercialised across the whole of rural England.
Recommendation 11 We believe it is appropriate to include all requirements associated with achieving strong geographical coverage with the A3 block of the 800 MHz frequency. Hence we believe it is appropriate to include the requirement to provide retail access to wholesale services in rural areas with the other obligations associated with this block.
Recommendation 12 As with achieving the 95% coverage requirements, we believe it is appropriate to require bidders to submit proposals as to how they will deliver these obligations. We suggest that bidders for the A3 block of the 800 MHz spectrum should be required to submit as a part of their bid the technical and operational details of how they will ensure open retail access to services delivered over the A3 frequency block, and how they will allow wholesale providers of geographically complementary service to access the same retail market.
Enforceability
It is essential that the obligations associated with the spectrum licences are effectively enforced. We support Ofcom’s proposals to include measures that ensure the achievement of all obligations are verifiable and enforceable.
Effective enforcement requires proportionate penalties to be available. We support proposals to allow spectrum allocations to be revoked at any time for significant failures to meet obligations. We also support proposals to allow fines to be imposed where these represent a more proportionate approach.
June 2011
54 Spectrum: Written evidence
Written evidence submitted by the British Entertainment Industry Radio Group (SP10)
• Demand for PMSE services is continuing to grow, whilst PMSE access to spectrum is being further eroded • Access to sufficient quality and quantity of spectrum is vital to the continuing operation of the PMSE sector • PMSE’s eviction from the 800MHz has caused significant disruption to the sector • Future sell-offs of the 600MHz or 700MHz bands would lead to market failure in the PMSE sector • The PMSE sector delivers financial, cultural and social benefits to UK citizens and consumers; it is essential that these benefits are balanced against the potential financial windfalls of selling-off spectrum.
Introduction
BEIRG is an independent, not-for-profit association that works for the benefit of all those who produce, show, distribute and ultimately consume content made using radio spectrum in the UK. As such it advocates the interests of the Programme Making and Special Events (PMSE) sector in the UK.
The PMSE sector is responsible for both content production and content delivery for live and recorded entertainment. It plays a critical role in the ongoing success of the British entertainment and creative industries. It consists of a wide and diverse community, both professional and amateur, including broadcasters, theatres, freelance engineers, rental companies, schools, houses of worship, and organisers of events large and small; all of which use spectrum to relay sound and/or picture data across relatively short distances. This allows, for example, wireless microphones to be used on stage in musical theatre, and at events such as Live 8 and the Olympics. These wireless technologies are used extensively in the production of entertainment content, adding significant value to production. As an Independent Report commissioned by Ofcom notes, there are productions that are simply ‘not possible without using wireless technology’15.
The entertainment industry contributes at least £15 billion annually to the UK economy. This is a growing industry with an ever increasing importance for the UK economy and cultural reputation. For example, in 2009 (the last figures available) revenues and attendance at London theatres reached their highest ever. Gross box office revenue was over £500 million, with over 14 million attendances at shows16.
This submission addresses how the Government is proposing to increase the radio spectrum available for next generation mobile (wireless) broadband and the impact of these proposals on the PMSE sector. BEIRG believes the benefits that PMSE brings to consumers and the economy must be considered of equal value to the financial gains which may be made by auctioning the spectrum. This submission also addresses the future demand for spectrum by broadband providers, and the dangers posed to PMSE by white space devices, which are seen by some as a means to increasing mobile internet access.
15 http://www.ofcom.org.uk/research/technology/research/sectorstudies/entertainment/entertain2028.pdf section 7.1 16 Society of London Theatre Annual Attendance and Revenue figures (last available) Spectrum: Written evidence 55
Executive Summary
Ofcom has decided to clear the entire 800 MHz band (UHF channels 61-69) of television signals and PMSE services so that it can be released via auction for new services, such as mobile broadband. The Government supports this decision. Whilst some spectrum capacity in lower UHF channels has been maintained for PMSE use post-Digital Switchover (DSO), the clearance of PMSE services from their previous nationally available dedicated channel, channel 69, has caused a great deal of disruption to the industry. The 800MHz band auction will also reduce the level of interleaved spectrum available for PMSE use. PMSE users have become increasingly concerned about whether there will be sufficient spectrum available to them post- DSO.
As a disparate and diffuse community, the PMSE industry is unable to compete financially at auction against multinational telecoms companies for access to spectrum. However, the social and cultural benefits of this industry are immeasurable. As the Committee has recognised, in the Terms of Reference for this inquiry, it is essential to strike a balance between raising funds for the Treasury and ensuring that the best outcome is delivered for citizens and consumers.
Not only is quantity of spectrum vital to ensuring the continuance of the PMSE industry, the spectrum must also be free from interference. White space devices pose a real problem for the PMSE industry. These devices seek to make use of interleaved spectrum, which PMSE relies on for its continued operation. The PMSE sector is extremely concerned that there are moves to introduce these devices into the spectrum currently used by licensed PMSE users, before any ‘real life’ testing has taken place and before Ofcom is in a position to guarantee that existing licensed users will not be negatively affected.
White space devices are an unproven technology. If they are permitted into the UK market in line with current proposals they will, in all likelihood, cause interference to licensed PMSE applications and consequently undermine the UK’s ability to produce quality content because they will render radio microphones, in-ear monitor systems and talkback effectively unusable. This will devastate the live music, theatre and film and TV production industries, amongst others.
This submission addresses the following points in the Terms of Reference: • Whether the upcoming auction can provide value for money for tax payers and how that should be balanced with benefits for consumers; • The possible impact on alternative users of spectrum.
Context: Clearing the 800 MHz band of PMSE
1. The PMSE sector currently operates in the interleaved spectrum in channels 61-68 on a secondary basis, and in channel 69 as the primary user. Channel 69 has acted as a dedicated channel for PMSE use UK-wide. The vast majority of radio microphones and in-ear monitor applications in the UK operate in these bands. PMSE is currently being cleared from these bands.
2. In December 2006, Ofcom consulted on a deregulated channel 69 retained for PMSE use. BEIRG opposed deregulation: without official licencing of frequencies,
56 Spectrum: Written evidence
PMSE users would have no statutory protection from interference. Ofcom announced, in December 2007, that channel 69 would not be deregulated; instead it would continue to be licenced and awarded to a band manager with responsibilities to the PMSE industry.
3. Then in February 2009, Ofcom announced a change in policy and that channel 69 would be cleared for auction. As a disparate and diffuse community, the PMSE industry is unable to compete financially at auction against multinational telecoms companies for access to spectrum. Recognising the importance of the industry, but also the constraints it faces in competing with telecoms companies, Ofcom decided on the policy of a band manager with responsibilities to PMSE. These constraints still exist for the industry.
4. Channel 69 has been an essential component of PMSE use of spectrum, being the only channel available UK-wide. Ofcom estimates that 95% of PMSE equipment tunes to channel 69. The clearance of channel 69 has resulted in significant costs and disruption to PMSE users. PMSE users were originally expected by Ofcom to fund their forced move.
5. BEIRG led the ‘Save Our Sound’ campaign aimed at securing funding for the move, and limited funding has since been secured for certain PMSE users. However this move has still put a significant financial and administrative burden on owners of wireless equipment: ‐ Only 55% of the cost of replacement equipment is being funded; ‐ Only those who held a channel 69 licence between February 2008 and February 2009 are eligible to claim funding; and ‐ There is a heavy burden of proof of ownership, despite some equipment having been purchased many years ago.
6. Channel 38 will be the new dedicated PMSE channel. This is still not available UK- wide, due to radio-astronomy activities in Jodrell Bank (Cheshire) and Cambridge. As a consequence of the requirement to protect radio astronomy from interference, channel 38 is currently unusable for PMSE in large areas of the North East, the Midlands and East Anglia.
7. Clearance of the 800MHz band has caused significant financial and operational disruption to the PMSE industry. Despite being a compliant and conscientious user of spectrum over many years, the PMSE industry’s ability to continue operating is being threatened.
8. Ofcom’s recent publication “Future access to interleaved spectrum for programme making and special events”17 has considered whether, post-DSO, there will be sufficient level of spectrum available for PMSE to meet its requirements. BEIRG is extremely concerned about the availability of good quality interleaved spectrum available to PMSE. BEIRG is currently undertaking a full analysis of the deficiencies of future spectrum availability. In the course of this, it is necessary to consult other stakeholders and industry experts. As a result, this analysis will not be completed before 7th June. BEIRG will provide a copy of this analysis to the Committee upon completion.
17 http://stakeholders.ofcom.org.uk/binaries/consultations/bandmanager09/statement/pmse-future-access.pdf Spectrum: Written evidence 57
9. It is essential that PMSE has access to a sufficient quantity of spectrum in order to ensure that all sizes of events can operate at locations throughout the UK. It is also essential that the quality of this spectrum is protected by ensuring that in all instances it is free from interference.
New Services in 800MHz
9. BEIRG believes any future users of the 800MHz spectrum must be prevented from interfering with existing licensed users in the adjacent bands. Ofcom must make every effort to ensure that new use of the 800MHz band is as clean as possible, as soon as possible. Given the disruption already faced by the PMSE sector, any further disruption would be unacceptable and unsustainable.
10. Ofcom must ensure that any new services in channel 69 do not interfere with the 863 – 865 MHz band (‘channel 70’). Applications that operate in the 863 – 865 MHz band include hearing aids, wireless headphones, and touring guide systems all of which must be protected from damaging out-of-band interference.
11. Following PMSE’s eviction from channel 69, many users have been advised by Ofcom18, Equiniti19 and the PMSE band manager JFMG20 that channel 70 is available to them as an alternative to channel 69. Indeed, many ex-channel 69 users have equipment which is still able to operate within channel 70. Ofcom must protect those users who are now migrating to channel 70. If no protection is available, it is essential that Ofcom makes every effort to warn users that channel 70 will become unusable once new services come online. Until they have undertaken testing to ensure that channel 70 will not suffer interference from adjacent users, Ofcom and its agents must not continue to advise users to move to channel 70.
12. BEIRG believes that in the case that new service operators do cause interference to adjacent users; this must be considered a suitable condition for their licence to be revoked. Existing PMSE spectrum users must be protected from interference caused by new technologies within the 800 MHz band.
UHF Bands IV and V
13. Without access to spectrum PMSE professionals would not be able to produce the quality of show required for live events such as the Olympics, festivals, West End shows or Saturday night live entertainment. These events contribute to the £15bn annual contribution which the entertainment industry makes to the British economy. Not only would this revenue be lost, but the negative cultural and social impact would be great. Britain would no longer be able to produce the content which is exported worldwide, and would be put at a significant disadvantage when competing for international events.
18 http://media.ofcom.org.uk/2010/08/05/ofcom-explains-how-government-funding-package-for-wireless- microphone-users-will-work/ 19 http://www.shareview.co.uk/clients/Ofcom/Documents/OfcomFrequentlyAskedQuestions.pdf p.15 20 http://www.jfmg.co.uk/pages/equip/Radiomics/dtv.htm
58 Spectrum: Written evidence
14. Ofcom is currently consulting on long term future access to UHF Bands IV and V21. Having already faced severe disruption, the PMSE industry is now totally reliant on access to clean spectrum in UHF Bands IV and V. Any future move to reallocate this spectrum away from PMSE and broadcast use would likely lead to market failure. A return to wired microphones would mean a reduction in production qualities, and a significant scaling down of live events.
15. As with the 800MHz auctions, those likely to acquire spectrum released from UHF Bands IV and V would have significantly greater financial leverage than the disparate and diffuse PMSE sector. If a decision is made to sell-off further UHF spectrum, then Ofcom must continue to acknowledge the inability of the PMSE sector to compete at auction. The PMSE sector neither possesses the required financial resources, nor is there a mechanism to coordinate bidding for the collective needs of this community. Were spectrum in the 700MHz band to be auctioned, new dedicated PMSE channels must be awarded to the band manager with specific responsibilities to PMSE.
16. Modern live events are continually increasing in size, and consequently the size of their production is increasing, meaning that PMSE demand for spectrum is strong and growing. Any consideration of the long-term future of UHF spectrum must take into account the increasing access that PMSE requires to spectrum, which is driven by high consumer demand from PMSE professionals and audiences.
17. Developments in technology in the late 1970’s had a massive impact on the type of shows which could be staged by theatres. A range of new tools in set construction, automated scenic control, greater sophistication in lighting and its control and the development, understanding and use of High Fidelity live sound along with radio mics of better quality and reliability, added hugely to artistic freedom and helped creative teams to present the highest quality live performances. These developments lead to the creation of the ‘mega musical’.
18. Shows such as Les Miserables, Phantom of the Opera, Cats, Lion King, Miss Saigon and Mama Mia today could not be staged without the use of these now important tools. The West End relies on shows of this sort for its continuing economic success. Musicals regularly occupy almost half of the mainstream theatres in the West End.
19. In London the rise of the mega musical started at a time when the annual audience attendance figure for all types of theatre was estimated at 8 million. With the rise in popularity of the mega musical attendance figures rose to 10.2 million in 1986 on to 12 million by 2004 and currently stand at 14.1million. As their popularity increases, so does the demand for access to spectrum. Without access to sufficient levels of interference free spectrum these shows, and the economic and cultural benefits which they produce, would be lost.
20. At the same time as demand is greatly increasing, PMSE access to spectrum is continually decreasing. As more channels have been cleared of broadcast services, the maximum amount of channels available for PMSE use is declining. This trend is illustrated by the following graph:
21 http://stakeholders.ofcom.org.uk/binaries/consultations/uhf-spectrum-band/summary2/condoc.pdf Spectrum: Written evidence 59
Best Case UHF Interleaved Availability 41 40 40 34
Maxof No. Channels 35 30 26 25 20 15 10 5 0 1996 1997 1998 2012 2013 2014 2015 2016 Year
21. Alongside the decline in available interleaved spectrum for PMSE, there has also been a fragmentation of available spectrum across the UK for PMSE users. This manifests two distinct problems: there are a number of areas in the UK which have severely reduced quantity of spectrum available; and that across the UK PMSE spectrum access is becoming increasingly fragmented, presenting logistical and financial barriers to touring productions.
22. From the information provided by the updated JFMG look-up tool22, indoor venues such as Sunderland, Edinburgh and Richmond will be clearly restricted in the amount of spectrum available. The same scenario is likely to apply to the outdoor usage as this is much more restricted by DTT protection issues. An initial view of the quantity and continuity of available spectrum for some of a sample of 17 larger arena/outdoor venues suggests that locations such as Chelmsford, the Isle of Wight and Glasgow will have great difficulty staging large scale concert productions.
23. The fragmentation of spectrum also has the potential to cause severe damage to the industry. Lack of continuity of spectrum access means touring production companies require duplicate sets of equipment to tune to different channels in different geographic areas. For many companies this will likely prove economically unviable and will force them to cease operating. Ofcom must recognise that the reduction and fragmentation of available interleaved spectrum could greatly reduce the capacity of the PMSE industry to continue to produce world class content across the UK.
24. Until the fate of UHF Bands IV and V have been decided, there must be no further moves towards selling off the lower cleared band (600MHz). In the event that the 700 MHz band is earmarked for auction, and PMSE is cleared from this band, PMSE must be granted access to the 600MHz band. Without this access, the PMSE industry would be without access to spectrum, which is essential to its ability to produce world-class content.
