Changed coverage characteristics

We understand from the Ministry that the terms of a significant proportion of the licences have been amended since award. These amendments have in most cases changed the coverage areas of the licences. These changed terms need to be accommodated within the averaging process.

Such a licence can be accommodated within the averaging process by:

1. Calculating its renewal price, as if its coverage area was the same as it had been at the time of award.
2. Using this renewal price (i.e. original coverage area) in the calculation of the weighted average price per capita. The population included for the purposes of averaging would be the 2001 census population in the original coverage area.
3. Calculating the averaged renewal price by multiplying by the new coverage area population from the 2001 census.

This approach rolls forward the original licence price at z per annum, and then adjusts for expanded coverage areas. The roll-forward calculation therefore incorporates the change in value arising from market growth within the original coverage area (regionally adjusted z). Multiplying the price per capita by the 2001 population in the expanded coverage area incorporates the increase in value arising from access to the wider coverage area.

This is illustrated below, using the figures from the example above. At the end of step 2, a weighted average price per capita has been calculated, based on the 2001 populations in the licences' original coverage areas.

Assume that licences 1 and 3 have been amended to increase their population areas to the same size as licence 2's. Calculation of the renewal prices is therefore made by multiplying by the weighted average price per capita by the 2001 population in the larger area.

If the Ministry decided not to apply averaged prices to those licences which had been tendered or auctioned, the methodologies set out above could still be used to calculate renewal prices solely for grandfathered licences.

The impact of changed coverage can also be accommodated by the same scaling process for an individual licence.