The document discusses whether spectrum is truly scarce and argues that while aggregate supply may exceed demand, availability is constrained where users need it most. It notes artificial constraints on the spectrum market like few Ofcom auctions and a lack of trading. The document advocates for policies like publishing licence data, reducing barriers to trades, addressing price signals, and introducing band managers to help release underutilized public sector spectrum and satisfy demand. It predicts trends like more litigation and appeals around licence terms and trades, and debates whether Ofcom should focus on long or short-term licensing to optimize spectrum use.

1. Spectrum Management Under the Microscope
Julian McGougan, Head of Public Policy
26th April 2010
Presentation to Spectrum Policy Group, Ofcom

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3. Is there a housing shortage?
• Received wisdom:
 Of course there is! It’s a national scandal.
• The reality is less clear-cut:
 There are more families on nationwide housing waiting lists than
empty properties.
 But demand exceeds supply by less than you’d think (1.8 million vs
1 million).
 1 million empty homes is the real scandal.
• And you won’t be surprised to learn:
 The fewest empty homes tend to be where the greatest demand is.

4. Is spectrum scarce?
• Received wisdom:
 Of course it is. Demand exceeds supply, and is growing.
• The reality:
 Research both in the UK and elsewhere has shown most
spectrum is little used most of the time in most places.
 Ofcom study shows that even the unlicensed 2.4 GHz (the “WiFi
band”) isn’t congested in urban areas.
• But:
 While the supply of spectrum may exceed demand in aggregate,
that may not be true just where you want access to it.
 The availability of thousands of empty houses in many parts of
the country may not constrain your willingness to buy or rent any
of the houses you like where you actually want to live.
 So it is with spectrum (demand driven by propagation and
equipment standardisation/availability).

5. But there is an ARTIFICIAL spectrum shortage
• Ofcom has actually carried out few spectrum auctions to date.
• Digital Britain, Judicial Reviews, and increasing European harmonisation initiatives
have temporarily stalled the Spectrum Awards Programme.
• And shaking out spectrum from the public sector is taking a while.
• Meanwhile in the secondary market:
 Few spectrum trades have been concluded to date.
 Spectrum brokers (as essential for a vibrant, liquid secondary market in spectrum as
estate agents are for property) have yet to set up shop.
 Band management (although arguably more advanced in the UK than in much of the
rest of the EU) remains essentially uncommercial and the few band managers in
existence (JFMG, JRC, CSS) focused on satisfying demand from specific user groups.
• So spectrum demand remains focused on the primary market.
• Where Ofcom continues to make markets in spectrum for fixed links, business radio
and PMSE.
• So Ofcom continues to have Significant Market Power in the supply of spectrum.

6. How few Ofcom spectrum auctions to date?
Date Spectrum Minimum
Licence
term
Geographic licence
areas
Number of
licensees
Amount
raised (£ m)
Anything
deployed yet?
National Regional
May 2006 DECT guard
band
10 √ 12 3.8 Some
Oct 2006 412 MHz 15 √ 1 1.5 Yes, lots
May 2007 1785-1805
MHz
15 √ 1 0.4 ?
Feb 2008 10-40 GHz 15 √ √ 10 1.4 A little
May 2008 L-Band 15 √ 1 8.3 No
Feb 2009 DDR
(interleaved)
16 √ 2 0.0 No

7. The dilemma for Ofcom’s Spectrum Policy Group
• How can Ofcom satisfy its principal spectrum-related Statutory
Duty to secure optimal use of spectrum when:
 Large swathes of spectrum are left in the hands of those
who make little or no use of it; and
 Spectrum which could be sold into the market sits in
Ofcom’s “cupboard” with limited market visibility of it; all the
while
 There is considerable unmet demand for spectrum in the
market?
• And might satisfying that Duty be further undermined by
spectrum being released by public sector holders which have
no obligation to secure its optimal use?