White Space Devices
1. White space devices (WSD) pose a risk to the interference free access to spectrum which is essential to the PMSE sector. WSD are proposed to act as a new
22 http://www.jfmg.co.uk/jfmgecom/wireless/public/microphonedso.aspx
60 Spectrum: Written evidence
communications technology that could be used for mobile internet access without a requirement for a wireless telegraphy licence. Ofcom currently expects that WSD will use the same interleaved frequencies as PMSE. BEIRG, and many other respondents to Ofcom’s consultations on WSD23, are extremely concerned about the level of harmful interference which these devices could cause existing licensed users.
2. Any interference with PMSE will disrupt content production at its live source. As a consequence, the value and benefits this content generates will be significantly reduced or lost at the beginning of the value chain. Any interference, irrespective of its transience, is harmful to PMSE, particularly for live professional performances. No audio distortions or disruptions are acceptable to contemporary audiences.
3. BEIRG has severe reservations that any form of white space device will be able to operate in the same spectrum as PMSE without causing harmful interference. To date no ‘real life’ testing of WSD has been undertaken. BEIRG continues to lobby Ofcom to undertake ‘real life’ testing. BEIRG would gladly participate, or facilitate participation by other members of the PMSE community, in such testing to ensure that the most rigorous protection parameters were developed.
4. For example, in ‘Implementing Geolocation’, Ofcom proposed that “we will immediately deal with the problem by removing the relevant frequencies and areas from the database which we will require database providers to reflect within one hour”24. For many PMSE users such as theatres, live TV broadcasts, live music and large political and industrial events, this proposed hour turnaround would be disastrous. For any of these events, an hour can encompass the entire event.
5. Even if action could be taken more quickly to prevent interference, it can only be corrected after the event, under Ofcom’s present implementation model. It is essential for the PMSE industry that interference is prevented in the first place, rather than simply addressed after the event.
6. If Ofcom allows WSD access to interleaved spectrum, it must ensure that PMSE and television broadcast and the consequent benefits they bring to UK citizens and consumers, are not damaged by setting weak interference prevention standards and allowing inexpensive devices to enter the band that will not only interfere existing licenced services, but also with each other.
Suggested Actions
1. BEIRG urges the Committee to recommend that Government halts any auctioning of the 600MHz spectrum band until the future of UHF Bands IV and V is determined.
2. BEIRG further requests that that the Committee works with colleagues both at home and abroad to push for a harmonised decision on UHF Bands IV and V throughout the European Union.
23 Including Vodafone, BBC and JFMG. http://stakeholders.ofcom.org.uk/consultations/geolocation/?showResponses=true 24 http://stakeholders.ofcom.org.uk/binaries/consultations/geolocation/summary/geolocation.pdf a6.22 Spectrum: Written evidence 61
Conclusion
The Committee has accepted that there must be some balancing between the potential for financial gain through these auctions, with the enriching of the lives of UK citizens and consumers. The PMSE sector provides vast cultural and social benefits to citizens and consumers in the UK, whilst also comprising a vital component of the £15 billion a year British entertainment industry.
The PMSE sector has suffered a great deal of disruption as a result of the clearing of the 800MHz band. For this sector to be able to continue operating, it is essential that PMSE has access to sufficient quantity and quality of spectrum in the long term. Having already suffered significant upheaval, security of spectrum access is now required to ensure confidence in the industry, and its continued contribution to the financial and cultural success of the UK.
June 2011
62 Spectrum: Written evidence
Written evidence submitted by the Incorporated Society of Musicians (SP 11)
1. Summary 1.1 This is a short submission by the Incorporated Society of Musicians (ISM) the professional body for musicians in the UK to the committee’s inquiry into spectrum.
1.2 The submission draws your attention to the possible impact some spectrum arrangements can have on the use of radio microphones and should be read as a supporting statement for the more substantial submission from BEIRG (British Entertainment Industry Radio Group).
2. The Programme Making and Special Events (PMSE) sector 2.1 The campaign group Save Our Sound UK (SOS UK) represents the concerns of BEIRG – British Entertainment Industry Radio Group, PFA – Professional Footballers Association, RSC – Royal Shakespeare Company, and SOLT – Society Of London Theatres in relation to spectrum sell-offs.
2.2 Live music, newsgathering, musical theatre and other events all use spectrum wavelengths and the potential impact of further sales of spectrum on the PMSE is significant.
3. Specific comments 3.1 The PMSE sector is growing, not shrinking, and as production values and professionalism of the sector develop, so the bandwidth required increases. The sector needs sufficient quality and quantity of bandwidth to continue to put on high quality events.
3.2 The disruption to sector by evictions from 800Mhz band – the focus of the earlier Save Our Sound UK campaign – focused on should be considered again and borne in mind during future sell-offs of spectrum space.
3.3 No sell-off of 600MhZ bandwidth should take place or be proposed or consulted on until the fate of UHF Bands IV and V is known. If the 700MhZ band is sold off, then the 600MhZ band must be protected to enable the PMSE sector to function.
3.4 The value of the events sector to the UK economy should not be overlooked. We have an entertainment economy estimated to be worth £15 billion with music alone contributing £5 billion25 to our economy and music tourists contributing at least £864 million to the UK economy26.
3.5 In our previous evidence to the committee’s inquiry into the Olympic Legacy, we highlighted the possible impact spectrum changes could have on the Olympic events themselves and re-iterate this concern.
4. About the Incorporated Society of Musicians 4.1 The Incorporated Society of Musicians (ISM) is the professional body for music and musicians. We are independent of government and not financially dependent on any
25 Music, Department for Culture, Media and Sport 26 Destination Music, UK Music, 16 May 2011 Spectrum: Written evidence 63
third party; our mission is to champion the art of music and support the music professional. 4.2 Founded in 1882, we have over 5,700 members who come from all branches of the profession: soloists, orchestral and ensemble performers, composers, teachers, academics and students. Our corporate membership of over 100 organisations includes the Association of British Orchestras (ABO), Classic FM, the Associated Board of the Royal Schools of Music (ABRSM), the International Artists Managers Association (IAMA), the Music Industries Association (MIA), all the UK conservatoires, several universities and our specialist music schools.
4.3 The ISM is a member of the Council for Subject Associations (CfSA) and provides secretariat support to the All-Party Parliamentary Group for Music Education. Our Chief Executive, Deborah Annetts, is Chair of the Music Education Council (MEC).
4.4 Our internationally recognised Distinguished Musician Award, first awarded in 1976, has been received by Sir William Walton OM, Jacqueline du Pre OBE, Sir Michael Tippett OM CH CBE, Sir Colin Davis CBE, Sir Charles Mackerras AC CH CBE and Pierre Boulez. Sir Adrian Boult, Sir Thomas Beecham, Sir Malcolm Sargent, The Lord Menuhin OM KBE (Yehudi Menuhin), Sir David Willcocks and Dame Gillian Weir are all past presidents of the Incorporated Society of Musicians.
June 2011
64 Spectrum: Written evidence
Written evidence submitted by Vodafone (SP 12)
Spectrum has been a contentious subject for the mobile operators for a number of years. We are now at particularly critical point. For the first time in over ten years a significant amount of new spectrum is available for purchase. This spectrum is a vital to the provision of the next generation of higher speed mobile broadband services - known as Long Term Evolution (LTE) or 4G. We welcome the Committee’s timely inquiry.
The Committee has invited submissions on a number of matters. In our response we have focused mainly on the issues of competition, coverage and licence fees.
Summary of our submission
Vodafone has no in-built advantage in providing high speed mobile broadband, either now or in the foreseeable future, because of its current holdings of spectrum. Our existing spectrum is being fully utilised by over 19 million customers and it cannot be freed up quickly enough to be a substitute for the clean spectrum sold in the auction. Ofcom’s assumption to the contrary has led it to make errors in the way in which it wishes to allocate spectrum. These errors could be to the detriment of both competition and consumers. The proposed spectrum floors and caps distort the auction and competition because, in effect, they give Everything Everywhere (EE) an advantage by all but guaranteeing that it wins spectrum in the auction. And yet the European Commission established that EE already had sufficient spectrum for 4G deployment. EE therefore has a material advantage over its competitors and requires no additional protection. Vodafone therefore believes that the auction should be allowed to run freely without restrictions. We consider that the auction rules, as currently proposed, will distort competition and ultimately harm consumers. Vodafone accepts that some operators may be unsuccessful in the auction — not because others will bid simply to force them out but because others will value the spectrum more — but the evidence from today’s market shows that the successful bidders will compete hard to supply them with a wholesale service. Vodafone acknowledges that its annual spectrum fees need to be reviewed in light of the Direction from Government. However the method proposed by Ofcom is likely to distort the outcome of the auction. Spectrum fees, by law, cannot be a tax on the mobile operators; they are in place to ensure that operators use their spectrum efficiently; the review must have this objective at its heart. We know of no evidence that suggests that spectrum has been used inefficiently by the mobile operators subject to the current regulatory regime for annual licence fees. Other operators have made much of the fact that Vodafone and O2 are now permitted by Ofcom to use their low frequency spectrum to provide 3G data services (known as re-farming). In reaching its decision Ofcom carried out a thorough competition assessment. It concluded that competition would not be harmed by re-farming because both EE and 3 could match any improved coverage on the part of Vodafone and O2 by using their existing networks. There is therefore no sense in which the forthcoming auction needs to be tilted to the benefit of EE and 3 in order to ‘level the playing field’. Spectrum: Written evidence 65
High speed mobile broadband can serve less densely populated areas — this is already happening in Germany — however achieving this will require the building of additional sites rather than simply upgrading existing ones. The danger for the auction is that this additional cost may deter bidders from purchasing the lot of spectrum with the coverage obligation. Analysis of this risk requires further joint work between Ofcom and the mobile operators.
Whether the proposed method of spectrum allocation promotes, or hinders, future competition in the provision of mobile broadband services;
1. The current holdings of mobile spectrum in the UK together with the bands to be auctioned next year are shown in the table below. Vodafone and O2 hold all of the available sub-1GHz or low frequency spectrum and EE holds a large part of the higher frequency spectrum both before and after the divestment of spectrum agreed with the European Commission.
Total Paired Spectrum Holdings in Each Band
Frequency 900 1800 2100 (MHz) O2 17.4 5.8 10.0 Vodafone 17.4 5.8 14.9 Everything 60.027 20.0 Everywhere 3 14.8
2. Auctions are now the preferred method in most countries of allocating spectrum. Individual bidders put a value on the spectrum that they wish to buy and, in a free auction, those with the lowest valuations drop out of the running until the number of bidders is equal to the available spectrum. Consumers are well served by this mechanism because these valuations ultimately come from a calculation of the benefits that they are expected to receive.
3. Ofcom is not proposing to have a ‘free auction’. Their proposed method of spectrum allocation is via an auction that is restricted by both spectrum floors and spectrum caps. Although the auction is designed to foster competition we believe that it could have the opposite effect.
The spectrum floors could distort competition
4. Ofcom believes that a new market for higher quality data services will emerge in which coverage within buildings will be particularly important. In view of this, Ofcom says that holding sub-1GHz (or low frequency) spectrum will be critical because of its superior ability to provide a signal indoors. In fact, it will be so
27 EE is required to divest 15MHz of this spectrum
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important that any operator with access to a significant holding of sub-1GHz spectrum (Vodafone and O2) would have an ‘unmatchable competitive advantage’ which could never be equaled by those with only access to the higher frequencies above 1GHz (EE and 3). Knowing this, Vodafone and O2 would bid ‘strategically’ in the auction to shut out one or more competitors: an “I’m alright jack pull up the ladder” strategy.
5. Ofcom conducts a technical analysis to determine the minimum amounts of low frequency and higher frequency spectrum which would enable its holder to match the performance of a network with significant holding of sub-1GHz spectrum. These minimum holdings are translated into a number of spectrum floors and the auction is structured to deliver at least four operators (the minimum number that Ofcom says is required for a competitive market) who have the minimum portfolio of spectrum required to compete.28
6. However, Ofcom has incorrectly assumed that Vodafone’s existing low frequency spectrum can be used to provide the next generation of mobile broadband services in the near term i.e., by early 2013 when the 800MHz band will become available. Vodafone’s existing holding of 900MHz spectrum is already used in providing voice and data services; we carried around 42 billion voice minutes across our networks in the last financial year. To clear the 900MHz band within the space of a year would require thousands more sites because we would need to cater for the calls and data services displaced from the cleared spectrum in other spectrum. This is clearly impractical and would result in a terrible experience for our customers.
7. What we can see is that EE is the only mobile operator in the UK with sufficient spectrum to be able to roll out a high speed mobile broadband network in the near future. This is what the European Commission found when it reviewed the merger between T-Mobile and Orange. It was the potential adverse consequences of this spectrum advantage for competition that persuaded the European Commission to require EE to give up 25% of its 1800MHz spectrum.
8. The spectrum floors thus distort the auction to the advantage of EE by all but guaranteeing it a block of 800MHz.
The spectrum caps will distort competition
9. This serious shortcoming in the auction design is then compounded by the proposed spectrum caps which allow EE to buy 2x25MHz or over 80% of the sub- 1GHz spectrum for sale in the auction. This could have potentially serious consequences for competition in the future by creating a two-tier market.
Unsuccessful bidders can buy wholesale capacity from others
10. We believe that the auction should simply be allowed to run without restrictions. We acknowledge that there is a possibility that the smallest operator (and others) will fail to acquire any low frequency spectrum. This would not be because the
28 Vodafone and O2 are assumed to have enough spectrum to be able to supply 4G services and so neither needs to acquire any new spectrum in the auction. In contrast, EE and 3 are all but guaranteed at least one block of 800MHz spectrum each in the auction by virtue of the spectrum floors. Spectrum: Written evidence 67
other operators will bid strategically29 to force out a competitor but because they simply put a higher value on the spectrum. This is what happens in a competitive market and it is what happened in the German auction. All the current available evidence from the UK suggests that those unsuccessful operators would then conclude a commercial wholesale arrangement with one of the successful bidders. Failing this, Ofcom could intervene ex post or even ex ante by attaching a wholesale access obligation to one or more of the 800MHz lots.
Using the auction to set annual licence fees will distort its outcome
11. Ofcom’s proposals for the setting of the annual licence fee (ALF) will also distort the outcome of the auction. The proposals mean that the amounts paid in the auction for 800MHz spectrum will translate directly into the annual fees for 900MHz spectrum paid by Vodafone and O230. In effect, Vodafone is required to pay twice for any spectrum that it purchases: once in the auction and once via the new annual licence fee. The simplified example in the box shows how the auction can be distorted.
Suppose there is only one 2x10MHz lot which is being contested by two bidders: A and B where A is a 900MHz operator and B has no 900 or 1800MHz spectrum. Suppose that A and B have the following true valuations of the lot which is the most that each would be prepared to pay:
A £1,100 million B £500 million
In other words if A has to pay more than £1,100 million for the lot it is not worth them acquiring the spectrum. Similarly, if B has to pay more than £500 million then it is not worth them winning the spectrum.
In a free auction A would acquire the lot. B would drop out once the bidding reached £500m and this is what A would pay. However, the ALF distortion means that A will not bid as much as £500 million and therefore it will not acquire the spectrum.
Why? This is because A would not bid more than £400m. At £400m the extra cost to A via the increase in the annual licence fee will be the average price per MHz in this simple example grossed up for the amount of 900MHz spectrum that A holds i.e.,17.5/10 x 400m = £700m. So if A bids more than £400m it knows that the total cost to it will be over £1,100m. The spectrum is therefore acquired by B even though A puts a higher value on it.
29 The auction is explicitly designed to minimise the risk that participants can bid strategically because the identity of the bidders is not revealed. 30 A similar method is proposed for calculating the annual licence fee payable on 1800MHz spectrum based on the average of the price paid for the 800MHz and 2.6GHz spectrum.
