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1. The New Zealand Spectrum Policy Environment
The Radiocommunications Act 1989
The Telecommunications Act 2001
This chapter provides an overview of the economic, social and cultural policy objectives that underpin New Zealand's management of the radio spectrum.
1. Radio waves are defined by the International Telecommunication Union (ITU) as electromagnetic waves of frequencies arbitrarily lower than 3000 GHz propagated in space without artificial guides. In practice, the range of frequencies accessible with current technology is 30 kHz to 100 GHz. This is regarded as the radio spectrum ("spectrum") for all practical purposes.
2. Radiocommunications are modulated radio waves generated at a common frequency across a transmitter-receiver link. "Interference" results when signals from "intentional radiators" (i.e. radio transmitters) overlap, obscuring or distorting the modulated signal. Interference may also be generated by "unintentional radiators": for example, electrical machinery, power lines and other electrical devices, by electric storms ("atmospherics"), and such natural space objects as stars and planets.
3. Spectrum allocations and standards, agreed within the Radio Sector of the ITU and observed by New Zealand, play a large part in ensuring compatibility of radio systems and minimising harmful interference. The economic value of spectrum access is determined by a combination of factors including the suitability of a particular frequency band for specific technologies, equipment availability and the phenomenon of interference. Because of high existing usage and competing demand, obtaining access to some of the more versatile parts of the radio spectrum can be difficult.
The Legislative Framework
4. New Zealand was, in passing the one-page Wireless Telegraphy Act of 1903, the first country to introduce legislation specifically governing radiocommunications. Prior to 1989, all uses of radio frequency spectrum were authorised by the Government (acting through the Ministry of Commerce and, previously, the New Zealand Post Office) under an administrative licensing process: that is, any person or entity requiring exclusive use of a particular radio frequency applied for a radio licence, specific to a particular class of radiocommunications equipment. If the frequency were available and its use would cause no interference problems, the licence was assigned on payment of an administration fee. This is commonly referred to as the radio licence regime (RLR).
5. Radio licences in the RLR are issued under regulations that take into consideration public interest, international agreements and government policy statements. Licences define the frequencies to be used and the location and technical configuration of the transmitting equipment to which they relate. They are generally renewable each year for a fee set at a level to cover the Ministry's administrative costs, but are not tradable.
The Radiocommunications Act 1989
6. The Radiocommunications Act and its Regulations introduced a management regime that treats spectrum rights as tradable property. The Act was one of a number of legislative measures enacted in connection with deregulation of the telecommunications and broadcasting industries. As the traditional RLR model was judged inappropriate to meet the needs of a deregulated market, the Act put in place a framework of spectrum rights for assignment to those users who valued them most, thus obtaining their maximum (economic) value to society. This outcome was predicated on a competitive market environment, with spectrum required for non-commercial purposes secured by Government intervention.
7. The Act put in place a two-tier market-based mechanism for managing spectrum access:
- management rights, which give the rightholder unencumbered use of a nationwide block of spectrum with the right to assign spectrum licences within that block; and
- spectrum licences within a management right, which may carry conditions of use, but otherwise are tradable property.
8. In detail, the Act:
- established a Registrar and Registry of radio frequencies (Parts 1, 4);
- enabled the registration of radio spectrum management rights (Parts 2, 3);
- permitted the transfer of management rights from one manager to another (Part 5);
- permitted managers to mortgage management rights (Part 9); and
- gave managers the power to assign spectrum licences (Part 6).
The Regulations deal largely with licence administration.
Radiocommunications Amendment Act 2000
9. The Radiocommunications Amendment Act 2000 (section 41) gave government the power to sell or auction management rights. It follows that spectrum management rights may be sold, assigned, leased, transferred and traded, initially by the Crown and subsequently by rightholders in secondary markets.
10. New Zealand was one of the first countries to enact a legislative framework that assigns spectrum as tradable property rights, and it is still seen to be one of the most efficient and cost-effective spectrum management regimes. Until recently, most nations assigned frequencies directly to the user under a RLR or by ranking competing applications against qualifying criteria (a "beauty contest"). A number of countries have since implemented a property rights regime to some degree and some are actively implementing market-based mechanisms to improve spectrum assignment (see the Appendix for examples).
