Simplifying spectrum trading

Statement published 15|04|10

Introduction and summary

1.1 On 22 September 2009, we published a consultation document on proposals to streamline the spectrum trading process to make the spectrum market more dynamic and efficient (the 'September consultation') ^(-1-). This interim statement is to inform stakeholders that, in view of the positive response to the consultation, we have decided in principle to proceed with our proposals. We are currently in the process of refining our proposals in the light of the responses to the consultation and plan to present detailed conclusions, and consult further, later this year or early next. We expect to bring the new trading rules into effect in May 2011 in line with the timetable for implementing changes in the applicable European Union (EU) law.

Definitions

1.2 As in the September consultation, we use the following terminology, which reflects our view of the trading possibilities that would be available in the future as opposed to those available under current legislation.

• Spectrum trading denotes the ability to sell and buy access to radio spectrum within the overall terms of the original assignment. Spectrum trading is a generic term that encompasses both spectrum transfer, which is currently allowed under spectrum trading regulations, and a new process of spectrum leasing.
  
• Spectrum transfer is the form of spectrum trading recognised under current law. It involves the transfer of rights and obligations under a wireless telegraphy (WT) licence or grant of recognised spectrum access (RSA) ^(-2-). Spectrum transfer involves the grant of a new licence to the transferee.
  
• Spectrum leasing is a new form of spectrum trading that would be put into effect by a contract between the parties without the grant of a new licence to the party gaining access to the spectrum.
  
• Band manager has no precise definition but is generally understood to denote a public or private sector organisation that plans assignments and carries out on a commercial basis the trading of rights to radio frequencies to its clients. Any holder of a tradable spectrum licence may function as a band manager even if this is not its primary activity.

1.3 The difference between transfer and lease is illustrated in figure 1 below. Paragraphs 6.7 onwards of the September consultation explain the implications in greater detail. The main difference lies in the absence in leasing of a direct licensing relationship between the user and us. As a broad generalisation, leasing may be expected to be advantageous in particular for band managers offering spectrum assignments that are individually of low value and for relatively short periods. However, much will depend on the parties' particular circumstances and preferences.

EU developments

1.4 Spectrum trading is subject to provisions of the EU Directive on a common framework for electronic communications networks and services (the 'Framework Directive'). The current directive ^(-3-) allows Member States to permit spectrum transfer subject to various regulatory requirements. Revisions to the directive that were adopted on 25 November 2009 ^(-4-) allow them to authorise spectrum leasing as well and make this mandatory where the European Commission so decides. The deadline for Member States to implement the revisions is 25 May 2011. The implementing legislation in the UK will be prepared by the Department for Business, Innovation and Skills (BIS).

Matters on which we sought views in the September consultation

1.5 We sought evidence on whether the present regulation of spectrum trading was impeding desirable market developments or imposing disproportionate transaction costs and we consulted on specific proposals for removing unnecessary regulatory burdens. Specifically, we sought views on streamlining the current regime by:

• removing the need for the parties to obtain our consent to spectrum transfers;
  
• allowing time-limited trading without the need for a separate closing transfer by the parties;
  
• introducing a variant of spectrum transfer ('transfer without licence issue' or TWLI) that could proceed without the need for us to grant a new licence document to the transferee; and
  
• introducing, when permitted under EU law, a spectrum leasing process that is potentially faster and more efficient than spectrum transfer.

Responses to the consultation

1.6 The consultation closed on 1 December 2009. We received 11 responses from a broad spread of sectors and stakeholders: six commercial spectrum-using organisations, including three from the programme-making and special events (PMSE) sector, two mobile network operators (MNOs), two trade associations and one consultancy. The responses, except for some material provided in confidence, have been published on our website ^(-5-). Annex 1 contains a list of organisations that responded.

1.7 The responses generally agreed that the present trading process is impeding desirable spectrum market developments and supported many of the changes proposed. Some (Arqiva, Transfinite, Intellect) urged us to go ahead faster or further, especially in view of the revisions to the Framework Directive on leasing.

1.8 In summary, the reactions to the main elements of our proposals were as follows.

• Removal of the need for consent to a transfer - some respondents agreed with our proposal to retain the need for our consent for transfers in certain sectors. Transfinite argued that the requirement for consent should not be retained. Arqiva and Intellect queried what regulatory concerns would justify retention.
  
