Spectrum reform on the agenda

By Jonathan Nally
Monday, 17 July, 2017

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The federal government’s long-awaited review into spectrum pricing and government-held spectrum is gathering steam.

In mid-May, the Department of Communication and the Arts released two consultation papers: one on overall spectrum pricing and the other on the management of government-held spectrum. The Spectrum Pricing Consultation Paper called for submissions from across the sector, with the aim of gathering views on the updating of Australia’s spectrum pricing framework. The last time this was done in a major way was back in 1992, when the radiocommunications world was a very different place.

The present study comes as a result of the Spectrum Review, released in March 2015. The Review recommended that spectrum pricing be reviewed as part of other reforms, with the aim of ensuring “consistent and transparent arrangements to support the efficient use of spectrum and secondary markets”.

In August 2015, the federal government announced that it would implement the Review’s recommendations, including an agreement to:

  • replace the current legislative arrangements with new legislation that removes the prescriptive process and streamlines licensing for a simpler and more flexible framework;
  • better integrate the management of public sector and broadcasting spectrum to improve the consistency and integrity of the framework;
  • review spectrum pricing to ensure consistent and transparent arrangements to support the efficient use of spectrum and secondary markets.

The Spectrum Pricing Consultation Paper addresses the third of those points.

Open for discussion

According to a 2015 research report (‘The economic value of spectrum’) by the Centre for International Economics, the “economic value of Australia’s spectrum to the national economy is estimated to be $177 billion over 15 years”. But ensuring that value is achieved will depend on keeping the entire spectrum system, including administration and pricing, agile and up to date as technology rapidly changes.

Options canvassed by the paper “relate to the efficiency of spectrum markets, allowing spectrum to move to its highest use, and reducing the complexity of spectrum pricing frameworks”, and that the “extent to which the benefits of spectrum are realised or improved upon will depend in part on how it is priced and allocated”.

This philosophy is backed up by the Productivity Commission’s recent public safety mobile broadband research report, which states: “Regardless of how and to whom spectrum is made available, it should be priced at its opportunity cost — the value of the next best use for the spectrum. This would give purchasers a strong incentive to use spectrum in an efficient way, including potentially leasing or selling spectrum access rights to a third party when it is not needed.”

The paper includes a number of recommendations about improving the transparency of government and the ways in which the Australian Communications and Media Authority (ACMA) makes its decisions, as well as “how market-based and administrative allocations should be made, and how the legislative and cost recovery framework should be adjusted”.

As far as transparency is concerned, the paper asked for feedback on three proposals:

  1. That the ACMA should publish guidelines on how it approaches spectrum pricing.
  2. That the federal government and the ACMA should aim to charge users of similar spectrum at the same rate.
  3. That where fees are determined other than by auction or by the administered pricing formula, the ACMA (or the government when it directs the ACMA on pricing) should publish the reasons for the decision.

On the assumption that market-based allocations are ‘more efficient’ because those who get the most value from spectrum allocations are also likely to be the highest bidders, the paper also recommends that the ACMA should:

  • further identify bands to transition from administratively set fees to competitive market-based allocations in its annual work plan;
  • when setting reserve prices, consider the influence of that price on competitive behaviour, and the scope for price discovery through upward movement toward the market value of the spectrum;
  • generally require upfront lump-sum payments for spectrum access charges determined by auction.

On the latter point, there is also the suggestion that there might be circumstances where instalment payments are warranted shortly after the beginning of a licence term. The paper suggests that when considering the use of instalments, the ACMA should assess both the risks of default and the potential impact on competition.

ACMA logo on the outside of the ACMA building in Canberra

When it comes to administered allocations (where market-based processes are not practical), it is considered that charges “set at levels similar to the market are an effective alternative tool to ensure efficient allocation”. To that end, the paper also sought feedback on the following proposals:

  • That the ACMA should undertake a detailed review of the administrative pricing formula’s parameters, regularly updated.
  • That the ACMA should apply opportunity cost pricing to a greater number of spectrum bands, especially where it is not practical to competitively allocate spectrum.