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In fact, the distortion is further compounded: given that A knows (or it can reasonably suspect) that B will acquire the spectrum then it should not bid for the lot at all; every bid that A makes just drives up the price that B will have to pay, and so drives up A’s ALF. In these circumstances the best thing that A can do is to let B acquire the spectrum for the reserve price.
12. The distortion arises because the disincentive effect is not faced by all bidders. 3 and any potential new entrants do not hold either 900 or 1800MHz spectrum and so will not face this disincentive to bid.
13. Vodafone accepts that the annual licence fees must be reviewed but we believe that the method adopted should break the link between the prices paid in the auction and the level of the fees. Ofcom has a tried and tested method for doing this which it can adapt for the future.
The auction does not need to’ level the playing field’
14. In a recent briefing on spectrum 3 said that “[t]here is a real risk that unless the auction addresses the advantage that the older mobile networks gain from being permitted to use their legacy spectrum for mobile broadband, competition will be distorted and the consumer benefits that have flowed from a competitive market will be lost.”
15. Ofcom looked at this matter in 2010. Ofcom concluded that there was little likelihood of a competitive distortion as a consequence of allowing Vodafone and O2 to use the 900MHz spectrum (“our legacy spectrum”) for 3G. It recognised that, because of the merger, EE, and to a lesser extent H3G through its network sharing arrangement with EE, is already in the strongest position in terms of network capability for providing mobile broadband services. They have the largest amount of 2100MHz spectrum and access to the largest number of base station sites. These operators would be able to improve their coverage (if required) and consequently reduce any competitive advantage that O2 or Vodafone might realise from using 900MHz spectrum for the provision of 3G services.
16. Therefore the decision to allow Vodafone and O2 to re-farm confers no distortive advantage on these operators. The service provided can be replicated by EE and H3G using their access to a greater number of sites. There is therefore no sense in which either EE or H3G needs to be advantaged in the forthcoming auction of sub- 1GHz spectrum in order to correct for a distortion caused by the re-farming decision. Such restorative rough justice, by Ofcom’s own analysis, has no basis in evidence.
Whether licence fees for mobile operators have previously been set at appropriate levels, and how this should be assessed;
17. Under section 13(3) of the 2006 Wireless Telegraphy Act, Ofcom may, if it thinks fit, prescribe charges that would be greater than those that would be necessary for the purposes of recovering costs incurred by Ofcom in connection with its functions relating to the management of the radio spectrum.
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18. These fees however are not a tax; they must take into account the need to promote the efficient use of spectrum, innovation and competition. Ofcom previously reviewed the level of fees for mobile spectrum in 2005. It emphasised that “Ofcom can only set fees in excess of the costs of administration in order to promote efficiency in the use of spectrum” and concluded that “Ofcom has no evidence that the current level of fees is, or is likely in future, to give rise to inefficient under- utilisation of this spectrum. At the same time Ofcom is not convinced that it would be appropriate to increase these fees at this time..”31
19. We concur with Ofcom. We know of no evidence that the mobile operators are using spectrum inefficiently or that their use of spectrum is “crowding out” other higher value uses. We consider that the proposed approach to setting spectrum charges in future will likely distort the auction process and future competition.
Whether the upcoming auction can provide value for money for tax payers and how that should be balanced with benefits for consumers
20. Ofcom is required by law to consider the need to promote the efficient use of spectrum and competition when allocating spectrum rather than raising revenues. However, it is questionable whether the proposed auction structure will provide value for money for tax payers because the use of the spectrum floors (together with the distortive effect of the proposed setting of annual licence fees) means that it is perfectly possible that one-third of the sub-1GHz spectrum will find its way into the hands of EE and 3 for the reserve price.
21. We do not believe that removing the spectrum floors will harm competition and consumers: EE already has sufficient spectrum to deploy a mobile broadband network and 3 can either acquire more spectrum or, if it is unsuccessful, buy wholesale capacity from one of the successful bidders. If this fails then Ofcom has the power to intervene.
Whether the upcoming auction can deliver improved mobile broadband coverage in rural areas, as well as cities;
22. Ofcom has recently published research on mobile not-spots32. Ofcom quotes figures of approximately 97% of the UK population and 91% of the UK land mass for 2G coverage and 87% of the population and 76% of the land mass for 3G coverage. Ofcom finds that “[i]n the vast majority of case study areas, not-spots existed because it was not a commercial priority for mobile operators to extend their coverage, influenced by low levels of traffic discouraging investment.”33
23. However, there are good reasons to believe that coverage of 3G will improve over time. First, as operators reduce costs through sharing infrastructure (for example Vodafone and O2) it becomes more economic to expand coverage. Second operators will seek innovative ways to improve indoor coverage; for example, Vodafone is the only provider currently offering consumers ’Sure Signal’ which uses femtocell technology (indoor equipment that looks like a wireless router and connects via a fixed line broadband connection) as a potential solution to improve
31 Spectrum Pricing: A statement on proposals for setting Wireless Telegraphy Act licence fees paragraph 3.16 32 Mobile not- spots – An update on our research. November 2010 33 Paragraph 2.15
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indoor coverage and for which we have hundreds of thousands of registered users. And third, all operators now have a 90% coverage obligation in their 3G licences.
24. Ofcom has proposed that one of the spectrum lots in the 800MHz has an indoor coverage obligation for 95% of the population by 2017. This will mean that the upcoming auction can deliver improved mobile broadband coverage in rural areas; Vodafone Germany has live base stations using the 800MHz frequency band providing coverage to communities with fewer than 5,000 inhabitants in Northrhine-Westphalia.
25. However, our estimates of the cost of meeting the proposed coverage obligation are somewhat higher than Ofcom has suggested; it is not just a case of upgrading existing infrastructure with the right equipment but new sites will have to be built in order to comply. This may be a problem if it dissuades bidders from acquiring the lot with the coverage obligation.
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Written evidence submitted by British Telecommunications plc (BT) (SP 13)
EXECUTIVE SUMMARY • BT is pleased to provide this input to the Inquiry into Spectrum. Our response addresses the terms of reference for the Inquiry, to the extent that they are relevant to BT. • In summary, we are content with the current EU and UK regulatory framework for spectrum, and the general approach that Ofcom takes in relation to its spectrum duties within that framework. • We are content with the basic approach of Ofcom’s proposed auction of 800/2600MHz spectrum, although commenting on certain details in our submission to Ofcom on 31 May 2011. We are keen to see the spectrum out in the market as soon as possible. • We do not take a position on the issue of spectrum fees for mobile networks, but have provided some general comments in relation to how spectrum pricing may be used, including in relation to fixed radio links. • We see a need for close coordination and interworking between Government and Ofcom in relation to the foreseen release of at least 500MHz of Government spectrum.
INTRODUCTION 1. BT is a significant user of radio spectrum, both on a licensed and licence-exempt basis. Our use spans applications including fixed radio links, satellite communications and mobile applications and services. BT holds spectrum licences acquired in past auctions (e.g. the 32GHz fixed links spectrum auction in 2010), as well as a large number of individual wireless licences that are subject to annual charges. BT and its customers make extensive use of low power licence-exempt technologies, including cordless phones, and WiFi technology for mobile broadband in homes, business premises and public places, with many millions of devices in use on a daily basis.
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BT’s VIEWS ON THE SPECIFIC ISSUES UNDER EXAMINATION BY THE COMMITTEE
Whether the proposed method of spectrum allocation promotes, or hinders, competition in the provision of mobile broadband services; 2. An auction is the best approach to award the new mobile spectrum licences at 800/2600 MHz, since the spectrum will be available to those that value it most and are, therefore, most likely to put it to the most economically efficient use. An auction should also support the legal requirements to assign spectrum in an objective, transparent, non-discriminatory and proportionate manner. If properly designed it can also promote innovation and competition that should benefit consumers. It is the detailed design of the auction that is important and it should give the possibility for potential new entrants as well as existing players to participate. 3. Ofcom’s consultation proposals that closed for comments on 31 May appear to be a generally reasonable approach. However, we have suggested to Ofcom that certain details would need to be modified in order to ensure that the possibility for innovation and participation by new players beyond the existing four national mobile network operators is encouraged. 4. BT is unconvinced that ensuring four competing national wholesale competitors is sufficient or can be guaranteed to be realized in the way Ofcom may envisage. We have suggested that other safeguards may be appropriate in the event that the outcome does not deliver the level of competition at the wholesale mobile network level that Ofcom would like to see; this could be addressed in licence conditions. 5. Ofcom’s proposal to make some spectrum available for sub-national networks using some shared low power 2.6GHz spectrum is an interesting concept. It has potential to enable wider participation in the delivery of mobile services. It could also lead to innovative solutions being introduced and an efficient use of spectrum that is consistent with the general trend to move to small cell systems to cope with rapid growth in capacity demand. It would be necessary to secure wholesale access to national mobile networks to provide services beyond the small cell systems. Sufficient spectrum would need to be reserved for this purpose and the technical conditions and auction rules would need to be appropriately specified.
Whether the upcoming auction can provide value for money for tax payers and how that should be balanced with benefits for consumers 6. The detailed design of the auction is likely to have an impact on the revenue that may result from the award process. For example, caps on the amount of spectrum that a given player can bid for or the provision of minimum spectrum packages for four national wholesale competitors, have potential to lead to lower prices than if these measures were not in place. Inclusion of measures to promote competition and innovation would be expected to benefit consumers and the absence of such measures could be detrimental to consumer interests in the longer term, for example if prices for services are higher or new technology was deployed later because of less competition. 7. Relevant EU and UK legislation is focused on ensuring the assignment of spectrum in an objective, proportionate, non-discriminatory and transparent Spectrum: Written evidence 73
manner, as well as promoting competition via efficient investment in infrastructure, promoting innovation and encouraging efficient use of radio frequencies. This appears to be the correct focus for the spectrum auction. However, this should be within a framework that allows market forces to determine the best allocation outcome, whilst achieving sufficient competitive tension in the auction so that prices reflect the wider market value of spectrum, rather than producing a distorted outcome leading to inefficient spectrum use. Since Ofcom proposes taking into account the values bid in the auction when setting annual fees for other existing spectrum (as required by a Government Direction), it is all the more important to understand how the auction design may affect the auction prices. When finalising its auction rules, Ofcom must ensure a balance between promoting competition and ensuring that the true value of the spectrum is identified.
The potential for next generation mobile internet services offered by the forthcoming availability of spectrum 8. The new mobile spectrum bands to be released in the Ofcom auction are undoubtedly well suited to the provision of high speed mobile broadband services with globally standardised technologies available, notably the LTE technology standards. Roll out of services using this technology has started in other European countries already (e.g. Germany). These so called “4G” mobile technologies can deliver higher speeds than current 3G systems, but higher speeds and increased network capacity are not simply a matter of more spectrum and new technology. The use of smaller cell systems and off-loading of traffic from wide area mobile networks to WiFi technologies connected to the fixed broadband network will also have a role to play. 9. In order to see new high-speed mobile services made available in the UK, the spectrum should be awarded as soon as possible, but in an appropriate manner promoting innovation and competition and leading to timely network roll-out. The use of the spectrum will, we understand, initially be constrained by existing radar systems in spectrum adjacent to the 2.6GHz band and at 800MHz by the completion of the analogue-digital switchover and reconfiguration of the TV band. Potential interference issues between new mobile services and TV reception may also require attention and, we understand, will be subject to further consultation by Ofcom.
Whether the upcoming auction can deliver improved mobile broadband coverage in rural areas, as well as cities 10. The 800MHz spectrum is undoubtedly well suited to rural coverage and this is recognised in the draft decision of the European Parliament and of the Council establishing the first radio spectrum policy programme that is currently undergoing approval. In the absence of specific obligations it is a question of economics and commercial plans as to the extent to which coverage of new networks will materialize. It should be noted that even in rural areas it is not simply a question of coverage of networks but whether they have sufficient capacity to deliver services at adequate speed when multiple users simultaneously require services.
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11. We have examined Ofcom’s proposals to place a population coverage obligation on one 2x5MHz package of 800 MHz spectrum and are very doubtful that the specified obligation could be achieved (with significant take up of service) without significant additional spectrum being available to the licensee. This capacity challenge could be particularly significant in cases where fixed broadband services are not available. 12. Any obligations on mobile broadband coverage that go beyond the extent of coverage that might otherwise be commercially viable may be expected to result in a lower auction value for the relevant spectrum. This is effectively a public subsidy to the holder of the relevant 800MHz licence to support broadband delivery to rural homes. The holder will benefit from valuable spectrum holdings of spectrum in urban areas, for which it will have paid a reduced price. This is a cross-subsidy to rural broadband, where the licence holder will have to pay for the costs of coverage. This is an anti-competitive subsidy against other rural broadband technologies, in particular fixed broadband lines or satellite broadband. 13. It should be noted that indoor mobile broadband can be achieved with fixed networks and WiFi. In BT’s view it would be better to have an explicit subsidy mechanism through the work of BDUK to make best use of the public support available for rural broadband of all types, rather than a hidden subsidy in the form of a cheaper spectrum licence.
Whether licence fees for mobile operators have previously been set at appropriate levels, and how this should be assessed 14. Under relevant EC and UK legislation, licence fees should both promote efficient spectrum use and support other objectives such as promoting competition. These principles apply to mobile networks as well as other uses of spectrum, such as BT’s fixed microwave links, Professional Mobile Radio systems and satellite Earth stations. Incentive pricing has also been applied to some Government uses of spectrum. 15. To date the fees for mobile spectrum (and other cases such as fixed links) have been set based on consideration of the marginal opportunity cost (i.e. the cost of using more efficient equipment, additional equipment or alternative technology) to deliver the same service with less spectrum. 16. More recently the competition aspect has received greater attention where it is necessary to look at the costs of existing spectrum that was assigned administratively, compared with the costs of new spectrum that may be auctioned and hence charged at full market value. We have noted Ofcom’s proposals to more clearly link auction prices of new mobile spectrum and future annual fees for existing spectrum in line with the Government’s Directions to Ofcom. This Direction requires that fees for existing 900/1800MHz spectrum are charged annually at full market value, to be set taking into account the prices bid in the auction. In the case of BT’s fixed links we feel that, based on the outcome of the auction of fixed links spectrum in 2010, some of our annual fees may in fact be too high. 17. Turning to the question of whether mobile operator fees have previously been set at “appropriate” levels, and how it should be assessed, it is necessary to first consider what objective is to be fulfilled. If the aim is to recover full market value Spectrum: Written evidence 75
then it is unlikely that past fees have achieved this, especially since the fees were set at a fraction of the calculated full opportunity cost. If the aim is to promote efficient spectrum use then it is not possible to say, particularly as no spectrum has been given up as a result of the fees charged. The spectrum has also not been tradable so that incentive to release spectrum where someone else places higher value on it has not been a relevant factor as more spectrum could not be acquired by MNOs. 18. BT takes no position on whether or not mobile operator fees have been set appropriately in the past. For the future, fees should promote efficient use and not distort competition. The requirement to base annual charges for spectrum that was not auctioned on the full market value of similar spectrum awarded by auction may achieve a similar equivalent cost for the different types of spectrum (auctioned and administratively assigned) over the longer term. This seems sensible. We have urged Ofcom to do this also for fixed links spectrum since, based on auction prices, it appears that annual fees may be set at too high a level.
