Spectrum Management in New Zealand

4. The widespread market reforms of the 1980s were extended to radio spectrum management in 1989 with the introduction of the Radiocommunications Act (the Act). The Act and its regulations permitted the creation of property rights around spectrum and the ability to trade these rights. This process for the allocation and trading of spectrum is referred to as the "management rights regime" or MRR.³ The Act itself is silent on the allocation method allowing for both competitive and non-competitive processes. It has been government policy, however, for the initial allocation to be subject to an open competitive process based on the assumption that this would result in spectrum going to its highest value use.

5. The MRR is modelled on the Torrens system for land transactions, with a Registrar and Register of Radio Frequencies. Rights offer security of tenure, and may be recorded as depreciable assets, with legal boundaries (such as conditions of use and protection from interference). Rights take two forms:

• management rights - created over a range of frequencies, they are nation wide and provide the right to grant spectrum licences within the defined range of frequencies; and,
• spectrum licences - licences are granted within a wider management right and represent the right to transmit.

6. When creating a management right the Crown has two options for disposal or use of this asset - retaining the management right and allocating spectrum licences within it (e.g. 88.8 to106.63 MHz for FM radio broadcasting), or allocating the management right itself (e.g. 890.0 MHz to 899.8 MHz used for cellular services). Of the spectrum below 30 GHz, approximately 5 GHz (17%) has been converted to the MRR. This increases to 33% if you only consider that spectrum (15 GHz) which is allocated to Fixed, Mobile and Broadcasting services.

7. Spectrum has been transferred to the MRR where demand for spectrum was expected to exceed its availability.⁴ In this situation a competitive market allocation process is seen as the most appropriate way to ensure that spectrum achieves its highest value use, and to promote competition in the down stream market in which it is used. In this way the MRR promotes government's policy objectives for spectrum, which broadly encompass:

• promoting competition;
• maximising the value of spectrum to society; and
• satisfying increasing demand.

8. Where the Crown creates Management rights or grants spectrum licences, an allocation method must be determined.⁵ Requirements of the allocation process can be summarised as follows:

• It is a market based allocation process.
• It allocates at a price that reflects the market value of the product.
• It allocates in a manner that is competitively neutral and transparent.

9. In addition to the objectives above, thought needs to be given to:

• the cost to government in carrying out the allocation and cost to bidders to participate;
• performance, e.g. duration of allocation process, reliability, fairness to all parties, and the return to the Crown;
• economic efficiency - allocating spectrum to the highest value use;
• the ability to accommodate additional policy instruments, if necessary, designed to address any externalities, public goods, or other social/cultural objectives; and
• assisting the development of secondary markets or diversified market structures.

10. It must be remembered that the achievement of policy objectives involves not only determining the appropriate allocation method but also correctly defining the rights - e.g. if the policy objective of the allocation process is to allow new entrants into the market this will not be met if they can then go on to sell the rights to incumbents because the rights definition failed to prevent such reselling.

11. The Crown may also decide to retain a proportion of the rights to meet social and cultural objectives; the allocation of such spectrum is not covered in this report but is important to note that non-commercial allocation (such as comparative hearings or direct allocation) may be used to meet public policy goals. Spectrum has been withheld from the commercial allocation process for the following purposes:

• Achieve public broadcasting goals: to cater for cultural diversity and diversity of interest, to strengthen the national or regional identity and to uphold the principles of the Treaty of Waitangi.
• Improve Telecommunications infrastructure, e.g. project probe aims to increase broadband access in schools, rural populations and community groups who would otherwise be unable to gain affordable access through commercial provision.

12. Allocations can either be direct to government agencies, e.g. spectrum reserved to meet obligations under the Treaty of Waitangi. Where spectrum has also been put aside to meet public broadcasting objectives in radio and television, mutually exclusive applications are often received and a comparative hearing (or beauty contest) is used as the allocation mechanism.

13. Compared to market based allocation mechanisms, comparative hearings are not as economically efficient as they may not allocate the spectrum to those with the highest valuation encouraging efficient spectrum use and provision of services consumers most want. Expenditure is also required to prepare the application and to increase their probability of winning, lobbying and litigation can occur. These expenditures, while they might result in the applicant obtaining the licence, are largely unproductive unlike money that is paid for a licence under a commercial allocation method which can be recycled through the economy.

14. Comparative hearings can also lack transparency due to the number of selection criteria involved and the possibility of lobbying compared to a commercial allocation process.

⁴ The timing of this move is one of balancing the risk of transferring spectrum to the MRR too early and creating artificial demand, versus, transferring spectrum too late and having the added complexity of the band being highly populated with incumbents. This issue will be considered in the discussion paper Radio Spectrum Allocation Programme, expected to be published in the second half of 2005.

⁵ The Crown may also decide to retain a proportion of the rights to meet non-commercial policy objectives (see paragraphs 11-12); the allocation of such spectrum is not covered in this report.