2. Process for the reallocation of commercial rights

2.1 Timing

2.2 Case by case review

2.3 Terms of offer

2.4 Auction alternative

2.5 Payment terms and discount rate

2.6 Assignment and transfer

2.7 Commerce act

2.1 Timing

18. The Ministry's preferred timeline and process for implementation of government policy on expiry of rights is as follows:

2.2 Case-by-case review

19. The Ministry will undertake case-by-case reviews of commercial radio spectrum rights in the period immediately prior to their respective offer dates. The review will ensure consistency with New Zealand's international radio obligations and the general objective of maximising the value of the spectrum to society as a whole. Further discussion of the case-by-case review process is in section 3 below.

2.3 Terms of offer

20. Offers will be made to the person currently recorded in the Register of Radio Frequencies as the relevant rightholder of a right at the date of expiry. A binding offer document will be provided to each rightholder at least five years before expiry, which will specify the spectrum rights and terms being offered. The rightholder may accept in full, accept in respect of only some rights, or reject the offer. The offer will normally be open for a limited period, probably no more than six months, and its terms are likely to be non-negotiable.

2.4 Auction alternative

21. The rightholder may decline the offer for any reason, including if it considers the price sought by the Crown exceeds market value. The Crown will then offer the rights at auction, with the eventual purchaser paying the market (auction) value for the rights.

2.5 Payment terms and discount rate

22. The price-setting formula contains provision for a discount factor to be applied if payment were required five years in advance (i.e. at the time that renewals are confirmed) or if annual payments during the term of the succeeding right were allowed.

23. The Ministry's preferred approach is to not require early payment for rights nor to accept annualised payments during the term of the new right. Instead, the latest date for settlement, normally six months before expiry, would be specified in the original offer. This allows time for the rights to be (re)auctioned prior to expiry if the purchaser fails to settle. Re-auctioning the rights would mandate a tight time frame, so timing of settlement will be of the essence and penalties will apply for failing to settle on time.¹

24. A key objective of the policy is to give right-holders certainty by offering the opportunity to obtain a succeeding right at a price set by the formula. Actual creation and transfer of new rights is not necessary until the rights have been paid for, at or before six months prior to expiry, in accordance with the Ministry's normal practice. There are likely to be advantages to purchasers in settling closer to the time of renewal, as this will align spectrum investment more closely with revenue, and allow time to arrange funding.

25. The role of the discount rate in the formula is limited, therefore, to scaling-up spectrum licences that were originally allocated for periods of less than 20 years. The Ministry proposes a discount rate of 11% p.a. for these purposes, as suggested in the Covec report.

2.6 Assignment and transfer

26. Due to the long period between acceptance and settlement, the Ministry proposes to allow purchasers to transfer contractual rights and obligations in the interim, subject to such limitations as the provisions of the Commerce Act.

2.7 Commerce Act

27. Acquisition of radio spectrum rights is subject to the Commerce Act 1986. Purchasers need to assure themselves and the Ministry that acquisition through the formula process or by auction is consistent with the Commerce Act, and that any necessary clearances or authorisations have been obtained. The procedure for providing Commerce Act assurance is likely to be based on the rules used in radio spectrum auction 6, provided that purchasers may be required to confirm Commerce Act compliance, following acceptance and at settlement.

1. Do you have any comments on the proposed process, including timing, terms of offer and settlement terms?