How the position of the UK compares with other countries, with regards to the allocation and utilisation of mobile broadband spectrum 19. The UK has in the past (e.g. 3G mobile) led the rest of Europe in the award of spectrum for mobile broadband and has been a champion of innovation and competition, including allowing WiFi technologies to be used in public as well as private networks and opening additional bands (5GHz for WiFi). For the next tranche of spectrum releases at 800MHz and 2600MHz some other countries are moving ahead faster than the UK, notably Germany where this spectrum is already awarded and France where an award process is planned to be completed this year. 20. The UK was at the forefront of promoting use of licence-exempt spectrum for public WiFi networks and has one of the most extensive networks of public WiFi in Europe. The same technology is used in millions of UK homes to supply mobile broadband connectivity on the end of a fixed broadband connection. The UK is now at the forefront of work to make more spectrum available for licence- exempt use in the so called “TV White Spaces” spectrum. 21. Given unresolved radar interference issues with the 2.6GHz spectrum and that the 800MHz spectrum is not cleared of TV nationwide, arguably the delay to the awards has not been too problematic as the spectrum is anyway not available for use.
The possible impact on alternative uses for spectrum 22. The mobile auction proposals are based on the principles of technology and service neutrality and thus offer a degree of flexibility as to how the spectrum can be used. Nevertheless the new use for mobile services will be at the expense of other services that previously used the spectrum, notably wireless cameras at 2.6GHz and digital TV in the case of 800MHz. The new use may have some impact on adjacent band services, notably TV reception below the 800MHz band and radar systems above the 2600MHz band. We understand that the licensing conditions would protect these adjacent band uses and as such we have no particular concerns to raise.
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OTHER MATTERS
23. Many of the important areas of focus for spectrum management in the coming years are identified in the first Radio Spectrum Policy Programme that is currently passing through the EU Council and European Parliament. The UK should press for the early adoption of this draft Decision and work to implement this programme once approved.
24. In general we are content with how Ofcom manages spectrum and the existing EU and UK legislative framework.
RECOMMENDED ACTIONS
25. We have no suggestions for changes to the present EU and UK regulatory framework in relation to spectrum and are broadly content with the way in which Ofcom operates with this framework.
26. We are aware of Government plans to release at least 500MHz of spectrum for civil use over the coming years and would suggest that this is coordinated closely with Ofcom, for example in the timing and methods of spectrum release and in preparing international harmonisation work to make the spectrum as useful as possible.
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Spectrum: Written evidence 77
Written evidence submitted by Aquiva (SP 14)
Summary of Key Points and Recommendations:
• Access to broadband increasingly matters. There is an increasing social and economic cost to each person who falls on the wrong side of this ‘digital divide’. • The longer that areas which are broadband “not spots” remain unconnected, the less desirable they will be for inward investment, and the less attractive they will be as a place to live to each successive year’s school leavers. • The 800 MHz and 2.6 GHz spectrum are both needed to meet growing demand for data by users of smartphones (such as the iPhone) and tablets (such as the iPad), where the 2.6 GHz is best suited to delivering high bandwidth in urban areas, while the 800 MHz is ideal for covering non-urban areas, including very rural areas. • But it is also essential that the 800 MHz spectrum achieves what fibre cannot do – universal access to broadband. • Arqiva strongly believes that it would be proportionate and highly desirable for Ofcom to increase the coverage obligation for one of the 800 MHz licences from 95% of the UK’s population to 99% of each Nation's population. • This would bring considerable economic and societal benefits and would also achieve optimal use of this precious spectrum. • A range of international studies show that a 10% increase in broadband penetration increases GDP by 1%. • In our view, any short-term cost to the Treasury of imposing a 99% coverage obligation on one 800 MHz licence would, over the long term, be considerably less than the opportunity cost of not providing access to broadband, or of providing it years later, to at least hundreds of thousands of homes, schools and farms and other small businesses.
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About Arqiva
Arqiva is a media infrastructure and technology company operating at the heart of the broadcast and mobile communications industry and at the forefront of network solutions and services in an increasingly digital world. Arqiva provides much of the infrastructure behind television, radio and wireless communications in the UK and has a growing presence in Ireland, mainland Europe and the USA.
Arqiva is implementing UK Digital ‘Switch-Over’ from analogue television to Freeview – a huge logistical exercise which touches every Parliamentary constituency, requiring an investment by Arqiva of some £700m and which is successfully being delivered to time and budget.
Arqiva is also a founder member and shareholder of Freeview, and operates two of the UK's three Freeview commercial multiplexes, providing 40 services on Freeview to 19 million homes.
Arqiva was a key launch technology partner for Freesat and is also a shareholder in YouView and the licensed operator of the Digital One national commercial DAB digital radio multiplex.
Arqiva operates nine international satellite teleports, over 70 other staffed locations, and around 9000 shared radio sites throughout the UK and Ireland including masts, towers and rooftops from under 30 to over 300 metres tall.
In addition for broadcasters, media companies and corporate enterprises Arqiva provides end- to-end capability ranging from – • outside broadcasts (10 trucks including HD, used for such popular programmes as Question Time and Antiques Roadshow); • satellite newsgathering (30 international broadcast SNG trucks); • 10 TV studios; • spectrum for Programme-Making & Special Events (PMSE)34; to • satellite distribution (over 1200 services delivered).
Elsewhere in the communications sector, the company supports cellular, wireless broadband, video, voice and data solutions for the mobile phone, public safety, public sector, public space and transport markets.
Arqiva’s major customers include the BBC, ITV, Channel 4, Five, BSkyB, Classic FM, the four UK mobile operators, Metropolitan Police and the RNLI.
Arqiva has bid in three Ofcom spectrum auctions, securing spectrum in two of them.
Arqiva is a British success story, owned by a consortium of long-term investors and has its headquarters in Hampshire, with other major UK offices in Warwick, London, Buckinghamshire and Yorkshire.
Arqiva welcomes the opportunity to respond to the Culture, Media and Sport Committee’s new Inquiry into Spectrum.
34 Such as the wireless cameras operated by the BBC and Sky News, and the radio mics used in virtually all television production and many West End shows. Spectrum: Written evidence 79
Answers to questions
Whether the proposed method of spectrum allocation promotes, or hinders, competition in the provision of mobile broadband services;
1. Arqiva agrees with Ofcom that mobile operators would need access to spectrum for both capacity and coverage (essentially sub-1 GHz spectrum) in order for there to be effective competition. There was therefore a risk that one or more of the current operators could have found itself post-auction with a sub-optimal spectrum portfolio with which to maintain its market position, hindering competition. Ofcom has addressed this by proposing an auction design intended to achieve each of four mobile network operators having spectrum for both capacity and coverage. 2. However as network infrastructure is increasingly shared, and with future mobile technologies supporting carrier aggregation (and therefore pointing the way towards spectrum sharing), competition is increasingly focussed at the service layer. 3. So there is a risk that, while the proposed method of spectrum allocation promotes competition, Ofcom may be engineering an outcome which may not reflect where the market, of its own volition, is heading.
Whether the upcoming auction can provide value for money for tax payers and how that should be balanced with benefits for consumers;
4. Although securing best value for tax payers is usually thought of purely in terms of auction proceeds, best value should also take account of the economic contribution and achievement of public policy objectives deriving from its use. Indeed Ofcom is charged with securing optimal use of spectrum, not maximising proceeds from its sale. 5. Of all the spectrum currently lined up for future award by Ofcom, the forthcoming auction of 800 MHz and 2.6 GHz is the single most important. This importance results not just from the need for the mobile operators to address rapidly increasing subscriber demand for data, but also because of the widespread recognition that ensuring universal access to broadband is one of the most important public policy objectives to achieve over the medium term. 6. Not everyone will be offered fibre; wireless will be the only cost- and time- effective means of providing access to broadband for virtually all those who won’t be, with 800 MHz the optimal spectrum to use for that. Satellite broadband will also play a role, but its higher cost and lower speed (combined with higher latency) makes it sub-optimal for all but those who couldn’t be cost- effectively offered broadband by other means. 7. In meeting these expectations, and of satisfying its statutory duties to secure optimal use of spectrum and to serve the interests of citizens and consumers, Ofcom must balance: • competition concerns;
80 Spectrum: Written evidence
• spectrum efficiency (which, for LTE35 “4G”, is maximised with large contiguous holdings); • enabling innovation; and • contributing to achieving public policy objectives. 8. Arqiva believes that Ofcom has got the balance about right - apart from one major issue which must be revisited before Ofcom publishes its draft Regulations for the auction. 9. While Ofcom has recognised the key role which 800 MHz could and should play in delivering universal access to broadband, their proposed coverage obligation stops short of actually ensuring that universality would be achieved. 10. This is short-sighted. There is an ever-greater social and economic cost to each person who falls on the wrong side of this ‘digital divide’. 11. Set against any reduction in auction proceeds directly attributable to an increased coverage obligation would be the economic and societal benefits (visible benefits to consumers). Universal access to broadband maximises digital inclusion, which is an instrument of real social change: • Improving the life chances for the unemployed; • Widening access to online educational materials and resources, raising children’s grades and life chances; and • Enabling the financially-disadvantaged and less knowledgeable, or media literate, to pay the same discounted prices for commercial products and services as everyone else. 12. Studies undertaken by McKinsey, Allen, OECD and the World Bank show that a 10% increase in broadband penetration increases GDP by 1%. 13. Surely ensuring that the 800 MHz spectrum achieves what fibre alone cannot do – universal access to broadband – must be a key component of providing the best value for money for tax payers, and delivering benefits for consumers?
The potential for next generation mobile internet services offered by the forthcoming availability of spectrum;
14. The take-up of internet-connected personal mobile wireless devices – smartphones, tablets, Kindles – has been astonishing and continues apace. 15. In addition to fast access to the internet, with pages re-sized for a smaller screen and hundreds of thousands of apps optimised for handsets (and for as long as it’s connected, a smartphone is constantly sending and receiving data), smartphones are also supplanting stand-alone music and video players, portable games machines and satellite navigation devices. 16. And with Near Field Communication (NFC) technology becoming integrated, smartphones are becoming the most ubiquitous means of making contactless payments, and will likely become consumers’ loyalty cards as well. Smartphones are also becoming a new way to shop, allowing awareness of your interests, tastes, past purchases and location - and your ‘phone may alert you to purchasing opportunities accordingly.
35 Long-Term Evolution, the next mobile technology after 3G. Spectrum: Written evidence 81
17. So handsets acquired principally for their internet connectivity offer much more besides. And technology allows these phones to get smarter (dual core processors now here) with bigger, better screens and more storage. 18. Therefore the forthcoming availability of additional mobile broadband spectrum offers a twofold advantage. Firstly, the spectrum provides operators with an additional tool36 to address their subscribers’ insatiable appetite for data. Secondly, when the latest LTE technology is deployed, it will offer consumers much faster download and upload speeds. 19. In 2009 there were 10 million UK mobile internet subscribers, but by 2014 PwC forecast there will be 24.5 million. For many of those consumers mobility, with the ability to be reached anywhere and all the time with personalised, context- specific services, has huge value. 20. By 2015, Enders Analysis expects: • UK smartphone penetration to reach 75%; • Mobile internet use to reach 28% of total time spent online; • Mobile advertising spend in the UK to reach £420m, equivalent to 10% of desktop spend. 21. 400 million smartphones worldwide use more bandwidth than the 6 billion standard cellular phones in use37. 60% of time spent on smartphones is a new activity (maps, games, social etc) for mobile users38. 22. This is a revolution. There can be little doubt that the smartphone is the new PC. But without a data connection, its value is hugely reduced. 23. The UK needs the 800 MHz and 2.6 GHz spectrum to be awarded without delay - and for the 800 MHz (ideally suited to covering large non-urban areas) to be deployed as widely as possible. This is both to spread the benefits of smartphone (and tablet and laptop dongle) use widely, and to enable that spectrum to be available for use to offer fixed substitute broadband to homes, schools, farms and other small businesses which could not economically (even with public subsidy) be offered fibre. 24. The most certain way to ensure that the potential for next generation mobile internet services offered by the forthcoming availability of spectrum is spread widely is for Ofcom to require universal coverage from one of the 800 MHz licences.
Whether the upcoming auction can deliver improved mobile broadband coverage in rural areas, as well as cities;
Why improved coverage of broadband matters
25. Businesses have long realised the importance of having broadband access to stay connected to suppliers and customers, and to have the potential of expanding their geographic spread of their customer base – worldwide if they wished.
36 In addition to technology upgrades and the deployment of more sites (i.e. more efficient use of spectrum). 37 Source: Orange Business Services. 38 Source: AppsFire.
82 Spectrum: Written evidence
26. Farmers are becoming increasingly vocal where lack of broadband access to the commercial and public services necessary for their chosen profession becomes an additional burden to an essential line of work which, for many, is hard enough already. Other rural SMEs share that view. 27. Increasingly consumers and citizens need access to broadband for education, work, interacting with public services and for their social life too. Access to broadband at home enables remote working and hobbies to be turned into cottage businesses, and future SMEs. 28. As we have said previously, recent studies have shown that a 10% increase in broadband penetration increases GDP by 1% and, in addition to the economic benefits, access to broadband can be an instrument of real social change. 29. There is an increasing social and economic cost to each person who falls on the wrong side of this ‘digital divide’. The longer that areas which are broadband “not spots” remain unconnected, the less desirable they will be for inward investment, and the less attractive they will be as a place to live to each successive year’s school leavers. 30. Achieving universal access to broadband, ensuring that no-one is excluded from the connected, digital society of the future, is one of those rare public policy objectives which has the strong support of all of the main political parties.
Universal access to broadband makes economic and social sense.
Why 800 MHz spectrum has a key role to play
31. While many broadband “not spots” are in urban and suburban areas, and best addressed by fibre, a large number of not spots are in rural areas and the outer suburbs where the need to upgrade individual connections to each home or business to provide broadband by fibre or other fixed line solution can be ruinously expensive – and this will all take considerable time. 32. If insufficient homes are clustered together, fixed line solutions are unviable. Fibre requires 50 households per cabinet to make it economic to deploy, so many rural homes could not be offered fibre with the funds currently available for subsidy. 33. Fibre is not cost effective to deploy for more than 1 million households - wireless broadband is the only practical solution for virtually all of them (with satellite broadband being offered to the final few). Wireless broadband could be deployed quickly and offered to all consumers within range of each transmitter as soon as it was switched on. 34. The 800 MHz spectrum is ideal for providing universal broadband access (having previously provided universal public service television), covering large areas, bending around hills and going through walls. Conversely the 2.6 GHz spectrum offers high bandwidth but small cell size, and is ideally suited to urban and inner suburban areas, 35. The effectiveness of using 800 MHz spectrum to deploy 4G wireless broadband in rural areas was modelled for Ofcom and Arqiva in 2009 and, at the end of Spectrum: Written evidence 83
2010, Arqiva borrowed some of this spectrum from Ofcom and carried out an extensive 4G trial. 36. We were able to demonstrate delivery of high speed broadband (in excess of 50 Mbit/s) in a challenging rural environment (difficult and highly costly for fibre to address) where citizens currently experience typical speeds which are less than 500 kbit/s. 37. 800 MHz wireless broadband must be an essential part of the solution to achieve the government’s key public policy objective of universal broadband. The special contribution which 800 MHz spectrum should make to achieving this objective has also been recognised by the European Commission, where a recent Commission Proposal39 to the European Parliament and the Council included: “Member States…shall ensure that the provision of access to broadband content and services using the…800MHz band is encouraged in sparsely populated areas, in particular through coverage obligations.” 38. Of course, wireless broadband spectrum could be implemented both for mobile broadband (handsets, tablets, dongles) and for fixed substitution (where fixed broadband wouldn’t be cost-effective).