• Time-limited transfers - there was broad agreement with our proposal for single transaction time-limited transfers although one respondent queried its value if leasing is possible.
  
• TWLI - respondents generally saw this as an improvement on the current system but did not consider it to afford the same scale of advantages as leasing.
  
• Leasing - there was strong support for introducing leasing and a desire for its early introduction.
  • Application to specified licence classes - most respondents wanted leasing to be available for all tradable licences.
  • Restriction on lease length - there were mixed views on our proposal to restrict leasing without the need to inform us to 24 months. Transfinite suggested a limit of seven years, Arqiva five years and Intellect four years. JRC suggested a rolling 12 or 24 month term.
    
  • Sub-leasing - responses were split on whether we should allow sub-leasing.
    
  • There was no enthusiasm for automating the trading process as an alternative to leasing.

1.9 There were some sector-specific concerns.

• MNOs: 3UK and T-Mobile highlighted mobile-specific issues. They noted that cellular radio licences were not yet tradable and argued that they would need to be treated as a special case in the context of mobile liberalisation. T-Mobile argued that consent should be required for all sub-1 GHz transactions and referred to the spectrum modernisation issues that the Government's Digital Britain report raised. 3UK was concerned about the removal of consent for mobile telecommunications spectrum trades and considered they should automatically be investigated.
  
• PMSE: BEIRG and PLASA did not want to see simplification of the trading process at the expense of PMSE. JFMG thought it was unclear how we would deal with unauthorised use under leasing.
  
• Business radio: the FCS was concerned about the implications for common base stations (CBS) and short-term hire (STH), where customers currently access spectrum under contract.

Our conclusions

1.10 In light of stakeholders' support for simplifying the present spectrum transfer process and introducing leasing, we have concluded as follows.

• We should proceed to simplify the transfer process on the lines that we proposed, in particular by removing the need to obtain our consent for proposed trades in most cases. This will be done in a manner that is consistent with the requirements of the revised Framework Directive. We recognise the sector-specific issues that were raised by some stakeholders and will reflect these in the new general trading regulations that we intend to make or later sector-specific adaptations. In particular, we will consider whether our consent should be required for some or all trades of cellular GSM and 3G spectrum at the time of making these licences tradable.
  
• We also plan to simplify the process for time-limited transfers.
• We intend to introduce spectrum leasing in line with the revised Framework Directive. In the course of drafting detailed regulations on leasing, we will be exploring further with interested stakeholders their comments, summarised in section 3 of this document, on certain aspects of our proposals including sub-leasing, the proposed 24-month period and the implications for CBS and STH. We will also discuss our proposals and their timing with BIS in view of that department's responsibility for the legislation to implement the revisions to the Framework Directive.

1.11 We will reflect further on whether it would be worthwhile to introduce TWLI in view of the imminent introduction of spectrum leasing. We have not yet reached a final conclusion on TWLI but stakeholders' responses suggest that it may not be worthwhile proceeding with that option, especially in light of the interim statement we are publishing today announcing our decision to defer awarding spectrum to a band manager with obligations to PMSE until after the London 2012 Olympic Games and Paralympic Games ^(-6-)  .

The need for new regulations

1.12 In order to introduce the simplified transfer process and spectrum leasing, we will need to consult on and make regulations to specify the details of the new procedures. As we explain in section 3 of this statement, we intend to consult later this year or early next on these.

Matters covered in this document

1.13 This document is structured as follows.

• Section 2 gives background information on the current spectrum trading regime.
  
• Section 3 considers responses to our proposals on various changes to the current spectrum trading process and our conclusions so far.

1.14 The September consultation included an impact assessment (IA) on which some respondents commented. We will review this and publish a revised version when we consult on the draft regulations.

Footnotes:

  1.-http://www.ofcom.org.uk/consult/condocs/simplify/

  2.- To avoid repetition, we do not refer separately to RSA in the rest of this document unless the context requires. Broadly similar considerations apply to trading licences and RSA although the position on leasing RSA is more complicated as explained in paragraph 6.29 of the September consultation.

  3.-http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2002:108:0033:0050:EN:PDF

  4.-http://register.consilium.europa.eu/pdf/en/09/st03/st03677-re06.en09.pdf

  5.-http://www.ofcom.org.uk/consult/condocs/simplify/responses1/

  6.-http://www.ofcom.org.uk/consult/condocs/bandmanager09/statement/