11. The Act has been in force for fifteen years at the date of writing. In later sections of this Report (see, for example, Chapter 4, Economic Outcomes) the effectiveness of the Act in establishing market mechanisms and promoting Government policy objectives is examined in detail.
The Commerce Act 1986
12. The new radiocommunications environment was established in the context of a light-handed regulatory environment. The Commerce Act 1986, New Zealand's generic competition legislation, was relied upon to promote a competitive market. The Act protected against mergers and business acquisitions that resulted in "dominance" and/or misuse of a dominant position in the market. These provisions were intended to apply to all commercial markets, including radiocommunications: it was not considered necessary at the time to pass sector-specific legislation.
13. The core provisions of the Commerce Act were strengthened in May 2001. A new purpose statement was inserted to clarify that the intention of the Act is to promote competition in markets for the long-term benefit of New Zealand consumers. The prohibition against misuse of a dominant position (section 36) was amended to prohibit persons with a substantial degree of market power from taking advantage of that power for anti-competitive purposes. The prohibition against anti-competitive business acquisitions (section 47) was amended to prohibit acquisitions that substantially lessen competition. These provisions replaced the previous market dominance test (see page 42 et seq).
The Telecommunications Act 2001
14. Telecommunications are carried by copper and fibre networks, and by wireless (i.e. radio) links. Examples are landline telephone services, cellular telephony, the Internet, and telemetry. With the continued roll-out of new communications technologies and systems, the use of spectrum for telecommunications is expanding rapidly.
15. The Telecommunications Act 2001 recognised a concurrent perception that sector-specific regulation was needed to promote competition in the New Zealand telecommunications services markets, and to deliver benefits to consumers in the form of new and improved services and lower prices. The Commerce Act was eventually considered inadequate to deal with this complex and dynamic sector. In particular, there was strong dissatisfaction with lengthy disputes resolution processes in the courts, and with the sluggish development of competition in the sector.
16. The focus of the Telecommunications Act is the promotion of competition for the long term benefit of end-users of telecommunications services in New Zealand. The Act also spells out telecommunications service providers' obligations, including a requirement to supply non-commercial services to achieve government's social objectives (e.g. the 111 emergency service). The Act established the position of a Telecommunications Commissioner within the Commerce Commission, New Zealand's competition enforcement agency. The Commissioner's role is to:
- recommend appropriate regulation of specific telecommunications services to the Minister of Communications;
- resolve disputes between regulated services over access determinations; and
- administer cost-recovery processes for telecommunications services obligations.
Policy Objectives
17. The spectrum is a scarce, finite resource that supports a range of wireless communications services critical to the New Zealand economy and to a variety of government functions. If managed effectively and efficiently, spectrum can contribute to innovation, job creation, economic growth and public welfare.
18. The prime objective of spectrum management is to maximise the value of spectrum to New Zealand society. Value can be derived from the spectrum in a number of ways. As a tradable good, it has an economic value, but it can also facilitate the achievement of social and cultural objectives that are independent of spectrum's commercial worth. In making decisions about the allocation and assignment of spectrum, it is important to strike a balance between the economic and social objectives of the relevant radiocommunications services.
19. For providers of such commercial services as television broadcasting and cellular telephony, the value of the spectrum resource is the profit that can be obtained from supplying services that use spectrum as an input, which in turn depends on the demand for those services, their costs of supply, and the nature of the competition in actual or potential markets. In a perfect market - that is, a market with a comfortably large number of well-informed and willing buyers and sellers - the spectrum would be valued at its market price. It is generally appropriate to assign spectrum by commercial processes for such services, as their providers are considered to be in the best position to assess its current value.1
20. Non-commercial services could be defined as radiocommunications that the commercial market would not be likely to provide to any useful level, and which consequently tend to be funded by government, territorial authorities and voluntary organisations. They include defence communications, police mobile, community and student radio, and public, Māori and Pacific Island broadcasting. Were spectrum assigned to these services commercially - that is, in competition with providers of commercial radiocommunications - the probability is that affordable spectrum would not be readily available to them. Hence, it is generally seen as appropriate that spectrum is assigned to such services by administrative rather than commercial means, incurring only a cost-recovery fee.