800 MHz is essential to achieve universal access to broadband.
The optimal coverage obligation
39. While Ofcom, in its proposals for the auction, has recognised the key role which 800 MHz should play in delivering universal access to broadband, their proposed coverage obligation stops short of actually ensuring that universality would be achieved. 40. 95% population isn’t universality. Indeed it is an obligation so unadventurous that an operator could theoretically comply without deploying its 800 MHz spectrum in the whole of Suffolk, Northern Ireland and Cumbria combined. 41. Using the same spectrum, and infrastructure still in place, Arqiva delivered more than 98.5% population coverage of television. It is clear that at least some of the 800 MHz spectrum ought to achieve far closer to universality than has been proposed by Ofcom. 42. The 98% population coverage called for recently by MPs following a debate in the House of Commons on rural broadband would almost achieve the goal, but only a 99% obligation would leave so few consumers potentially requiring a satellite solution (slower and more costly) that there would be no need for alternative, far more interventionist means of ensuring wireless broadband could be offered to them. 43. The proposed coverage obligation should be assessed by Nation, to ensure that the benefits are spread widely. The Committee should note that the French proposal for their 800 MHz is for the 99.6% coverage obligation to be measured regionally. 44. Only by imposing a 99% population coverage obligation by Nation – and ensuring universal access to broadband, and hence digitised public services -
39 COM(2010) 471 final
84 Spectrum: Written evidence
would the projected huge cost savings from slimming down “offline” Whitehall be achieved. 45. If imposing a 99% population coverage obligation by Nation on one 800 MHz licence reduces the auction proceeds from that licence (which, given that each block of this spectrum has different characteristics, may not be apparent even when the auction has closed), that short-term loss to the Treasury may be dwarfed by the long term economic and societal benefits of providing access to at least hundreds of thousands of homes, schools, and farms and other small businesses, which would otherwise have been left without.
The right coverage obligation will achieve universal access to broadband.
Whether licence fees for mobile operators have previously been set at appropriate levels, and how this should be assessed;
46. Prior to the 3G licences, the licence fees paid by the relevant operators of mobile spectrum was determined by Ofcom without any market benchmarks and with that spectrum being non-tradable. 47. Only when the outcome of the 800 MHz/2.6 GHz auction is known will it be clear whether those licence fees were set at an appropriate level.
How the position of the UK compares with other countries, with regards to the allocation and utilisation of mobile broadband spectrum;
48. Legal proceedings, and then the last government’s Digital Britain initiative, delayed Ofcom awarding the 800 MHz and 2.6 GHz spectrum, but equipment is only just becoming available now and neither spectrum band will be available UK-wide until 2014. There are still many countries which have yet to allocate these bands. So, contrary to the views of some commentators, the UK is not obviously lagging behind in allocating and (more importantly) using this spectrum. 49. In addition, the MOD has given priority to the release of its 2.3 GHz mobile broadband spectrum. 50. In terms of utilisation, the UK’s adoption of smartphones (28% share of total handset users by March 201140) compares favourably with other major European countries, and all of the operators have felt the impact of their subscribers’ insatiable demand for data on their mobile broadband spectrum in urban areas. 51. But meeting the demand for data requires a data connection, and here the UK arguably has sub-optimal utilisation because there are so many data “not spots”. The 3G licences contained population coverage obligations of only 80%, a far less challenging coverage target than was placed on 1G and 2G licences, and 3G is unavailable in many rural areas. This strongly suggests that there is little commercial incentive for investment beyond this level. 52. The UK should learn the lesson of 3G when licensing 4G, where the 800 MHz spectrum is ideally suited to rural coverage and that spectrum will be awarded
40 Source: Enders Analysis. Spectrum: Written evidence 85
against a backdrop of a series of public procurements of broadband where up to £830m of public subsidy identified by Central Government, plus additional funding from the Devolved Assemblies, the EU and industry itself, will be available by 2017 to make access to broadband of at least 2 Mbit/s downlink universally available. 53. Unless the 800 MHz coverage obligation is for close to 100% population coverage, with sanctions for non-compliance, there could be no guarantee that the operator would choose to deploy the spectrum to anything approaching that level. 54. If Ofcom were persuaded to set a coverage obligation of 99% population, measured by Nation, on just one of the 800 MHz licences, then more than one million homes (maybe 2 million citizens and consumers) wouldn’t be left on the wrong side of an ever-widening digital divide. 55. Any outcome which left all of the 800 MHz spectrum unused across large swathes of the UK could hardly be assessed to have been the optimal use of that precious spectrum – and it is optimal use of spectrum (a Crown asset) which Ofcom is charged by Parliament to achieve, not maximising auction proceeds.
The possible impact of the auction on alternative uses for spectrum.
56. Decisions taken by Ofcom on auction timing, auction design, technical licence conditions (i.e. what purchasers would be permitted to do with their spectrum) and methods of payment for purchased spectrum all influence who might be awarded spectrum and what they might then do with it. Technical- and service- neutrality is a goal for spectrum awards, but it can never be achieved. 57. In determining an auction design and technical licence conditions, Ofcom has regard to what the market tells it is the most likely source of demand, taking account of current and imminent equipment availability. For an 800 MHz/2.6 GHz auction in 2012, that demand is almost certainly going to be to deploy LTE technology. Arqiva believes that Ofcom is right to assume use of LTE for this auction. 58. Obviously an auction designed with LTE use in mind might then preclude an alternative use, but Ofcom cannot design an auction to accommodate every potential use and, given the potential for spectrum between different uses to have to be left fallow to minimise interference, arguably seeking to maximise different uses could also lead to a sub-optimal use of that spectrum. 59. One other factor to note is that there is a risk that, in seeking to derive new licence fees for existing mobile spectrum from the auction values achieved for 800 MHz and 2.6 GHz, Ofcom may be tempted to then determine licence fees for other spectrum with very different economic value, such as the spectrum used by Freeview.
June 2011
86 Spectrum: Written evidence
Written evidence submitted by Network Rail (SP 15)
Network Rail and Spectrum
1. The railway, in common with other critical national infrastructure, relies on high- quality, highly reliable telecommunications. The quantity and quality of information needed to run the network safely and efficiently is set to continue to grow as signalling, passenger information and train management become increasingly sophisticated to deliver the railway Britain’s economy needs.
2. Currently, GB mainland railway operational communications, to train drivers and key staff, is delivered using legacy analogue radio systems, which are gradually being replaced by GSM-R. All of these systems are built upon a common foundation of good quality, dedicated radio spectrum. This is however just one system element required to deliver a mobile communication system fit for a safety critical operational purpose. The next generation of operational mobile communications, such as Automatic Train Operation and In-Cab CCTV, will be characterised much increased bandwidths, whilst maintaining the current service integrity.
3. Auctioning spectrum to commercial users makes sense if we want to maximise government’s revenues. However, requiring providers of critical national infrastructure and the emergency services to compete with mobile telephone operators risks either under-providing essential spectrum, or over-paying for it.
4. Maximising income from the auction must be set against the cost to essential public services of doing so. Network Rail’s income is made up of direct grant from government and income from train operators, many of whom are in receipt of public subsidy. Most other critical national infrastructure is publically funded; forcing competition between essential public services and commercial operators is unlikely to deliver value for money.
5. One way to proceed would be to reserve sufficient spectrum for critical national infrastructure. This approach has been followed in the United States and ensures that revenue from commercial operations is maximised and the public interest protected.
6. If this approach is not followed, in favour of a conventional price-led auction, it is likely that critical national infrastructures may have to buy mobile data services from commercial operators. This would be problematic, because the specifications of the two types of use are quite different. The railway requires extremely reliable and high-quality communications, well beyond what is required for mobile telephone networks. If a mobile telephone signal is weak it is an irritation; if a train with in-cab signalling loses contact with the control centre it would cause significant delays to multiple trains; in the worst-case becoming a safety risk.
7. In summary, we believe that auctioning spectrum is appropriate for commercial users but not critical national infrastructure or emergency services users. The different specifications required, as well as value for money for taxpayers, mean Spectrum: Written evidence 87
that to require Network Rail and others in a similar position to compete with mobile telephone services risks under-specifying or over-paying, or both. Reserving a proportion of the spectrum for critical national infrastructure would enable the government to maximise revenue from commercial operators without denying essential public services’ rather different telecommunications needs. This approach could either be achieved through direct access to suitable spectrum, or by applying public service commitments to some of the auctioned spectrum.
June 2011
88 Spectrum: Written evidence
Written evidence submitted by Ofcom (SP 16)
Summary
Ofcom welcomes this inquiry into spectrum by the Committee. Spectrum is an increasingly important, valuable and finite national resource. As demands on the use of spectrum intensify the efficiency with which it is managed will become more important, and a failure to do so will become more detrimental to consumers, citizens and the economy.
We believe that the release of additional spectrum suitable for the provision of mobile broadband services is much more likely to promote rather than hinder competition in future; nevertheless we have proposed measures in the forthcoming auction for 800 MHz and 2.6 GHz spectrum specifically intended to ensure that competition is promoted.
While none of our statutory duties relate to the generation of proceeds for the Treasury we believe that a well designed competitive auction is very likely to achieve value for money for tax payers. Similarly we believe that our careful consideration of the costs as well as the benefits of any regulatory intervention, as required by our duty to act proportionately, mean that our regulatory decisions, taken following full consultation, strike an appropriate balance between benefits for citizens and consumers and any costs to tax payers and others.
The deployment of next generation mobile broadband services (i.e. 4G) should offer consumers higher speeds with wider, deeper and more consistent coverage than today’s 3G services. Top headline marketed speeds could be up to 60Mbps or more, although typical speeds are more likely to be around 4Mbps and upwards. Coverage should, in time, be significantly better than today’s 3G coverage, with 4G services available across more of the country and with better availability inside buildings – approaching if not exceeding today’s 2G coverage. Capacity should also be significantly greater than that of today’s 3G networks.
The forthcoming availability of 800MHz spectrum makes it entirely possible for next generation mobile broadband services to be widely available across the UK, in rural as well as urban areas. To ensure that this happens, and within a reasonable period of time, we have proposed a coverage obligation that would require at least one mobile network operator to provide next generation mobile broadband services to almost all areas of the UK where 2G voice services are available today, both urban and rural, by no later than the end of 2017 (an indoor service with 95% population coverage). Some stakeholders, as well as a number of Members of Parliament, believe that this coverage requirement should be higher, for example 98% UK population coverage. We are currently considering such arguments carefully, and we will carefully consider any and all additional evidence supporting such a position, bearing in mind the costs as well as the benefits of increasing the coverage obligation.
Ofcom last reviewed the level of licence fees payable for mobile spectrum in 2004. In line with the well established principles of Administered Incentive Pricing (AIP), those fees were set at a level in excess of our costs of administration with the objective of encouraging efficient use of the spectrum. (The mobile network operators pay, in total, Spectrum: Written evidence 89
approximately £65 million per year for access to this spectrum). Full details of the method used to calculate those fees were set out and consulted on at the time. In line with the government’s direction to us of December 2010 we plan to review the level of these fees again in 2012, after the auction, and to set them then at a level that reflects “full market value”. (For the avoidance of doubt, we do not believe that we have the power to apply revised fees retrospectively).
Consumers in the UK enjoy some of the best mobile broadband deals in Europe. As a result, consumer take-up of mobile broadband in the UK is ahead of most of Europe. We believe this is because of the good level of competition in the UK today.
Our proposals are intended to promote competition to at least this level in future by ensuring that at least four competitors have sufficient spectrum of the right type to have the opportunity of being a competitive national wholesaler in the market for next generation mobile broadband services. The market situation in other European countries differs, in some cases significantly, from that in the UK, and other European regulators have taken a different approach to the award of this spectrum.
While the technical licence conditions and auction design that we have proposed for the 800MHz and 2.6GHz spectrum are intended to facilitate the provision of next generation mobile broadband services (as the use expected to generate greatest benefit for consumers and citizens), we are not proposing to prohibit the use of these frequencies for other purposes if it turns out that those are more valuable. So far as users of adjacent frequencies are concerned, we are taking particular care to ensure that we understand the potential impact on such users of the deployment of next generation mobile broadband services, and are taking appropriate action to manage and where necessary mitigate those impacts.
Whether the proposed method of spectrum allocation promotes, or hinders, competition in the provision of mobile broadband services
One of the greatest barriers to competition in mobile markets is the scarcity of suitable spectrum, in particular spectrum that has been internationally harmonised for mobile service use and for which there is strong demand for consumer devices worldwide – such as the 800MHz and 2.6GHz spectrum. The award of this spectrum therefore represents a very significant opportunity for competition to be enhanced in future, through both the potential entry of new players into the market and through an overall increase in market capacity.
At the same time we cannot ignore the possibility that one or more players might seek to corner the market in this additional mobile spectrum in order to restrict future competition, or that some other market failure might lead to less competition in future than would be in the best interests of consumers. It is for these reasons that we have already undertaken an assessment of likely future competition in mobile markets post the award of the 800MHz and 2.6GHz spectrum, and proposed ex ante specific measures in the auction to promote competition.
Our key proposal in this regard is that we introduce measures into the auction intended to ensure that at least four players each hold sufficient spectrum of the right sort after the auction to have the potential to be credible national wholesale competitors – what we have termed ‘spectrum floors’. A second proposal is that we impose spectrum caps
90 Spectrum: Written evidence in the auction so that no one player can acquire so much spectrum through the auction, relative to others, that competition might be distorted in future.
At the same time we are also seeking to promote competition in other ways, for example by proposing to allow part of the 2.6GHz spectrum to be used potentially on a shared low-power basis by up to 10 licensees. This could allow a number of new approaches to mobile broadband service provision to develop and grow; for example providing competitive mobile broadband services in homes, offices, shopping centres and campuses through the use of low power femtocells and picocells, rather than the more traditional high power macrocells41.
Overall we believe that our proposals strike the right balance between securing efficient use of the spectrum and promoting competition; in both cases for the benefit of consumers and citizens. We are however currently reviewing stakeholder responses to our consultation and our proposals may change as a result.
Whether the upcoming auction can provide value for money for tax payers and how that should be balanced with benefits for consumers
As a public body, Ofcom is keenly aware of the need to provide value for money for those that fund our work, including tax payers.
Ofcom’s statutory duties, in so far as they affect our regulatory decision making, do not include any reference to value for money for tax payers or proceeds to the Treasury arising from the release of any public asset, including spectrum. Consequently these are not matters that explicitly figure in our regulatory decision making. Our main duty in relation to spectrum is to secure its optimal use in the interests of citizens and consumers.
Nevertheless, in practice we believe that a well designed competitive auction is likely to achieve value for money for tax payers when it comes to the awarding of the 800MHz and 2.6GHz spectrum, both as regards the cost of the process itself and in respect to the proceeds from the auction. Evidence from previous auctions tends to support this view.
Perhaps of more significance however is the fact that when taking regulatory decisions we give very careful consideration not only to the benefits that any regulatory intervention might generate for consumers and citizens, but also to the costs that are likely to be incurred, as required by our duty to act proportionately. All of our proposals for interventions in the auction of the 800MHz and 2.6GHz spectrum, for example in relation to the promotion of competition and the proposed coverage obligation, have therefore been arrived at following a careful consideration not only of the benefits of such intervention but also the potential costs. All of this analysis is open to comment and challenge by stakeholders, as part of our consultation process, and we will look carefully at all stakeholder responses before making our final decisions.
41 Picocells and femtocells are both examples of small mobile base stations, generally used to provide coverage or additional capacity in particular areas e.g. inside buildings. Macrocells are the more traditional mobile base stations used to provide coverage and capacity across large areas. Spectrum: Written evidence 91
We are therefore confident that our final decisions will strike the appropriate balance between benefits to citizens and consumers on the one hand, and the cost to tax payers and others on the other.
