Comment

Discussion paper

21. Officials consider that, in most cases, the price-setting formula strikes an appropriate balance between the need for administrative simplicity and transparency, and of obtaining a true estimate of market value, a view that appears to be supported by industry. It is therefore recommended as a generic formula to be applied to the reallocation of commercial spectrum rights at expiry.
22. The price-setting formula, while offering a suitable generic approach, may not prove to be entirely suitable for direct application to all commercial spectrum rights. In such cases, it may be possible to adjust the formula to make it suitable. If this proves to be impracticable an alternative approach, such as auctioning the rights, may be required.
23. Direct application of the formula may not be suitable when:

1. base prices are unavailable or may not reflect market value;
2. there have been significant changes to the rights since original allocation;
3. calculation of offer prices for rights is administratively complex due to the large number of rights and historical amendments;
4. the industry is relatively immature or subject to dramatic changes in technology; or
5. reliable historical data on industry revenues is not available, or it is not possible to forecast future revenues with sufficient certainty.

24. Adjustments to base price data to enable the price-setting formula to be applied will be considered in a case-by-case review for each right. Averaging of base prices may be used where reliable base price data is not available for particular rights, or for administrative simplicity. Benchmarking values of rights against secondary market transactions or prices paid in other markets may also be considered in some circumstances.

Discussion Paper

25. Approval is sought for release by MED of the attached discussion document, as further consultation is required before finalising processes for implementing the formula and making decisions on its applicability to particular spectrum rights.
26. The discussion document sets out MED policy proposals with respect to:

1. a process for implementing the overall policy on expiry of rights, including payment and competition issues;
2. the case-by-case review process;
3. initial case-by-case reviews of spectrum rights that expire up to 30 April 2011: which include UHF-TV, AM and FM broadcasting and MDS (multipoint distribution services) rights; and
4. application of the formula to rights expiring after 30 April 2011, including mobile telephony and VHF-TV rights.

27. Proposals for rights that expire up to 30 April 2011 are as follows:

1. UHF-TV spectrum licences originally allocated individually will be offered to existing holders using the price-setting formula where the licences are in use, subject to averaging of comparable rights.
2. UHF-TV spectrum licences originally allocated in licence sets designed for near-nationwide coverage will be reallocated by auction, as base prices for those rights are unlikely to reflect market value.
3. AM and FM sound broadcasting spectrum licences will be offered to existing holders under the price-setting formula where the licences are in use, subject to averaging of comparable licences. Depending on responses to the consultation, shorter term rights (e.g. 10 years) may be offered.
4. Management rights for MDS services will not be offered. These rights have had no significant use to date.
   

28. Comments on the proposals are requested by 30 July 2004. Officials will analyse submissions and report back to Cabinet by 31 March 2005 seeking final approval of the process for implementation of the policy. This report will also seek approval for contractual offers to be made for rights expiring to April 2011.