Executive summary (ARCHIVED)

In order to maximise the value of spectrum to society as a whole, it is necessary, among other things, to ensure that the concentration of control of spectrum does not unnecessarily inhibit competition. The acquisition of spectrum is regulated under the Commerce Act. In recent years, spectrum caps have also been used to limit the amount of spectrum that can be acquired at auction.

As part of MED's ongoing work programme, we have been interested to look at how these competition safeguards have been working, including the operation of the secondary market for rights in relation to spectrum.

Earlier this year, we commissioned a report from Australian firm, Market Dynamics, to assist MED in its thinking on these issues. In particular, MED was interested in overseas experience, especially in Australia.

The Market Dynamics report is very wide in its scope and, in our opinion, is not well focussed on the project brief. Nevertheless it provides a useful commentary on our spectrum management practices and helps us to remain informed of international practice.

Market Dynamics agree that in some circumstances spectrum caps are a useful supplement to the provisions of the Commerce Act but disagree with the way MED has applied them in the past. In their opinion, the market should be left to decide the number of new entrants and therefore caps should only be applied to dominant incumbents.

Market Dynamics also suggest that MED should consult formally and publicly with the Commerce Commission over decisions to apply spectrum caps. Likewise the Commerce Commission should consult with MED over decisions regarding acquisition of spectrum.

Market Dynamics notes the importance of having a robust secondary market if spectrum rights are to move to their highest-value use over time. A secondary market is also necessary to make any changes to the initial allocation of spectrum at auction. It questions whether an effective secondary market is operating, and notes that this should not be assumed in deciding on initial allocation policies.

In addressing what additional competition safeguards can be used, Market Dynamics strongly advise against "use it or lose it" provisions, favouring instead the introduction of a spectrum access regime. Such a regime could be enacted, at least for non-broadcasters, through the Telecommunications Act's designated service provisions.

MED agrees that the future use of spectrum caps should be considered. The key question is not so much how they should applied but whether they are still needed now that the Commerce Act has been strengthened in this regard.

MED also agrees that further consideration should be given to the operation of the secondary market. Although some trades have taken place, these have tended to be rationalisations of spectrum holding within particular firms. But the fact that there have been relatively few trades between firms does not necessarily imply that competition is being restricted. It may simply reflect that sufficient spectrum is available to meet commercial needs and/or firms are not ready to introduce services using the spectrum in question. It should also be noted that despite some high profile allocations, most spectrum continues to be managed administratively.

Accordingly, we propose to consider these issues further in our work programme for 2003/2004. Included in MED's work programme will be a review of the spectrum cap for the 3G auction, which comes up for renewal in early 2004. Some of Market Dynamic's recommendations that relate to wider spectrum management issues will be picked up by other work programme items as they arise.

In terms of further consultation with industry we propose to make a copy of the Market Dynamics' report available on our web site, together with this briefing paper. As part of its ongoing programme of engaging more effectively with industry, MED intends to convene a workshop later in the year to discuss general competition issues.
 

Note

For your convenience we have attached an Annex containing the full text of Market Dynamics' recommendations, sorted by theme.