The potential for next generation mobile internet services offered by the forthcoming availability of spectrum
The deployment of next generation mobile broadband services (4G services) should offer consumers higher speeds with wider, deeper and more consistent coverage than today’s 3G services. Top headline marketed speeds could be up to 60Mbps or more, although typical speeds are more likely to be around 4Mbps and upwards. Coverage should, in time, be significantly better than today’s 3G coverage, with 4G services available across more of the country and with better availability inside buildings – approaching if not exceeding today’s 2G coverage. Capacity should also be significantly greater than that of today’s 3G networks.
Whether the upcoming auction can deliver improved mobile broadband coverage in rural areas, as well as cities
Future availability of the 800MHz band for next generation mobile broadband services definitely has the potential to facilitate the delivery of improved mobile broadband coverage in rural areas, as well as cities. The ease with which mobile networks can deliver services in rural areas depends, in part at least, on the frequencies that are available for the provision of those services. In this regard lower frequencies are preferred, because lower frequency signals tend to travel further than those at higher frequencies, and so wider coverage can be provided for similar cost. The 800MHz band frequencies are almost ideal, being comparable to those used to provide 2G services today at 900MHz.
We therefore currently see no reason why, in due course, the coverage of next generation mobile broadband services should not approach that of today’s 2G (voice) services, in both urban and rural areas, which would be a considerable improvement on today’s 3G (mobile broadband) coverage levels.
To ensure that this happens, and does so within a reasonable period of time, one of our proposals for the auction is that one 800MHz licensee be required to provide a next generation mobile broadband service (a minimum 2Mbps service indoors) with coverage approaching that of today’s 2G networks (covering at least 95% of the UK population), by no later than the end of 2017.
Some stakeholders, as well as a number of Members of Parliament, believe that this coverage requirement should be higher, for example 98% UK population coverage. We are currently considering such arguments carefully, and will carefully consider any and all additional evidence supporting such a position, bearing in mind the costs as well as the benefits of a more extensive coverage obligation than that currently proposed.
Whether licence fees for mobile operators have previously been set at appropriate levels, and how this should be assessed
We last reviewed the level of annual licence fees payable in respect of mobile spectrum in 2004. We did so within the context of a wide ranging review of fees set to
92 Spectrum: Written evidence encourage efficient use of spectrum – so called Administered Incentive Prices (AIP) – that had previously been set by the Radiocommunications Agency - the predecessor of Ofcom as regards spectrum licensing, and a branch of the former Department for Trade and Industry. Our analysis and proposals were the subject of a full public consultation at the time.
That review confirmed that the fees for mobile spectrum should continue to be at a level in excess of the costs of administration, with the objective of encouraging efficient use of the spectrum in line with our statutory duties, European law, and the, by then, well established principles of AIP. We recognised at the time that the level of those fees would likely need to be reviewed again, once it became possible for new technology to be deployed in the bands, but this was not imminent at the time.
Following this review, the four (now three) mobile network operators with licences to use the 900MHz and 1800MHz spectrum have been paying annual licence fees totalling approximately £65 million per year. (Annual licence fees are not currently payable in respect of the 3G spectrum at 2100MHz as the winners of that spectrum paid upfront for the initial period of those licences, to 31 December 2021).
As with all spectrum licence fees all of these monies go to the Treasury.
In December 2010 the government directed us to vary the existing 900MHz and 1800MHz licences to allow the use of Universal Mobile Telephony Service (3G) as well as Global System for Mobile communications (2G) technology. At the same time the direction also instructed us to carry out a review of the annual licence fees payable in respect of this spectrum after the auction of the 800MHz and 2.6GHz spectrum, and to then set fees that reflect “full market value”, having particular regard to the sums bid for licences in the auction. This we will do.
Given that we are required to undertake a fee review in the near future (after the 800 MHz and 2.6 GHz auction), at which point we expect to have considerably better information about the true value of mobile spectrum (as a result of bids in the auction), it would not appear to us to be a good use of our limited resources to undertake an additional review of these licence fees before then.
How the position of the UK compares with other countries, with regards to the allocation and utilisation of mobile broadband spectrum
Consumers in the UK enjoy some of the best mobile broadband deals in Europe. As a result, consumer take-up of mobile broadband in the UK is ahead of most of Europe. We believe this is because of the good level of competition that we have in the UK today. Our proposals are intended to promote competition at at least this level in future, by ensuring that at least four competitors have sufficient spectrum of the right type to have the opportunity of being a competitive national wholesaler in the market for next generation mobile broadband services. The market situation in other European countries differs from that in the UK, and other European regulators have taken a different approach to the award of this spectrum.
Spectrum: Written evidence 93
The possible impact of the auction on alternative uses for spectrum
The technical licence conditions and auction design that we have proposed for the 800MHz and 2.6GHz bands are intended to facilitate the efficient and competitive provision of next generation mobile broadband services in the near future, since this is the use that is currently expected to generate the greatest benefit for consumers and citizens.
However, we are not proposing to prohibit the use of these frequencies for other purposes in either the short or longer term. Indeed we see it as essential to our statutory duty to secure optimal use of the spectrum for the benefit of citizens and consumers to ensure that it is possible for the use of the spectrum to be both different from that which we as the regulator anticipate will be the most valuable at any given point in time, and for that use to change over time as both technology and markets evolve.
We are therefore entirely content for rights to use this spectrum to be acquired and for it to used for purposes other than next generation mobile broadband if the parties that wish to do so are able to demonstrate the greater value that they expect to generate from this use by out-bidding those that would use it for next generation mobile broadband, although for the moment at least we consider this outcome unlikely.
So far as the users of adjacent frequencies are concerned, we are taking particular care to ensure that we understand the potential impact on such users of the deployment of next generation mobile broadband services, and are taking appropriate action to manage and where necessary mitigate those impacts. Examples of potential impacts include increased interference into digital terrestrial television (DTT) receivers and increased interference into aeronautical radar systems. [I can see Graham’s concern but as he says these are the best examples, and some MPs know about them already}.
In relation to the potential interference into DTT receivers we have undertaken a significant amount of technical research and testing to understand, as far as is possible prior to mobile network deployment, the likely mechanisms and scale of potential interference and the possible means of mitigation. We have also identified a number of alternative ways in which such mitigation measures might be delivered in practice. Our work on this to date has culminated in the recent publication of a consultation document42 setting out the nature and scale of the issue, and putting forward proposals for how it should be addressed. We intend to actively engage with a wide range of stakeholders on this issue over the coming months, prior to us making decisions on these issues later this year.
In the case of aeronautical radar systems, we are actively working with all of the key aeronautical stakeholders to plan and ensure delivery of a coordinated programme of radar upgrades which will make these systems more robust to incoming interference, and consequently capable of operating effectively even after next generation mobile broadband services have been widely deployed. We are at the same time developing rules to ensure that, both in the interim and the longer term, the deployment and operation of next generation mobile broadband systems are appropriately coordinated with the operators of aeronautical radar systems.
42 http://stakeholders.ofcom.org.uk/consultations/coexistence-with-dtt/ Consultation closes on 11 August 2011.
94 Spectrum: Written evidence
Written evidence submitted by Everything Everywhere (SP 17)
Culture, Media and Sport Select Committee inquiry into Spectrum
1. I am writing on behalf of Everything Everywhere in response to your Committee’s Inquiry on Spectrum. Our response is structured as follows:
• Brief Background on Everything Everywhere • Our view on Ofcom’s consultation on competition in mobile and proposals for the award of 800 MHz and 2.6 GHz spectrum • The role of wireless in extending broadband coverage
We provide brief answers to your specific questions at Annex A.
Background on Everything Everywhere 2. With over 27 million customers and 16,000 people working on our behalf, Everything Everywhere is the UK’s leading communications company offering services under the Orange and T-Mobile brands. Everything Everywhere is a key investor and contributor to the UK economy, with our shareholders having invested £52 billion in this business over the last 10 years – about 7% of total foreign investment into the UK.
Our view on Ofcom’s consultation 3. Ofcom recently published its consultation document on its assessment for future mobile competition and proposals for an auction of spectrum in the 800 MHz and 2.6 GHz bands (‘the Consultation’). As you know, access to the right spectrum is a critical input to our business and the upcoming auction is an important event for our company. We welcome the timely nature of the Committee’s inquiry into spectrum and related issues. We would like to take the opportunity to bring up some serious concerns we have over Ofcom’s proposals for the auction.
4. The increased media coverage of launches of new mobile devices and services highlights that we are in the midst of a fundamental extension of the role of mobile devices in society. Tablets and smartphones are bringing (first of all) the internet and (secondly) video in a variety of forms onto mobile devices. For the average consumer smartphones could replace PCs as the standard entry point on to the internet43 in the next five years. In addition, we anticipate a significant extension in the functions of mobile devices with, for example, mobile devices becoming payment systems and an upsurge in machine-to-machine applications.
5. This rapid evolution is not in question and Ofcom refers to it at length in the Consultation. The consequent explosion in data traffic on mobile networks has been visible for several years and there is little basis to question the forecasts of Cisco44 that suggest compound annual growth rates in data traffic of 90% or more over the next five years.
6. More data traffic on mobile networks means mobile network operators will need more spectrum to provide capacity to carry the increased traffic load. We expect that
43 The Guardian 5 June 2011 – ‘How the smartphone is killing the PC’: www.guardian.co.uk/technology/2011/jun/05/smartphones-killing-pc 44 www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-520862.html Spectrum: Written evidence 95 traffic growth will increase by at least a factor of 30 by 2020 and we find it difficult to identify how this demand can be met – given what we know now, greater efficiency of spectrum use and identifiable additional spectrum will be only partly able to satisfy this huge increase in traffic. We do however believe that a competitive market is of pivotal importance in ensuring that any gap between the underlying growth in demand and capacity is minimised or eliminated – it is competition that will produce the necessary investment and innovation.
7. Ofcom recognises of course that competition is important and that because spectrum is a critical input to the provision of mobile communications services, access to spectrum is of fundamental importance to competition.
8. As the Committee will be aware the current allocation of spectrum is the result of public policy decisions made between 10 and 30 years ago. The first UK licences for mobile services using 900 MHz spectrum were awarded to Vodafone and O2 (Cellnet) in 1983, and subsequently they were permitted to use this spectrum for so-called ‘2G’ (or GSM) mobile telephone services. Both operators gained additional, high frequency spectrum at 1800 MHz in the early 1990s. T-Mobile (One2One) and Orange entered the market in 1993 and 1994, having been awarded 1800 MHz spectrum. The most recent spectrum allocation for mobile services took place in 2000, when the then Government auctioned the 2.1 GHz spectrum for ‘3G’ mobile services. This auction resulted in Hutchison 3G (“Three”) entering the UK market, and the existing four operators added to their spectrum holdings.
9. In January this year, the original 2G licences were liberalised. This means that Vodafone and O2 can now offer 3G services using their 900 MHz licences. In contrast to the experience in most other European markets, Everything Everywhere and Hutchison 3G have no low frequency spectrum and, despite years of debate on the issue, the liberalisation process did not result in any redistribution of this spectrum.
10. For mobile services, competition depends critically on spectrum. As the Committee will be aware, an operator’s spectrum portfolio determines its ability to offer its customers capacity, coverage and performance in a cost competitive way. ‘Sub-1 GHz’ spectrum, i.e. spectrum in the 800 MHz or 900 MHz bands, has particular characteristics compared to spectrum at 1800 MHz or 2.1 GHz. Locations deep inside buildings can only be reached with sub-1 GHz spectrum and sub-1 GHz spectrum also has greater geographical reach, which means that rural areas can be better covered with fewer masts. This means that customers will get a better experience from a mobile network operator that has access to sub-1 GHz, and operators with such low frequency spectrum will have lower costs. Hence access to sub-1 GHz spectrum is critical to a mobile network operator’s ability to compete.
11. On the basis of its competition assessment, Ofcom has now recognised that sub- 1GHz spectrum provides an “unmatchable advantage” and accordingly proposed measures for the upcoming spectrum auction, which it believes should help to ensure future competition. The core concept underpinning these measures is that there should be at least four operators after the auction, which have access to a sufficient amount of sub-1 GHz spectrum. However, whilst we fully support the critical link between spectrum and competition that Ofcom has made, we believe Ofcom has got the pro- competitive measures to achieve this wrong.
96 Spectrum: Written evidence
12. Ofcom has focused on understanding the minimum amount of sub-1 GHz spectrum that an operator needs, and come to the conclusion that this is 2x5 MHz (of the total 2 x 65 MHz available45). Ofcom’s technical work aims to demonstrate the equivalence of spectrum portfolios including such small amounts of sub-1 GHz spectrum with portfolios including much larger amounts of sub-1 GHz spectrum in terms of the coverage and capacity that a mobile network operator can deliver for its customers. However, competitiveness is not about minimum holdings. What will matter for healthy and robust competition is the relative holdings of sub-1 GHz that mobile network operators will have after the auction.
13. The view, as set out in Ofcoms’ Consultation, that to be viable a mobile network operator requires only a certain minimum amount of low frequency spectrum misrepresents the nature of the market today, and ignores the differing holdings of sub-1 GHz spectrum. Everything Everywhere is extremely concerned that the auction rules as proposed could facilitate an outcome where Vodafone and O2 each hold more than five times the amount of critical sub-1 GHz spectrum than Everything Everywhere and Hutchison 3G. This would amount to the continuation of an effective duopoly of sub-1 GHz spectrum and it must be avoided through a change in the auction rules. We think that Ofcom’s intervention must ensure that mobile operators other than Vodafone and O2 hold at least 2 x 10 MHz of business critical sub-1 GHz spectrum.
14. Extending the current duopoly of operators with sub-1 GHz spectrum will perpetuate Vodafone and O2’s current unmatchable competitive advantage. This would harm investment incentives in next generation, ‘4G’ mobile services, dull incentives to ensure data network coverage, reduce the competition to provide access to rural areas and ultimately mean less effective competition (with higher prices, lower quality and less innovation) for mobile broadband customers generally.
15. We expect that Vodafone and O2 may suggest to the Committee that Everything Everywhere has more spectrum overall than any of its competitors. Whilst we desperately lack access to sub-1GHz spectrum, it is true that Everything Everywhere currently has more spectrum above 1 GHz than Vodafone, O2 or Hutchison 3G. We note that we serve more customers with our spectrum holding than Vodafone and O2 do, and hence we need more spectrum for capacity. However, it is important to stress that the forthcoming auction will make available at least 2 x 90 MHz to 2 x 105 MHz of additional spectrum above 1 GHz.46 Vodafone and O2 will almost certainly win significant quantities of this spectrum in the auction. Hence after the auction Everything Everywhere will not have more spectrum above 1 GHz than our competitors, when taking into account the number of customers we serve. The critical issue for competition is access to sub-1 GHz, which is extremely scarce. Ofcom themselves recognise that mobile network operators offering services over 900 MHz spectrum enjoy efficiencies of two thirds over those operators who do not possess sub 1 GHz spectrum as they require fewer masts to provide services.
16. Whilst Ofcom’s intention to ensure healthy competition through adequate spectrum portfolios is one we support, we do not think the current proposals, as they
45 2 x 30 MHz in 800 MHz to be awarded in the forthcoming auction and 2 x 35 MHz in the 900 MHz band which is shared between Vodafone and O2 including guard bands. 46 This is 2x70 MHz of paired spectrum at 2.6GHz plus 50 MHz of unpaired spectrum at 2.6GHz, which is equivalent to at least 2x20 MHz of paired spectrum plus 2x15 MHz of 1800 MHz that Everything Everywhere undertook to divest as part of the merger of Orange UK and T-Mobile UK, which we may sell privately or add to the auction. Spectrum: Written evidence 97
stand, will deliver the desired outcome. We are extremely concerned that Ofcom’s proposals could result in two healthy mobile operators, and undermine the long term viability of the two other holders of spectrum.