21. An issue with administrative assignment is that, although it is clear that the spectrum assigned is important to society, its value cannot be easily assessed vis-à-vis spectrum assigned commercially in a market. This can only be done easily in a dollar market. One option, where demand exceeds supply, is to assign spectrum competitively to commercial and non-commercial services alike, the latter's dollar outgoings being made good from other sources (government, etc). This would have the merit of making transparent the opportunity cost of providing spectrum for public policy purposes, but it would not necessarily reflect the intrinsic value of the policy's objectives.2
22. Governments set the policies that determine whether spectrum is assigned administratively or sold commercially. In a number of overseas jurisdictions, spectrum is treated entirely as a community asset and distributed according to perceived need at the lowest possible cost. In others, it is partly or wholly categorised as a natural resource from which the greatest possible financial return should be generated. Mixed economies, combining free market and state regulated distribution mechanisms, tend to embody both principles but are not always clear, in principle or practice, as to the boundary between them. New Zealand, for example, has gone further than most countries in treating spectrum as a commodity, but continues to manage most frequency bands administratively.
Table 1 - Spectrum Allocated Under Management Rights
23. The Act itself contains no specific spectrum policy objectives per se, nor does it provide explicit guidance and direction to the government in the exercise of its regulatory powers. Policy objectives are nonetheless implicit in the powers, duties and functions outlined in the Act, in government policy announcements at its enactment and the making of its various Regulations, and in subsequent government policy statements, discussion documents and Ministerial directives.
24. Public sector policy is informed by the Key Government Goals of:
- strengthening our national identity and upholding the principles of the Treaty of Waitangi;
- growing an inclusive, innovative economy for the benefit of all;
- maintaining trust in government and providing strong social services;
- improving New Zealanders' skills;
- reducing inequalities in health, education, employment and housing; and
- protecting and enhancing the environment.
25. The second of these, growing an inclusive, innovative economy for the benefit of all, is amplified as:
- developing an economy that adapts to change, provides opportunities and increases employment, and while reducing inequalities, increases incomes for all New Zealanders; and
- focussing on the Growth and Innovation Framework to improve productivity and sustainable economic growth.
The Ministry is tasked by Government to lead this initiative.
26. The Growth and Innovation Framework (GIF) is the government's main statement of economic development policy and provides a context for specific polices relating to spectrum use. The government recognises that sustainable growth in personal income is a key to improving the living standards in New Zealand. In its GIF strategic policy, the government sets objective of increasing New Zealand's rate of growth so that our per capita income returns to the top half of the OECD scale and remains there.
27. The GIF identifies information and communication technologies (ICT) as one of the priority areas underpinning economic growth. In response to this, the Ministry is developing a strategy that provides an integrated framework for existing and future ICT initiatives ("the Digital Strategy"). The Digital Strategy is designed to provide the tools necessary to capture the horizontal enabling benefits of ICT for the economy and provide companies with the ability to enhance their own development.
28. Spectrum policy has the potential to contribute to GIF and the Digital Strategy in the following key areas through:
- assisting economic growth by creating and maintaining a spectrum management environment in which existing and new radiocommunications technologies can develop easily and cost-effectively;
- underpinning new radiocommunications-based industries that in turn offer employment opportunities;
- enhancing communications and lowering associated costs for government, individual firms, industries, educational institutions and research establishments; and
- enhancing linkages with regional centres through wireless communications networks.
29. The strategic priorities of the Ministry are to:
- facilitate the alignment of economic development activities across the public sector;
- improve international connections, especially with Australia;
- stimulate enhanced entrepreneurial and innovative capability of New Zealand firms;
- improve the regulatory environment for business; and
- improve the quality and reliability of infrastructure services.
Spectrum policies and processes contribute in some measure to all of these objectives, but have particular application to the last three.
