6.4 Use or lose provisions

92. Cabinet has decided that ‘use or lose’ provisions should apply to acquired spectrum to encourage use and investment and to discourage spectrum hoarding for anti-competitive purposes. 
93. The discussion paper on design issues for the proposed 2.3 GHz auction included a substantial discussion on design of ‘use or lose’ provisions. The proposals below have taken account of submissions on those issues.
94. As noted in the 2.3 GHz discussion paper, the purpose of a use or lose provision is to spur investment at an early date and avoid spectrum being unused for lengthy periods (denying potential other parties from the opportunity to implement services). The three issues involved are the requirements of “use”, the process to “lose”, and the date when each would be applied. A practical time-frame would need to recognise that equipment availability, network planning, and site and consent acquisition need to occur to achieve practical use.
95. There are a number of challenges concerning the design of ‘use or lose’ provisions including:

• ‘use’ provisions are ideally quite precise to minimise the risk of dispute over whether the use requirements have been met. However, developing precise ‘use’ provisions requires assumptions to be made on how the spectrum will or should be used, technology developments, equipment availability and the like. There is a risk of a mismatch between specified ‘use’ requirements and actual technology developments. This in turn may risk premature trading of spectrum or sub-optimal investments simply to meet use requirements. Overall there is likely to be a trade-off between the objective of technology neutrality and ‘use’ provisions. 
• The likelihood that some parties will legitimately wish to acquire spectrum to keep their options open to allow for potential developments in particular technologies. A case in point may be 4G cellular, where certainty over new technologies is some time away (perhaps 2015 or later). 

96. The availability of a significant quantity of spectrum along with acquisition limits facilitating up to six successful bidders reduces the ability of one or two bidders to exercise market power by acquiring spectrum for anti-competitive purposes (because plenty of spectrum is held by other parties). 
97. Overall, however, ‘use or lose’ provisions are likely to have a role in encouraging use and investment and discouraging hoarding.
98. The Ministry recognises that the use or lose date could be set at a date ranging from December 2012, through 2014 to December 2016, depending upon the weighting given to the above factors. Accordingly the Ministry is seeking views on the preferred date.
99. The Ministry proposes the following provisions to implement use or lose requirements:

• Management rights sold at the 2.3/2.5 GHz auction will have a term which ends on the date eventually determined in response to the paragraph above.
• Management right holders will have a contractual right of renewal of those management rights with the subsequent term ending 1 December 2029 provided that the Crown is satisfied that there has been substantial use, following consideration of a statutory declaration by the rights holder of substantial use.
• The statutory declaration will be required to be made by 1 June in the year of expiry of the initial purchased rights.
• Decisions on renewal will be made by the Chief Executive of the Ministry.
• Possible options for evidence of use are:

Option A

Licences have been granted by the holder of the management right and substantial use has been made of the spectrum as evidenced by investment in equipment and base station sites and offering commercial services for a period of 12 months prior to the 1 June declaration.

Option B

Management right holders have been able to offer services to, and have been offering services available to, over 30 percent of the population of more than 15 TLAs (territorial local authorities) by 1 May.¹ This option provides more precision than option A but much less flexibility in terms of types of technology and uses. 

100. To clarify, it is proposed that management rights in both the 2.3 GHz and 2.5 GHz bands (whether initial or renewed), have the same expiry date(s) irrespective of any differing commencement dates

 ¹The ‘assessment’ date is one month earlier than the date of the statutory declaration to allow time for right-holders to confirm the data and prepare the declaration.