Rural broadband 17. The 800 MHz spectrum to be awarded in the upcoming auction offers a great opportunity to improve rural broadband coverage. Ofcom has set a coverage obligation on one of the licences to be awarded that it must provide mobile broadband with a downlink speed of 2Mbps to 95% of the population. We are not opposed to this - provided that Ofcom gets the details right - but we do not believe that it is the most effective way of delivering rural broadband.
18. We would like to draw the Committee’s attention to a rural broadband trial in Cornwall that Everything Everywhere has recently launched jointly with BT. This trial sets out to develop a hybrid fixed and mobile solution to deliver broadband to those homes which do not currently have access to basic broadband of at least 2Mbps. BT will extend its fixed fibre network as widely as possible. Everything Everywhere has obtained non-operational licences for 2 x 10 MHz of 800 MHz spectrum and based on that, we will deliver wireless broadband to the last few households and businesses that are very costly to reach with BT’s fixed network.
19. Everything Everywhere can demonstrate that 2 x 5 MHz of sub-1 GHz spectrum will not be capable of providing sufficient performance or capacity to handle broadband traffic levels in such rural broadband not-spot areas. A key finding from the Cornwall trial is that 2x10 MHz is the minimum quantity of sub-1 GHz spectrum necessary for the commercial viability of wireless access as a solution for rural broadband. Otherwise, the percentage of not-spots covered to the right performance level is so limited that it no longer justifies the significant investment involved.
20. In addition to providing coverage at a given speed, the mobile site must have sufficient capacity to deliver broadband service to all the not-spots covered by that site. If not, customers in not-spots will face congestion and severely reduced performance. The step up from 2x5 MHz to 2x10 MHz also brings benefits here, reducing the number of not-spots with insufficient capacity by 24 percentage points.
21. Prior to this auction, only O2 and Vodafone have the necessary sub-1 GHz spectrum, creating a duopoly for such rural broadband projects. If this continues, it will reduce the value for money achieved from the public funds set aside for rural broadband projects (administered by BDUK) as well as initiatives taken by the devolved administrations. We believe that it is crucial that after the forthcoming spectrum auction, other operators are able to compete for rural broadband projects with public funding.
Annex A
Q1. Whether the proposed method of spectrum allocation promotes, or hinders, competition in the provision of mobile broadband services:
A1. This has been covered. We like the proposed auction design but not the detail.
98 Spectrum: Written evidence
Q2. Whether the upcoming auction can provide value for money for tax payers and how that should be balanced with benefits for consumers:
A2. We believe that by undermining the ability of two players to compete the current proposals for the upcoming auction run the risk of depriving consumers of operator investment and innovation, and in the long term risking consumer surplus. In addition the overall spectrum cap unnecessarily constrains our ability to bid without compensating benefits. This will reduce benefits to the tax payer.
Q3. The potential for next generation mobile internet services offered by the forthcoming availability of spectrum:
A3. We believe that the auction of 800 MHz and 2.6 GHz spectrum offer great potential for next generation mobile internet services. The spectrum auctioned will reduce, but not eliminate, the spectrum shortage which will materialise over the next few years. Government and Ofcom are therefore right to focus on finding additional spectrum to compensate for the inevitable gap between demand and supply.
Q4. Whether the upcoming auction can deliver improved mobile broadband coverage in rural areas, as well as cities:
A4. We believe that new mobile technologies can play a pivotal role in reducing the unavailability of high speed broadband in the UK. We are particularly enthusiastic about developing hybrid fixed and mobile solutions for areas where broadband is not currently available as demonstrated by our Cornwall trial with BT. The auction is a vital step in permitting such solutions being developed.
Q5. Whether licence fees for mobile operators have previously been set at appropriate levels, and how this should be assessed:
A5. Vodafone and O2 have essentially paid insignificant amounts for their 900 MHz spectrum since 1983. The proposal to charge them realistically is welcome, although we believe that the detail of these proposals undervalues 900 MHz and overvalues 1800 MHz and we would like to see this addressed. 900 MHz spectrum can and is being used for high speed mobile broadband now. There is no equipment for UMTS1800 MHz.
Q6. How the position of the UK compares with other countries, with regards to the allocation and utilisation of mobile broadband spectrum:
A6. The position that Everything Everywhere and Hutchison 3G find ourselves in is unique in Europe. Nowhere else has 900 MHz spectrum been liberalised in the hands of the existing licensees where such spectrum is concentrated between just two of the operators. Because of long standing disputes about the allocation of spectrum, the UK has been relatively slow to award spectrum in the new bands, with damaging consequences for the development of mobile broadband. New 4G services have already been launched in Scandinavia who were first to award the new bands from 2007. The German spectrum was auctioned in 2010, and many other European countries are ahead of us. We firmly believe that any subsequent delays to the auction should be avoided in the national interest.
Spectrum: Written evidence 99
Q.7 The possible impact on alternative uses for spectrum.
A7. Our view is a straight forward one. We believe spectrum that is suitable for mobile broadband is most valuably deployed for mobile broadband. Consequently whilst other considerations might need to be taken into account, government policy should be designed to secure relevant frequencies quickly so that they can be exploited for wireless use.
June 2011
100 Spectrum: Written evidence
Written evidence submitted by Intellect (SP 18)
About Intellect Intellect is the trade association for the UK technology industry. In 2007, the industries Intellect represents accounted for 8% of UK GDP, £92bn of Gross Added Value and employed 1.2m people.
Intellect provides a collective voice for its members and drives connections with government and business to create a commercial environment in which they can thrive. Intellect represents over 750 companies ranging from SMEs to multinationals. As the hub for this community, Intellect is able to draw upon a wealth of experience and expertise to ensure that its members are best placed to tackle challenges now and in the future.
Our members’ products and services enable hundreds of millions of phone calls and emails every day, allow the 60 million people in the UK to watch television and listen to the radio, power London’s world leading financial services industry, save thousands of lives through accurate blood matching and screening technology, have made possible the Oyster system, which Londoners use to make 28 million journeys every week, and are pushing Formula One drivers closer to their World Championship goal.
In the past 12 months 14,500 people have visited Intellect’s offices to participate in over 550 meetings and 3,900 delegates have attended the external conferences and events we organise.
Inquiry question responses
1. Whether the proposed method of spectrum allocation promotes, or hinders, competition in the provision of mobile broadband services;
Intellect response: The methods adopted by regulators for releasing spectrum range between a ‘beauty contest’ approach and the holding of auctions. The beauty contest methodology involves the regulator publishing a detailed call for proposals (including business plans) and selecting the successful licensees by scrutinising the various bids. In the past this has laid the regulator open to criticism and challenge. Auctions have not completely removed the threat of challenge. However on balance, Intellect believes that the most appropriate methodology lies nearer to the auction method as it enables the market to determine the licence outcome based on the perceived economic and commercial value. However, experience from previous auctions suggest that auctions may not always deliver all public policy objectives such as on competition (number of licensees) and facilitate new entrants. Lack of sufficient spectrum and perceived market potential also limit these objectives. Ensuring that the spectrum to be released is ideally harmonised (common channel plan but no restriction on use) at a European level is important. However other available spectrum should not be held back and made available to the market as early as possible.
The methodology for releasing spectrum for non commercial applications (e.g military, emergency, public safety etc.) also requires specific consideration. In Spectrum: Written evidence 101
these cases the end users are often public sector organisations who may not be in a position to bid for spectrum. The potential suppliers will not be able to seek spectrum without certainty of customer contracts. In these cases the pragmatic alternatives are for Government to set aside spectrum for such public service applications or to enable spectrum sharing between public service and commercial applications. While there obviously needs to be spectrum for such societal applications we believe that more innovative ways to share spectrum should be considered before allocating spectrum to a particular use.
Whilst mobile broadband is a particular priority currently, there is a diverse range of important wireless applications which also rely on spectrum availability. Space applications have a particular reliance on internationally harmonised spectrum. Any properly integrated spectrum strategy needs to ensure that all have reasonable access to spectrum.
Intellect recognises the difficulties and conflicting factors faced by Ofcom. The Government’s plans to update the Communications Act is a useful opportunity to conduct a dialogue between Government and industry to develop a set of principles to balance these various factors in future spectrum releases beyond that already in place for the 800 MHz / 2.6 GHz award in 2012.
2. whether the upcoming auction can provide value for money for tax payers and how that should be balanced with benefits for consumers;
The ultimate objective of spectrum releases should be to ensure that the benefits of innovation in services, applications and technologies can reach consumers as quickly as possible and provide them better (commercial or social) value. It should not be focussed on narrow and short term revenues for the Treasury / Government. The benefits (and indeed revenue) from the long-term sustained used will far outweigh the short-term revenue gain from its actual release.
3. the potential for next generation mobile internet services offered by the forthcoming availability of spectrum;
Mobile internet and data volumes are escalating. In its Communications Market Report (Aug. 2010), Ofcom estimates that mobile data traffic increased by 240 %, in the UK over 2009. This trend is likely to continue for the foreseeable future, with the increasing uptake of smart devices and tablets. Even the least optimistic forecast shows very strong Compound Annual Growth Rates (CAGR) of worldwide mobile broadband traffic (ranges from ~40% to ~100% CAGR).Thus there is certainly considerable demand for the 800 MHz and 2.6 GHz spectrum. Spectrum license auction delays are costly to a nation's economy (billions of pounds in lost revenue for each year of delay) and without additional spectrum, congestion will eventually creep in, curtailing growth. The experience of recent auctions in these bands conducted in Europe and elsewhere tends to suggest that the 800 MHz spectrum (with better coverage characteristics) is currently valued higher (per MHz, per population) but with increased demand for broadband services this could be subject to readjustments into the future.
4. whether the upcoming auction can deliver improved mobile broadband coverage in rural areas, as well as cities;
102 Spectrum: Written evidence
The coverage characteristics (i.e. need for smaller number of base stations due to the larger cell sizes) of 800 MHz band is well suited to provide rural coverage in sparsely populated rural areas. However the limitation in the amount of spectrum available to operators will severely limit the data speeds and numbers of users that can be accommodated in a given location.
The 2.6 GHz band while offering potential for rural coverage has two important limitations: the need for a larger number of base stations and reduced in- building penetration. That said, the 2.6 GHz band is better suited for urban broadband deployments where 800 MHz band becomes capacity constrained due to the same propagation characteristics which enable greater cell sizes.
The delayed timescales (Q1 2012 at the earliest) for the 800 MHz / 2.6 GHz auctions will complicate matters for any operators wishing to use these bands for wireless solutions as part of the Government / Broadband Delivery UK’s initiative to enable superfast broadband infrastructure in rural areas. This is because the availability of these spectrum bands will be uncertain within the timeframe of some of the broadband project bids.
5. whether licence fees for mobile operators have previously been set at appropriate levels, and how this should be assessed;
Intellect understands that Ofcom plans to review, following the 800 MHz and 2.6 GHz auction, the licence fees for mobile operators using other, nearby spectrum bands for similar mobile broadband applications with a view to ensuring equitable charges. Whilst understanding the need to review spectrum fees periodically and the requirements of the Government direction, Intellect wishes to reiterate that such fees are in place to incentivise operators to use spectrum efficiently and should take into account other policy objectives including ensuring effective competition and should not be used as a tax on operators. In reviewing such spectrum however, Ofcom should recognise the different usage conditions that are present in the existing bands to be reviewed. Thus the review of fees should take into account a number of factors including the legacy usage (such as voice telephony) in the existing bands as well as the impact of the prices paid in the auction.
6. how the position of the UK compares with other countries, with regards to the allocation and utilisation of mobile broadband spectrum;
Many of our counterparts in Europe as well as US, China, Hong Kong, India, Brazil etc have already conducted their release of spectrum for mobile broadband. Having been at the forefront of previous developments in mobile allocations, UK is now lagging our counterparts. Intellect believes that the Government /Ofcom should ensure that no further delays occur.
7. the possible impact of the auction on alternative uses for spectrum.
In preparing for the deployment of mobile broadband services in the 800 MHz and 2.6 GHz spectrum, there will be a need for consideration given to the protection of existing services (TV broadcasting and radars) in adjacent bands. Spectrum: Written evidence 103
Intellect is disappointed that Ofcom has not concluded the necessary considerations and arrangements sooner and with greater clarity.
Finally, whilst recognising the importance of (terrestrial) mobile broadband and the Select Committee’s reasons for focussing on the auctions at this time, Intellect wishes to highlight the demands for spectrum from a range of other uses, from satellite communications applications to emergency services. Ensuring suitable access to these crucial services is also important and Intellect hopes the Committee will give due consideration to the wider applications of spectrum (and the relevant regulatory challenges) also.
June 2011
104 Spectrum: Written evidence
Written evidence jointly submitted by BBC, ITV, Channel 4, Channel 5, S4C, Arqiva47 and SDN (SP19)
1. Introduction and summary
The above-named organisations welcome the opportunity to make a joint submission to the Committee’s inquiry into Spectrum. As public service broadcasters and multiplex operators on the Digital Terrestrial Television (DTT) platform, we have a clear interest in policy about future spectrum use.
As broadcasters and multiplex operators, we have played a key role in delivering consumer and citizen value, and have enabled the future roll out of 4th generation mobile services by working to free up spectrum:
• Our investments and efforts in driving Digital Switchover (DSO) and the roll out of DTT have created a vibrant, free to air TV platform, highly valued by viewers. This has incentivised consumers to take up digital TV, thereby making the process of DSO much easier and so helping to free up large amounts of analogue spectrum for new uses.
• We have also co-operated fully with Ofcom’s process to amend the post-DSO spectrum plan so as to clear DTT from the 800 MHz spectrum band – thereby directly enabling the auction of the 800 MHz spectrum for mobile uses on a harmonised basis.
• The multiplex operators are investing hundreds of millions of pounds to build out a universal DTT network, and the public service broadcasters and multiplex operators have funded the management of the Digital Switchover (DSO) programme by Digital UK.
• Consumers have made significant investments in DTT reception equipment – with more than 65 million digital TV Freeview devices sold in the UK. Consumers have made these investments based on the Government’s promise to deliver universally available television via DTT – they will therefore expect continuity of service.
At set out in Section 2 below, we have continued to deliver on the viewer interest through services on the DTT platform, and have evolved the platform to deliver new HD services via existing spectrum. Looking to the future, we consider that any spectrum release process – whether that carried out by Ofcom in relation to the spectrum released by DSO, the Government’s public sector spectrum release process, or any future release programmes – needs to take full account of the interests primarily of DTT viewers (as well as of broadcasters and multiplex operators). In this regard, Section 3 of this submission proposes a series of principles that we believe should underpin the future of the DTT platform.
However, and as we highlight in Section 4 below, there is a significant risk that these principles will be undermined by the planned 800 MHz auction process, as new 4G mobile services in the 800 MHz spectrum are likely to create significant interference for
47 In addition to this joint response Arqiva has a separate response that addresses specific matters relating directly to the use of spectrum for the provision of mobile internet services. Spectrum: Written evidence 105
DTT viewers – with Ofcom’s analysis suggesting that 760,000 UK households could be affected. Given the potentially significant impact on DTT viewers, we believe that the Committee should urge Government and Ofcom to ensure that interference is managed proactively – i.e. before it affects consumers – and ideally by putting in place guard bands to ensure that DTT is properly protected.