8. So how could Ofcom help more demand for spectrum to be
met?
Objective Tools
Don’t discourage investment
in spectrum
Publish current licence expiry dates.
Put in place a predictable means of licence extension
(Cap and collar? Choice of AIP or lump sum?) with an
appeals mechanism on the price quoted.
Lower barriers to trading and
leasing
Publish more information about tradable licences (TLCs,
usage data).
Reduce number of steps involved in a trade.
Introduce legally secure leasing.
Address incorrect price
signals in AIP
SRSP needs to look at:
•implausible alternative uses
•definition of substitute bands for price-setting
•wrong geographic pro rata AIP
•wrong spectrum class licences
Discourage hoarding “Use it or lose it” obligations (but for how long could
spectrum be unused before it’s hoarding?)
Threat of competition law (but how to define a spectrum
market?)
OR JUST GET MORE SPECTRUM INTO THE
MARKET!
INCREASINGDIFFICULTY

9. And then there’s the spectrum in public sector hands…
• “Demand for spectrum depends on a wide range of factors, including
 price;
 the availability of spectrum on the secondary market; and
 release of additional spectrum.
• For almost all services and scenarios, the effective supply of spectrum will
potentially grow faster than underlying demand, with implications for
appropriate policies to be followed on spectrum pricing, trading and release.
• These findings significantly depend on the amounts of spectrum public
sector bodies decide to release to the market.”
Converged Communications In Tomorrow’s World, Ofcom, June 2009
• But MOD, CAA, Government departments usually have neither spectrum
management expertise nor experience of running auctions (and why should
they?). So how should Ofcom assist the release of their spectrum?

10. Why band managers are important
• Artificial spectrum scarcity constrains innovation and has a detrimental effect
on competition with long-term access to suitable spectrum representing an
unnecessarily high barrier to entry.
• Public sector spectrum owners will take time to recognise spectrum as an
asset which has an ongoing cost, but is also a potential source of revenue.
• And many public sector spectrum owners fear they might have a future
requirement for unused spectrum, which would preclude outright sale of
much of this spectrum to commercial users (but does RSA permit sharing?)
• Band managers are the missing piece of the puzzle, they would:
 Offer commercial spectrum licensees an additional revenue stream from
locating secondary uses in their “white spaces”.
 Enable the rationalisation of the public sector’s disparate spectrum
holdings and the pooling of spectrum from different owners to maximise
efficient use.
 Tend to be more dynamic in responding to demand than Ofcom.

11. Predicting some future spectrum trends
• Increasing litigation in the primary market (with implications for Ofcom’s resources & the
timing of auctions). 2.6 GHz will set a trend.
• Ofcom’s “after sales service” will become increasingly important (with implications for
Ofcom’s resources):
 Applications to change Technical Licence Conditions (a key determinant of the value of
a spectrum licence in secondary market), including for permitting very different uses of
the same spectrum with geographic separation (Ofcom sets TLCs on a UK-wide
basis). Where’s the right of appeal cf planning applications?
 Increasing number of trades (including splitting spectrum licences, temporally too).
 How much oversight is really justified of band managers or sub-tenants? Ofcom’s last
proposals for access to spectrum for PMSE use didn’t imply “letting go” (quite the
opposite!).
 Complaints about incoming interference likely to rise, but it’s far from clear what would
trigger any auction from Ofcom – victims gathering evidence of illegal spectrum usage
and incoming interference? Just how keen would Ofcom be to act?
 Need to establish a process for negotiating extensions beyond minimum licence terms.
 Appeals against changes to AIP (not everyone wants to go to the High Court)?
• Ofcom will have to decide whether to remain the dominant supplier of spectrum for certain
services (e.g. fixed links, business radio, PMSE), where a commercial spectrum owner may
find itself competing against its regulator (like playing against a competing team, where that
team has picked the referee).

12. Some perverse outcomes of Ofcom’s spectrum
management
1. Ofcom significantly raised the AIP on a fixed-link band used
extensively by BT, pushing them to fibre.
 BT returned the spectrum to Ofcom, which is now unused.
 How does that contribute towards Ofcom’s Duty to secure
optimal use of spectrum?
2. A commercial spectrum owner is incentivised to use its spectrum
inefficiently if it wants to reduce the risk of being found guilty of
hoarding.

13. A key strategic decision for Ofcom (one of many!)
• What are the optimal terms on which commercial users should hold
their spectrum?
• To secure optimal use of spectrum, should Ofcom balance the amount
of spectrum in commercial hands on long-term licences with the
amount held on shorter-term notice periods?
• Or should Ofcom aim to principally be a regulator, not market maker,
with its spectrum cupboard as bare as possible?
Long-term licences
(up-front payment)
Security of tenure encourages investment.
Unwanted spectrum not likely to come back to
Ofcom’s “cupboard” anytime soon (perhaps stagger
term expiry dates cf property leases), aiding
secondary market.
Short-term licences
(on AIP) with annual
break points
More flexibility for users, who could react to
requirements better - so spectrum better utilised?