30. In addition to its role in assigning commercial spectrum, the Ministry has responsibility for reserving and managing spectrum allocated to uses that are in the public interest and that would not normally be provided by commercial services (e.g. public broadcasting, defence, police, and emergency services). It also acts to minimise interference to and between radiocommunications by regulating, largely through its licensing function, the characteristics (power, location, etc) of transmitters and other devices (e.g. electrical machinery) that emit radio waves, intentionally or unintentionally.
The International Perspective
31. The use of spectrum is co-ordinated internationally through the Radio Regulations annexed to the Convention of the ITU, which designate frequency ranges for the operation of standard types of radio service. New Zealand is a signatory to the Convention. The Radio Regulations range from elaborate and detailed plans for satellite radiocommunications to more generalised specifications for amateur radio bands. They encompass 60 Articles and 42 Appendices, with numerous Resolutions and Recommendations, providing the basis for national and international use of the spectrum, and the framework of frequencies around which radio system designers and manufacturers develop transmitters, receivers and other radio-based products.
32. The Government has consequent obligations in international law relating to spectrum utilisation in New Zealand. By making specific reference to some of these obligations in Schedule 1 of the Act, Parliament has embedded them in national law. Regardless of whether or not all of New Zealand's international obligations have been so incorporated, it was intended that the Act be consistent, and promote compliance, with ITU obligations.
33. Every three or four years a World Radiocommunications Conference is held to revise and update the ITU Radio Regulations, thereby determining the assignment of spectrum for future use by new or expanding types of delivery service. This provides an opportunity for countries to influence the allocation of the spectrum internationally. Conversely, decisions taken in this forum affect the allocation of spectrum in New Zealand. MED leads an industry forum that develops New Zealand positions for the Conferences.
34. There are incentives to establish spectrum-related regulatory arrangements with New Zealand's key trading partners, through the development of agreements outside the ITU framework. Agreements have been completed with Australia under the Trans-Tasman Mutual Recognition Agreement (TTMRA) and with the European Union, but the challenge is to expand the concept to other countries. Such harmonisation arrangements are expected to support economic growth by simplifying and minimising the cost of compliance for importers and exporters.
35. To foster the tradability of radiocommunications equipment, mutual recognition agreements on radiocommunications standards with other countries are desirable. Whether or not there should be closer alignment of spectrum bands within the broad general framework mandated by the ITU is debatable. New Zealand is sufficiently isolated that problems of interference are unlikely vis-à-vis the rest of the Asia-Pacific region. In addition, radiocommunications equipment is becoming increasingly "agile" in terms of the frequency bands it can access.
Issue 1.1
To what extent should mutual recognition agreements with other countries be pursued, and in what areas?
Telecommunications
36. While the allocation of spectrum generally falls under the provisions of the Act, specific reference to the telecommunications sector is contained in the Telecommunications Act 2001, which gives the Commerce Commission powers to regulate the supply of telecommunications services where competition is an issue. The Telecommunications Act also established a Telecommunications Services Obligation (TSO) regime, to facilitate the supply of telecommunications services to those end-users for whom such services may not otherwise be supplied on a commercial basis or at an affordable price.
37. [A] purpose of [the Telecommunications Act] is to promote competition in telecommunications markets for the long-term benefit of end-users of telecommunications services within New Zealand by regulating, and providing for the regulation of, the supply of certain telecommunications services between service providers.3
38. The Telecommunications Act falls within the portfolio of the Minister of Communications and is administered by the Ministry of Economic Development.
Broadcasting
39. Broadcasting is transmission of programmes, whether or not encrypted, by radio waves or other means of telecommunication for reception by the public by means of broadcasting receiving apparatus 4… i.e. transmission of sound and television. New Zealand has one of the world's highest ratios of radio and TV channels to population.
40. In 1988, the government embarked upon a series of legislative, regulatory, and institutional changes intended to improve economic efficiency in the broadcasting sector. The government-owned Broadcasting Corporation of New Zealand (BCNZ) was restructured as two separate state-owned enterprises, Television New Zealand (TVNZ) and Radio New Zealand (RNZ), which were required to return a profit. Responsibility for broadcasting policy advice was transferred to the Department of Trade and Industry. Deregulatory measures to promote competition across the sector and reduce restrictions on foreign ownership were also adopted. A regime to maintain broadcasting standards was established and a set of local content objectives adopted and supported by a contestable grants scheme.
