Tuesday, 30 June 2009

Digital Britain - Lord Carter's Final Report

One of the many interesting features of Lord Carter's report is the embryonic proposal for a new 'Next Generation Fund' to help subsidise the build out of advanced telecom infrastucture to the 'Final Third' of the UK population. This apparently would be a levy of 50p per month on all fixed lines (that is BT's, Kcom's and Virgin Media's). It would likely be introduced through primary legislation, and whether that would be communications legislation or more general legislation remains to be seen. Clearly a lot of detail needs to be worked out.

However, laudable though may be the objectives for the Fund, I am set wondering about its legality and whether it would be able to satisfy EU State Aid rules and the Treaty, even perhaps the EU regulatory framework.

Why? Well, the proposed structure is very unusual: it would be levied on all fixed operators and collected from all but low income households. It would not be imposed on mobile or other wireless operators or their customers, yet mobile and other wireless operators would be eligible (presumably) to benefit from the Fund by applying for grants from the Fund to help pay for new infrastructure. Many premises have multiple lines and presumably would pay multiple levies. (Compare the TV licence regime for a moment). Legal terms like discriminatory, market distortion and objective justification spring to mind as relevant here.

I shall be pondering this further so watch this space ...

Tuesday, 16 June 2009

Report from the Independent Spectrum Broker

Background – auction stalemate

As part of its long term strategy to liberalise spectrum usage and within that to release new spectrum in order to create more competition in mobile and broadband wireless, Ofcom has long-promised to conduct an auction of spectrum in the 3G expansion band, i.e. 2.6GHz, working to a plan which originally envisaged the auction and award of the spectrum during the course of 2008.

However, this initiative was caught up in the debate and eventual dispute between certain mobile operators on one side and Ofcom on the other regarding a joined-up approach to GSM spectrum refarming for 3G or next generation mobile (NGM) services use and the planned release of other spectrum for NGM technologies, as well as disagreements at a Community level regarding amendments to the GSM Directive designed to allow the use of GSM spectrum (at 900MHz and 1800MHz) for such services.

During the course of 2008, despite strong objections from certain mobile quarters, Ofcom decided to plough on with the 2.6GHz auction, and two mobile operators, T-Mobile and subsequently O2, brought and joined in an appeal against that decision in proceedings before the Competition Appeal Tribunal ("CAT") and, in case the CAT did not have jurisdiction, for judicial review in the High Court.

As a consequence of this litigation, potential new players in the market and candidates for bidding in the 2.6GHz auction have been kept waiting in the Ofcom auctions 'departures lounge' ready for the stalled auction process to restart. Meanwhile of course the economics of starting new mobile ventures will have come under even closer microscope analysis.

Government intervention – a broker's role

At about the same time as this dispute surfaced, coincidentally if not fortuitously, the appointment of former head of Ofcom, Stephen (now Lord) Carter as the new Minister for Communications, Technology and Broadcasting, injected a new sense of purpose and energy (and not a little know-how) within Government regarding the future for telecommunications development, superfast broadband in particular, in the UK. As part of this initiative, given the 'entrenched positions' taken up by those in the mobile industry (an negotiated solution was deemed unlikely), Lord Carter asked one of his former deputies at Ofcom, Kip Meek, now chairman of the Broadband Stakeholders Group, to review the impasse in the 2.6GHz award and to come up with some recommendations in relation to refarming of 2G spectrum and the removal of blocks on future auctions, at the same time indicating to the mobile operators that if they were unable to negotiate a solution between themselves, Ofcom would be asked to impose a solution.

Kip Meek, under the title 'Independent Spectrum Broker' (ISB) has now (May 12) published his Final Report and at last it looks as though, if Ofcom are willing to proceed on this basis, and there are no lasting industry objections, the log-jam may be cleared. This well-written report is impressive not just for its clarity of thinking but, in a refreshing departure from regulatory practice in the recent past, its adoption of a holistic view of the issues. The contrast is quite striking: whereas before Ofcom planned to deal with 2.6GHz award, the digital dividend (800MHz award) and 2G liberalisation as three separate matters, now, according to the ISB, "the recent emergence of LTE as a near-to-deployment standard and the harmonised 800MHz band has changed an appropriate way forward … towards one that requires thinking about the entire relevant spectrum – not just 900MHz and 1800MHz but also 2.1GHz, 2.6GHz and 800MHz".

The ISB's task was not made easy by the evident tensions caused by different commercial, spectrum management, broadband and competition policy imperatives pulling in various directions. Different parts of the frequency bands have different merits (such as propagation characteristics) and can be of more or less value depending on how they are able to be deployed. Timing differences can also have an impact, particularly on competition and market entry: for example, if the 900MHz spectrum were to be brought into use for mobile broadband earlier than 800MHz became available, the 900MHz operators would gain a crucial first move advantage. Then there is the classic regulators' dilemma of trying to encourage the opening up of the market whilst at the same time not favouring one operator or group of operators over another, particularly pertinent to the frequencies up for grabs here.

ISB recommendations

In summary the ISB's recommendations are:

* allow 2G (GSM) spectrum to be liberalised (refarmed) in the hands of the existing operators/users, not in an imposed timeframe, and revising the associated usage charges to reflect the spectrum's full economic value;

*provide greater certainty for NGM spectrum portfolios through a separate auction of the TDD 2.6Ghz spectrum suitable for WiMAX services, before the end of 2009;

*coordinate the FDD-suitable spectrum auctions at 2.6GHz and 800 MHz (mid-2010) to allow existing and new operators to build holdings in an 'integrated, strategic fashion';

* impose regional coverage and access obligations on releases of 800 MHz spectrum, the part of the band most useful for rural areas;

* encourage extension of 3G coverage in return for making 3G licences indefinite and allowing greater infrastructure sharing to avoid concentrations of holdings at the outset;

* apply to the combined auctions an event-specific temporary total spectrum cap whereby (for a maximum period of perhaps one year) no operator would be permitted to have more than 2x60MHz of paired mobile-suitable spectrum; although the existing 900MHz operators would be free to bid for 800MHz, they would have to give up an equal amount of 900MHz if successful.


Kip Meek has thus picked up the hot potato of mobile spectrum, cooled it down, chopped it up into bite-sized portions and offered it on a plate to Lord Carter and the industry. Whether everyone will want to dine on it as served remains to be seen. For that, apparently, we must await the Digital Britain final report and, depending on whether the solutions are all within the powers of Ofcom, either a Government direction to Ofcom, or Ofcom's re-visitation of these issues through a consultation and revised decisions, though that route would seem to require as a pre-condition a consensus within the mobile operator community, if we are not to face further delaying manoeuvres. Given the MoD's announced intention to release for public use some spectrum which will also be suitable for WiMAX and other mobile applications, there is mounting pressure for all this to be sorted, and quickly. Meanwhile the judicial review case is, I believe, suspended pending further discussions between the parties, O2 and Ofcom. (I note that O2 have welcomed the ISB report).

Final Observations

We live in interesting telecom times. Not only do we have the Government at last taking a real interest and showing a lead to Ofcom on policy, but we have the very unusual spectacle, in the history of UK telecom regulation, of an independent party seeking to broker a compromise solution between the regulator and the industry. Surely unprecedented.