2. The DTT platform delivers significant consumer and citizen benefits
DTT is a highly successful broadcast platform, which delivers very significant value to UK consumers. Importantly, all indications are that DTT will remain highly important to UK viewers for the foreseeable future:
• Take-up of DTT: DTT is the most popular UK television platform48: • As at the end of 2010, 92.5% of UK homes have digital TV on at least the main TV set • DTT is the most common digital TV platform, providing the primary means of receiving TV for 39% of UK homes – and almost three quarters of UK homes use DTT on a primary or secondary set • More than 65 million digital TV Freeview devices have been sold in the UK
• Key driver of platform competition and economic value • DTT has brought with it a huge expansion of choice (via both the PSB and the Commercial multiplexes), with new services available for free to virtually all of the UK. Indeed, we note that, prior to DSO, DTT was considered so important that Parliament required the PSBs to build out the DTT platform to 98.5% coverage (the same as analogue television). • DTT drives significant consumer value and competition– particularly for households unwilling or unable to pay for subscription TV, and for the great majority of multi-set households. • In the absence of a DTT platform of scale, platform competition would be weakened, to the detriment of UK consumers. • DTT is an open, gateway-free platform, offering both free and pay services. • DTT has created wider economic benefits, by stimulating a horizontal consumer equipment market. Further, in 2010, 40% or c.£1.3bn of the TV advertising market was delivered via DTT (enabling brands to reliably reach mass audiences and to drive product sales)49.
• Efficiency and innovation • The UK’s DTT multiplex operators are committed to investing hundreds of millions of pounds in the platform. The transmission contracts with Arqiva run significantly beyond the current multiplex licence periods, with the costs spread over a longer period in order to reduce risk. • The broadcasters and multiplex operators’ investment in the DTT platform is creating a universally available free to air TV platform, and in so doing has enabled the release of 156 MHz of spectrum freed up by Digital Switchover.
48 All data in the sub-bullets which follow are from Ofcom Digital TV Update, Q4 2010. 49 Based on an allocation of 2010 TV Net Advertising Revenues, by platform according to the volume of adult commercial impacts delivered
106 Spectrum: Written evidence
• The DTT multiplex operators have worked together and with Ofcom to introduce HD services in the existing spectrum, using the most advanced and efficient technologies (DVB-T2 and MPEG-4) to enhance the platform in the interests of viewers. • By innovating in this way, DTT has continued to drive platform competition – including helping to drive innovation by pay TV operators; has brought new technology to everyone in the UK (thereby addressing the digital divide); and has used new services to incentivise consumers to take up digital TV thereby enabling the freeing up of large amounts of analogue spectrum for new uses.
Looking to the future, all indications are that the DTT platform will be of enduring significance for the next decade and beyond:
• Future DTT take up • Forecasts suggest that DTT will account for c.40% of primary set homes in 2020 and, including secondary set connections, will remain the single most popular TV platform (55% of all television sets)50.
• Future content preferences • We expect that demand will continue to be strong for production and broadcasting of live news and events – such as the Royal Wedding and General Election debates – and other mass-audience event TV that brings the nation together. Linear broadcast of such events and programming will continue to be important, and DTT – as the key free to air platform of scale – will be central to enabling access to these events by viewers unwilling or unable to pay for subscription TV.
• Future technologies: • HD is likely to become even more important in the future – as the standard for all TV sets and the norm for content production. Consumers are likely to expect at least their main channels to be broadcast in HD on a free to air basis, and so the role of DTT will be critical here. • Whilst we expect only modest growth in demand for 3D TV, it has the potential for unexpectedly high take-up. There will be some demand for major events broadcast in 3D, requiring flexibility to enable it to be offered on an ad-hoc basis.
3. Key principles for the future of the DTT platform
In light of the very significant benefits delivered by the DTT platform, we consider that any consideration of the future of the platform and UK spectrum policy more generally needs to be informed by the following five principles:
i) Meeting consumer expectations: As set out above, consumers do (and will continue to) place significant value on DTT services, and indeed consumers have made significant investments in DTT reception equipment. They will therefore
50 3Reasons Limited 2011 Spectrum: Written evidence 107
expect continuity of service, and it is in the public interest that these expectations are met.
ii) Securing platform competition: In the absence of a DTT platform of scale, platform competition would be significantly weakened – thereby creating consumer detriment. DTT must retain the ability to compete with the other, predominately pay-TV platforms.
iii) Safeguarding infrastructure investment: As set out above, the UK’s DTT multiplex operators are investing hundreds of millions in the platform. These investments are of such a scale that the multiplex operators should have sufficient certainty that the investments will be safeguarded in order to enable an appropriate return on investment. This is line with the Government’s Principles for Economic Regulation, which state51:
• the framework for economic regulation should provide a stable and objective environment enabling all those affected to anticipate the context for future decisions and to make long term investment decisions with confidence
• the framework of economic regulation should not unreasonably unravel past decisions, and should allow efficient and necessary investments to receive a reasonable return, subject to the normal risks inherent in markets
iv) Enabling evolution of the platform: We recognise that the DTT platform needs to evolve in order to continue to deliver consumer benefit – in order to enhance the platform going forward, this may involve improving spectrum efficiency over time and harnessing new technologies to deliver further HD and 3D services. .
v) Supporting the delivery of public service content: Public service content is of enduring value to UK citizens. Therefore, any decisions about the future use of DTT spectrum also need to consider the implications for the funding of PSB content – we consider that Ofcom should ensure that its recommendations seek to maintain and strengthen the quality of PSB in the UK.
In summary, we expect the DTT platform to remain very attractive to consumers – although it may need to evolve to offer enough HD services, some 3D opportunities, and an interactive complement. We therefore consider that UK spectrum policy needs to take full account of the principles set out above.
4. Interference to DTT from new 4G mobile services in the 800 MHz band
It is possible, however, that Ofcom’s process to release the 800 MHz spectrum will undermine the above principles – due to the fact that, as Ofcom’s own analysis has demonstrated, new 4G mobile services in the 800 MHz spectrum will create significant interference to DTT reception.
51 Page 7 of BIS, Principles for Economic Regulation, published April 2011.
108 Spectrum: Written evidence
It is useful in this context to recap on Ofcom’s own policy position – as set out in Ofcom's statement on "Digital Dividend: clearing the 800 MHz band", published on 30 June 2009 – that disruption to DTT viewers must be minimised. Specifically, Ofcom made clear (at paragraph 1.16 and elsewhere in that document) that it is "very important to protect the integrity of the DSO programme and ensure that any disruption to DTT viewers is minimised".
In this regard, it is worth highlighting two of Ofcom's DTT migration criteria, namely:
"existing authorised and planned users of channels 61 and 62 should not bear extra costs that must reasonably be incurred in order to clear the spectrum"
"any solution should be consistent with existing policy objectives for DTT coverage after DSO, and the process should aim to minimise the impact on viewers of broadcasts from the existing DTT multiplexes"
These criteria mean that the existing DTT multiplex operators should not bear additional costs as a result of this process, and – arguably most importantly in the current context – that DTT coverage should be maintained, and disruption to DTT viewers should be minimised.
Ofcom stated (at paragraph 1.17 of the above-named statement) that:
"We have therefore decided to adopt the DTT migration criteria and we will develop plans for implementation [of the 800 MHz clearance programme] with reference to these."
Given this commitment, it would be inappropriate if Ofcom were now to implement the 800 MHz award in such a way that would permit significant and harmful interference, and which would therefore undermine the consumer benefits delivered by the DTT platform.
However, Ofcom’s consultation on co-existence of new services in the 800 MHz band with DTT television (published on 2 June 2011) set out Ofcom’s own analysis that new 4G mobile services could adversely affect DTT reception in 760,000 UK households. As far as we are aware, the 800 MHz award represents the first time in the UK that a regulator will license a new service knowing in advance that the new service will adversely impact on an existing service, and moreover that the regulator has expressed a view in advance that it is acceptable for some users of the existing service to have their access to that service either impaired or completely removed.
In the past, conditions would have been placed on the new licensee requiring it to protect existing services rather than to adopt post-event mitigations as Ofcom is now exploring. In contrast to Ofcom’s apparent approach, we consider that the appropriate starting point would be for Ofcom to put in place effective intervention to prevent interference before it happens. We consider that the ideal solution would be to put guard bands in place to ensure that DTT is properly protected – and that any deviation from this approach would have to be clearly justified.
It is also important to be clear that managing viewer issues for DTT interference is likely to involve questions of a significantly different kind to those that have arisen during the Spectrum: Written evidence 109
DSO process. Whereas switchover concerns events on specific dates, with any side issues arising primarily in the weeks and months following the specific DSO date, DTT interference will be much more complex and could happen over a period of many months or even years. Therefore, if Ofcom decides not to implement guard bands to minimise the interference risk, due to this complexity we consider that the licences for new services in the 800 MHz band should contain stringent information, notification and staggering provisions around the roll-out of new services, so as to ensure that there is sufficient time and scope for effective consumer communication and remedial action.
Helpfully, Ofcom has expressed its intention to work with DTT stakeholders, Government and new licensees in the 800 MHz band to ensure that DTT is properly protected, through the appointment of a single organisation to manage the DTT interference issues. Ofcom is currently consulting on its high-level approach, and intends to issue a further more detailed consultation later in 2011 regarding the DTT protection body. We hope that DTT interference will be properly mitigated, and therefore that adverse consumer impacts will be minimised. However, we would urge the Select Committee to keep a watching brief on this issue, and to encourage Ofcom and Government to ensure that new mobile services do not create a threat to the very significant consumer and citizen value delivered by the DTT platform.
June 2011
110 Spectrum: Written evidence
Written evidence submitted by BSkyB (SP 20)
1. This submission presents the views of British Sky Broadcasting plc (“Sky”) to the Culture, Media and Sport Committee’s inquiry into spectrum allocation.
2. In the past few months, Ofcom has issued a number of important consultations. In addition to the auctions of 800MHz and 2.6GHz spectrum, Ofcom is considering how best to approach the use of spectrum in the 470MHz-792MHz band, both national and geographic lots of interleaved spectrum.
3. Sky has engaged with Ofcom in this process, and is now keen to contribute to the CMS Committee’s inquiry to explain the new and exciting uses for spectrum, which we believe can be a real driver of economic growth52 .
4. In summary, we urge legislators and policy-makers provide for flexibility that will allow spectrum to be used by emerging technologies which will contribute to economic growth.
5. Technological developments and digital switchover mean that spectrum in the 470Mhz-792Mhz (UHF) bands will increasingly become available. Ofcom has identified a range of policy drivers for ascertaining the best use of this spectrum. We believe that an overall policy objective should be to secure the most creative uses for spectrum that will best drive economic growth.
6. We further believe that this policy objective can best be achieved by realising the benefits of wireless broadband services (implemented as “Wi-Fi”). In our submission to Ofcom we set out the consumer and economic benefits of Wi-Fi, and why spectrum should be allocated to this technology.
7. In summary, Wi-Fi operates on open standards technologies and unlicensed spectrum which encourages fierce competition to bring products and services to market in the fastest time to meet customer demand. Wi-Fi standards are currently being updated for UHF operation.
8. The spectacular growth of devices with Wi-Fi inbuilt53 has demonstrated that open standards technologies and unlicensed spectrum have a considerable role to play in the delivery of mobile/roaming services to an increasing number of handheld devices in the market.
9. One of the reasons for the growth in demand for Wi-Fi devices is that they offer consumers a lower-cost alternative to 3G technology which generally involves follow-on costs, such as monthly data charges, in addition to the purchase of equipment. In terms of public Wi-Fi services, Wi-Fi already accounts for over 20% of iPhone data traffic in the US by offloading from 3G networks.
52 Wi-Fi usage in the home may be generating anywhere between $4.3 and $12.6 billion in annual economic value for consumers in the United States “The economic value generated by current and future allocations of unlicensed spectrum”, Perspective Associates, September 2009. http://www.ingeniousmedia.co.uk/websitefiles/Value_of_unlicensed_-_website_-_FINAL.pdf 53 there are approx. 5 billion Wi-Fi enabled devices worldwide, a figure which is forecast to grow annually by 20% to 2013 Spectrum: Written evidence 111
10. Wi-Fi is also supporting new user applications with higher data traffic demands which are unsustainable over 3G in high population density areas, such as streaming video. Wi-Fi is also increasingly being used in the US as a means of providing low cost calls using VOIP application with T-Mobile reporting that 5 million of its 34 million subscribers routing calls over Wi-Fi. In the US Wi-Fi offload is widely used by AT&T, T-Mobile, Cablevision, Metro-PCS as a key element of their data network.
11. We believe that with the growing demand for broadband connectivity outside the home, and the increasing problems of congestion and interference in licence-exempt Wi-Fi spectrum (at 2.4GHz) Ofcom should be looking to secure sufficient UHF spectrum to ensure that this demand can be met.
12. UHF is particularly attractive for broadband data services because it has far improved propagation characteristics compared to both existing Wi-Fi bands at 2.4GHz and 5GHz.
13. Ofcom's approach to the release of this spectrum should be designed to maximise the potential uses for this spectrum. In particular, Ofcom should avoid placing unnecessary technical constraints on its use.
14. Two such restrictions that are being contemplated are limitations on the ability for spectrum to be freely traded, and the imposition of unnecessary blanket technical constraints surrounding the protection of DTT bandwidth. We believe that either of these limitations would constrain the economic potential being fully realised from this valuable UHF spectrum.
June 2011
112 Spectrum: Written evidence
Supplementary written evidence submitted by Arqiva (SP 21)
The Committee asked about the number of 3G masts the four providers currently have and Arqiva agreed to follow this up in writing:
Question 1: Number of Masts and ‘Points of Presence’ Sites may contain many transmitters for different operators and different spectrum. It is important to distinguish between a mast and ‘point of presence’ (PoP): • Mast: A physical piece of infrastructure, mast or rooftop, which can support multiple operators and points of presence. • Point of Presence: The radiation of an operator’s frequency for a specific technology. Noting that the electronics used to deliver this may be shared, as in the case of Everything Everywhere and 3UK, but individual operator frequencies are emitted from the antenna. Arqiva believes there are 35,500 masts deployed across the country, split between those self provided by the MNOs and those provided by independent third parties: • MNO Self Provide = circa 23,300 • Independent Third Party = circa 12,200 These masts support circa 86,000 2G and 3G points of presence as shown below:
2G 3G Technology PoP Frequency PoP Frequency
Everything 18,00054 1800 MHz 18,0001 2.1 GHz Everywhere
O2 10,000 900 MHz 8,500 2.1 GHz & 900 MHz
Vodafone 10,000 900 MHz 8,500 2.1 GHz & 900 MHz
3UK N/A N/A 13,00055 2.1 GHz
Total 38,000 N/A 48,000 N/A
Question 2: Number of Additional Masts / Points of Presence to deliver 99%
Arqiva believes that the current 35,500 masts would be sufficient to deliver 99% outdoor population coverage when utilising the 800 MHz frequency band. In other words, this public policy objective of universal coverage could be achieved without building new physical sites.
54 This is the proposed situation once the legacy T-Mobile and Orange networks have been consolidated 55 3UK’s 13,000 PoP for its own spectrum are delivered via the use of shared electronics with T-Mobile (Everything Everywhere) Spectrum: Written evidence 113
However, this would be achieved by the addition of 4G points of presence to the existing infrastructure deployed in the UK. To deliver 99% we believe that circa 15,000 points of presence would be required at 800 MHz56. June 2011
56 Assuming a 10 MHz pair of 800 MHz