41. Key legislative elements of the restructuring were as follows.
- The Broadcasting Amendment Act (No. 2) 1988:
- disestablished the BCNZ; and
- established TVNZ (Television One and Channel 2), and RNZ (National Radio, the Concert programme, and 32 commercial stations), which became state-owned enterprises under the terms of the State-Owned Enterprises (No. 4) Amendment Act.
- The Broadcasting Act 1989:
- disestablished the Broadcasting Tribunal;
- established the New Zealand Broadcasting Commission (now called NZ On Air), funded through the Public Broadcasting Fee;5
- established the Broadcasting Standards Authority (BSA);
- reduced restrictions on foreign ownership;
- reduced restrictions on advertising hours;
- provided for election broadcasting;
- granted licences to several specific broadcasters; and
- provided transitional arrangements for existing spectrum users and broadcasters.
42. The Broadcasting Act falls within the portfolio of the Minister of Broadcasting and is administered by the Ministry for Culture and Heritage (MCH). Government's reasons for involvement in the broadcasting sector are, at a general level, the same as those that motivate and justify its involvement in other sectors. The power and pervasiveness of broadcasting as a form of communication and shared experience means that broadcast media play an especially significant role in the functioning of civil society, and can either promote or undermine its core values.
43. In July 2000, 6 the government formulated a set of new objectives to guide the development of broadcasting policies to ensure that desired kinds of broadcast content are available to the New Zealand public. The objectives have guided such subsequent decisions as a reorientation of the direction of TVNZ, and the allocation of non-commercial spectrum. These objectives are:
- ensuring that all New Zealanders have reasonable and regular access to broadcasting representing the uniqueness and diversity of New Zealand life, recognising that the histories and stories of whanau, hapu and iwi are integral to any description of that life;
- meeting the information and entertainment needs of as many interests as reasonably possible, including those that are unlikely to be met by commercial broadcasting;
- contributing to public awareness of and participation in the political and social debates of the day;
- providing for minority interests and increased choice;
- contributing to the Government's goals in relation to the Treaty of Waitangi; and
- encouraging innovation and creativity in broadcasting while aiming to continually increase audience satisfaction with the quality of the content.
These objectives have been furthered by the Television New Zealand Act 2003, the Māori Television Service Act 2003 and amendments to the Broadcasting Act 1989.
44. MCH provides advice on the assignment of spectrum to non-commercial and public broadcasters. Similarly the Ministry of Māori Development, Te Puni Kōkiri (TPK) facilitates spectrum assignment to Māori broadcasters. MED, MCH and TPK work closely together on policy issues, as changes in spectrum policy impact on broadcasting policy, and vice versa.
45. The document, Building a Strong and Sustainable Public Broadcasting Environment for New Zealand - A Programme of Action, released by MCH in late 2004 proposes six priorities:
- adequacy and certainty of funding, by changes to current mechanisms, including a switch to direct funding of Radio New Zealand;
- strengthen public broadcasting, by, inter alia, increased funding for TVNZ and assigning spectrum without charge;
- facilitate the successful development of digital broadcasting;
- enhance regional and community broadcasting;
- enhance independence and responsibility in broadcasting; and
- enhance quality incentives for broadcasters and producers.
Conclusion
46. Radio spectrum is the passive carrier of a wide variety of radiocommunications services, which in turn are subject to a diverse range of legislative controls and policy intentions. Some services are predicated to function optimally in an open market environment, others in a governed environment, and a further group in an environment that has elements of both. A need to balance the policies and purposes of Government, and of service providers, is characteristic of such a mixed spectrum management regime. These issues are examined in more detail in Chapter 4.
1 See Chapter 4 for a discussion of the value of spectrum and Secondary Markets for market issues.
2 See Modifying the Spectrum Environment, for further discussion of this issue.
3 Telecommunications Act 2001, s18
5 The Public Broadcasting Fee has since been abolished. NZ On Air is funded now through general taxation.
6 Refer Broadcasting in New Zealand: A 2003 Stocktake, Ministry of Culture and Heritage 2003