Finally, bearing in mind that 25 years have passed since the last major pricing review, the paper also called for feedback on the following four ideas:

  • That the three current tax Acts be consolidated into one tax Act.
  • That the apparatus licence tax and spectrum licence spectrum access charges be combined into a single spectrum access charge.
  • That the existing apparatus licence tax formula should become the administered incentive pricing formula and should dictate the price paid for administered prices under the spectrum access charge.
  • That the spectrum licence tax and the minimum tax constraint of the apparatus licence tax should be subsumed into one radio communications licence tax.

Government users

The 2015 Spectrum Review also recommended that the federal government look at overhauling the ways in which public sector spectrum use is managed. The Commonwealth is the largest holder of spectrum, with 36 agencies having access to that spectrum. (Government business enterprises and national broadcasters are not canvassed by the paper, nor is Public Safety Mobile Broadband, that latter of which is the subject of a separate review.) The Commonwealth Held Spectrum Consultation Paper “proposes an overarching governance body to identify and implement whole-of-government efficiency improvements for the management of Commonwealth held spectrum”.

Bargraph showing how much spectrum is used by each of the main Commonwealth users

The main Commonwealth users of spectrum.

According to the paper, the Commonwealth wants to identify opportunities to improve its spectrum management, given that:

  • individual agencies have their own governance arrangements for planning and procurement of licences;
  • there is no coordinated approach to future public sector demand or systematic approach to policy issues that government may need to consider as both user and regulator;
  • there are no whole-of-government mechanisms to ensure holdings are managed efficiently or effectively;
  • public visibility of prices paid, the purposes for which agencies hold spectrum and the extent to which these holdings are used or plan to be used could be improved.

The paper proposes that a “co-ordinated governance framework” will make the management of Commonwealth spectrum holdings more flexible, primarily by increasing transparency. The paper’s summary document states that “Transparency encourages policy development that is coordinated and looks to achieve economies of scale and other policy synergies”.

The summary goes on to say that “A comprehensive whole-of-government examination of significant spectrum requirements prior to allocation will identify issues early and consider potential economies of scale,” and that this “will ensure that procurement processes take account of the needs of government users, the Commonwealth’s broader spectrum policy framework and the wider Australian economy”.

The paper proposes that a new body be set up — a ‘Government Spectrum Steering Committee’ — that would “facilitate whole-of-government consideration on spectrum policy”, although, under the proposed framework, each agency would continue to manage its own spectrum holdings.

The proposed committee would “provide guidance” to the Minister for Communications and the federal government on issues of spectrum policy and management, including:

  • identifying, evaluating and driving initiatives to improve efficiency of spectrum management;
  • formulating whole-of-government positions on Commonwealth spectrum issues such as sharing, trading and emerging technologies (noting international forums and harmonisation obligations);
  • identifying and evaluating emerging risks and opportunities across the broader spectrum management landscape where they relate to the government as a user of spectrum;
  • oversight of a coordinated report of Commonwealth spectrum holdings to improve transparency of holdings.

As part of the discussion, the paper reviews Australia’s international obligations with regard to spectrum (such as aviation bands), defence use and harmonisation standards promulgated by the ITU. It also reviews spectrum management history and current practices in the United Kingdom and the United States.

The paper concludes by noting that Commonwealth use of spectrum is vital for the provision of public goods and services and the operation of national capabilities, “It is clear that a more cohesive management of spectrum issues at the Commonwealth level would allow for the Commonwealth to identify and implement opportunities to improve the allocative and productive efficiency of the Commonwealths spectrum holdings. It would also allow the Government to form more robust and considered positions on issues of spectrum policy.”

The two papers can be downloaded from https://www.communications.gov.au/have-your-say/spectrum-pricing-and-commonwealth-holdings.

Note: Sections of this article reproduce portions of Commonwealth documents under the Creative Commons Attribution—3.0 Australia licence set out at creativecommons.org/licenses/by/3.0/au/.

Headline image credit ©stock.adobe.com/au/kstudija. Other images courtesy ACMA, Department of Communications and the Arts, NSF (Justine Madore and Ellen Damschen).

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