The NERA report

25. The contract was won by NERA who noted that the imminent "deregulation of the telecommunications and broadcasting industries on 1 April 1989, and future growth in demand for spectrum will mean that [the DTI] will increasingly have to make choices between competing uses and users of spectrum"²⁸. The NERA report went on to analyse the costs and benefits of spectrum regulation versus spectrum markets.
26. NERA noted that "a markets most conspicuous advantage is that decentralisation allows those parties who have the most information, the individual users, to make the decisions." More cautiously though NERA also observed that "A market in itself does not solve the potential problem of dominant suppliers of downstream services hoarding spectrum in order to prevent the development of competition……………ultimately, the success of the market will depend on the strength of competition law and other appropriate measures to prevent abuse of a dominant position in spectrum ownership."²⁹
27. In addition to advocating market allocation of spectrum, the NERA report went on to propose a "system of spectrum management and allocation based on tradeable spectrum rights, that is, designed to take advantage of market mechanisms wherever there is good reason to consider that the resultant efficiency gains will be significantly greater than any potential increase in administration, transaction, and enforcement costs."³⁰
28. NERA proposed a new regime comprising nationwide spectrum bands (for flexibility), and spectrum products³¹ (for certainty). The owners of nationwide frequency bands should be able to create spectrum products for specific frequencies within their bands and allocate them to whomsoever the owner wished. NERA envisaged that commercially used spectrum would eventually transition, by way of auctions, from public sector to private sector mangement over a period of time. Public sector management, either under administrative licensing or spectrum rights, should continue wherever deemed necessary to meet public policy objectives or international treaty requirements.
29. Within this broad framework NERA made 20 specific proposals, the key ones summarised as follows:
    1. Auction bands - Spectrum bands for auction should be chosen to reflect existing New Zealand allocations and future demand. Where bands are characterised by local use (eg FM broadcasting and mobile radio) spectrum products³² should be planned to reflect known local demand.
    2. Duration of rights - On economic grounds alone, spectrum rights should be granted in perpetuity although the efficiency loss associated with fixed period rights is likely to be small if rights for future periods are issued well in advance of the termination of existing rights. If the Government chooses to issue fixed period rights these should take the form of 20 year rights with new rights issued, via an auction, no fewer than 5 years in advance of the time they take effect.
    3. Legal definition - There should be a registration system similar to a land registry.
    4. Internationally determined distribution - Where spectrum is allocated by international agreement33, the Ministry of Commerce (or other Government administered agencies) should continue to plan and administer the bands concerned.
    5. Lawful interference - Where two (or more) rightholders exercise their rights in accordance with their respective licences and create unexpected interference, the parties should negotiate a solution to the problem with the costs being borne equally by the parties involved. If there is no technical solution, 'first-in-time' rules should apply.
    6. Unlawful interference - In cases where a party is acting unlawfully, that is transmitting other than in accordance with a licence, adjudication should be by the courts alone.
    7. Enforcement role for Ministry - The Ministry should continue to have a role, either directly or by agency authorisation, in the protection of small spectrum users - for example the detection and resolution of broadcast interference. The enforcement of electromagnetic compatibility (EMC) requirements and international spectrum agreements are other appropriate roles.
    8. Anti-competitive behaviour - There is a potential for some organisations to 'dominate the spectrum market and hence stifle competition in the main downstream markets of telecommunications and broadcasting'. Three proposals were made to mitigate this possibility:
       1. apply an 'essential facilities' doctrine to spectrum property rights
       2. limit the amount and nature of rights that may be acquired by any one organisation at auction
       3. the sale of spectrum product licences to facilitate access to spectrum by small users, or to avoid monoploly power (such as might occur with the auction of the VHFTV spectrum bands used by TV1, TV2 and TV3).

Footnotes

²⁸ 'Management Of The Radio Frequency Spectrum In New Zealand', National Economic Research Associates (NERA), November 1988

²⁹ page 81 NERA report

³⁰ page 3 NERA report

³¹ defined in terms of location, power, frequency, antenna etc

³² 'If bands are only sold on a a nationwide basis, however, the initial purchase of spectrum may be beyond the reach of many local end users, who will be obliged to acquire spectrum from the new nationwide bandowners. To the extent that this causes problems of monopoly exploitation by band owners or results in very thin markets, one might wish to have some spectrum available on a local basis.' (NERA page 8).