4.1.3.1 High level options

The Crown holds a management right for the frequency range 841-845 MHz, which expires in October 2012, while the range 845-849 MHz is managed under the radio licensing regime.

The high-level options for management of this overall band are:

• To allow the management right to expire and revert to the radio licensing regime, enabling the whole new 841-849 MHz band to be administratively licensed;

• To create management rights at 845-849 MHz also, enabling the whole 841-849 MHz range to be managed and allocated under the management rights regime for the long term;

• To maintain mixed management of the band, with one portion using management rights and spectrum licences, and the other portion using radio licences.

Radio Licensing Regime Option

Examining first the suitability of the radio licensing regime for this band, the benefit of this type of management is that it enables the Ministry to control licensing and to ensure that the spectrum available is engineered in a technically efficient way, as licences are applied for over time. This would enable maximum channel reuse. However, the radio licensing regime is less flexible for enabling new technologies to be introduced by private parties.

A further benefit to the Crown is that it remains the band manager, and under current regulations may reallocate the band to a future, more valuable use, by giving five years’ notice to licensees, or less than five years provided a transition plan is implemented. The downside for licensees is therefore limited certainty of use of the spectrum and consequent risk for equipment investment.

A drawback of this regime in terms of spectrum management is that it does not incorporate any kind of charge for use of the resource (the initial licence fee and annual renewal charge recover administrative costs only). It is therefore low cost and may incentivise licensees to use the radio spectrum, rather than alternative technologies, for studio-to-transmitter linking. If the spectrum were in plentiful supply in the 806-960 MHz band, this would also be an economically efficient use of the spectrum. However, the congestion in the main centres suggests that there is insufficient supply of frequencies for STLs in the 806-960 MHz band. New broadcasting services, for example using licences reserved by the Crown or new digital services, are expected to occur within a 20-year period¹⁶ . Therefore the radio licensing regime, while enabling technically efficient allocation of the spectrum available, would not promote economically efficient use over time.

Management Rights Regime Option

In contrast, the competitive allocation process applied under the management rights regime is beneficial when assigning spectrum which is in high demand – the process enables the rights to be allocated to the users who value it most and for the allocation to change over time through trading. The management rights regime is likely to result in less congestion as licensees factor resource charges into decision-making about the appropriate technology to use for studio-to-transmitter linking: the right-holder is able to determine which radio technology, whether analogue or digital, is most efficient to use for the required service, as well as whether an alternative technology would do so more cost-effectively.

A further benefit to right-holders is the longer period of tenure: a right-holder may hold management rights for up to 20 years, although the rights may expire earlier if the Crown chooses to create rights for a shorter period at the outset. The long tenure is intended to give the right-holder greater certainty in decision-making about their investments.

On the other hand, a drawback of the management rights regime is that the spectrum usage is no longer centrally controlled, which introduces a higher risk of disparate technologies being used and less than optimal channel reuse, resulting in less technical efficiency. This is an issue that can be negotiated between right-holders. There is, however, no obligation on a right-holder to accede to requests from other parties for licences. This may create competition concerns, but there is also an economic incentive to maximise revenues from the asset.

Mixed Management Regime Option

The effects of adopting a mixed regime would depend on whether the portion of spectrum under management rights was allocated to the market or not. If not, and the management rights were retained by the Crown and licences were allocated without resource charge, then a mixed regime would operate no differently to the radio licensing regime and therefore deliver no additional benefit. This would also introduce administrative complexity.

On the other hand, if some portion of the band was allocated to the market as management rights while the Crown maintained a portion under the radio licensing regime, this is likely to incentivise users to first seek comparatively lower cost licences in the administratively licensed portion of the band, before seeking to purchase management rights, or spectrum licences within management rights. As the radio licensing regime is a first-come, first-served system, this is likely to result in an inequitable outcome for licensees in high-use areas (where demand is likely to exceed supply of available frequencies) who apply later.

In this context, it is worth noting that the frequency bands at 849-851 MHz and 929-935 MHz are both currently administered under the radio licensing regime and predominantly used for STL purposes. Therefore, if the 841-849 MHz band is allocated as management rights, STLs will be licensed under two systems in this band. However, the existing bands are already fully utilised in high-use areas, and therefore new requirements for any new licences in high-use areas would need to be met from the new 841-849 MHz range and the licensees have a level playing field. Meanwhile, licences for low-use areas may be able to be granted from the administratively licensed bands, which still have capacity in those areas. Therefore, at this time, there does not appear to be a need to change the management of the existing STL bands at 849-851 MHz and 929-935 MHz. The differences between the STL bands is an issue which might be examined in future, when the licensees seek to transition those bands to digital technology.

The pros and cons of these different management options are summarised in Table 4 below.

Table 4: Pros and cons of different management options for 841-849 MHz

On balance, the Ministry considers that the management right approach is likely to provide greatest benefit as it will deliver the most economically efficient allocation outcome over time.

Question 15

Do you agree with the creation of management rights in the 841 849 MHz band, and the subsequent allocation of management rights to private parties? If not, what is your preferred alternative and why?

If a management right approach is adopted, further issues for consideration include whether the Crown should retain any rights, and if so, the purpose and appropriate size of the block; the appropriate lot size of the remaining management rights to be allocated to the market; and competition issues.

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