Offer prices calculation decision

A - Averaging groups

B - Calculation of raw renewal price

C - Calculation and averaging of renewal prices per capita

D - Calculation and offer prices
 

Offer prices for the renewal of AM and FM radio broadcasting licences will be calculated by an independent accounting company as follows.

A - Averaging groups

Cabinet has directed that renewal prices be averaged for groups of comparable licences.

A1. All AM licences sold at tender and auction from 1991 to the present ("original licences") are identified and listed by the Ministry.

A2. All AM licences held by incumbents at the passing of the Radiocommunications Act 1989 ("incumbent licences") are identified and listed by the Ministry.

A3. All FM licences sold at tender and auction from 1991 to the present ("original licences") are identified and listed by the Ministry.

A4. All FM licences held by incumbents at the passing of the Radiocommunications Act 1989 ("incumbent licences") are identified and listed by the Ministry.

A5. For each licence, population coverage at the time the licence was issued is calculated by independent engineering consultants.

A6. AM original and incumbent licences are assigned to a single group for averaging purposes.

A7. FM original and incumbent licences are assigned to geographically-based "averaging groups" of comparable population coverage by the Ministry. For example, licences at Horokaka, Mt Hikurangi, Parahaki and Whangārei are assigned to a "Whangārei" averaging group.

B - Calculation of raw renewal price

The first stage of the calculation of offer prices is to derive a renewal price per capita for each averaging group.

B1. For each original licence, a renewal price is extrapolated from the original price according to the price-setting formula agreed by Cabinet.

B2. For each incumbent licence, a renewal price is extrapolated from the average price paid for comparable original licences (i.e., licences in the same averaging group) sold between 1991 and 1995.

B3. For each incumbent licence, a renewal price is extrapolated from the highest price paid for comparable original licences sold between 1991 and 1995.

C - Calculation and averaging of renewal prices per capita

Three different methods of calculating a renewal price per capita have been evaluated.

• Excluding incumbent licences form averaging groups (Price α).
• Including incumbent licences in averaging groups at the average value of comparable original licences (Price β).
• Including incumbent licences in averaging groups at the highest value of comparable original licences (Price γ).
  

Each of these methods conforms with Cabinet directives. It has therefore been decided to average all three.

C1. For each averaging group, excluding incumbent licences, aggregate renewal prices are divided by aggregate population coverage, to give Price α.

C2. For each averaging group, including incumbent licences at the average price of comparable original licences sold between 1991 and 1995, aggregate renewal prices are divided by aggregate population coverage, to give Price β.

C3. For each averaging group, including incumbent licences at the highest price of comparable original licences sold between 1991 and 1995, aggregate renewal prices are divided by aggregate population coverage, to give Price γ.

C4. A final price per capita (Price δ) for each averaging group is calculated by the formula:

Note: For AM licence calculations only. The average value was used for the highest value. This avoids unwanted distortion.

D - Calculation and offer prices

D1. All current AM and FM radio broadcasting licences are identified, listed and assigned to averaging groups by the Ministry.

D2. For each licence, current population coverage is calculated by independent engineering consultants.

D3. For each licence, population coverage is multiplied by Price δ for its averaging group to produce its Offer Price.