Spectrum: a scarce resource

Chris WoolfordDirector, Spectrum and International Policy

2 December 2008

2

Spectrum’s value to the UK economy

Spectrum is a finite and valuable natural resource. It is the essential input for all forms of wireless communication.

Business activity that is largely dependent on spectrum

contributes around £40bn (over 3%) annually to UK GDP

Estimated net benefits to the UK economy (£bn)*

0

10

20

30

40

50

2000 2002 2005/6

+59% in real terms

*estimate of consumer + producer surplusSource: Europe Economics, 2006

3

Wide range of different uses of the radio spectrum

Radio

Businessradio

TV (terrestrial & satellite)

Emergency services

Aeronautical and maritime

Defence & security

Cellular (2G, 3G)

Satellites

Astronomy

4

Take up of new wireless services

Approximate penetration rate of selected spectrum dependent technologies

0%

20%

40%

60%

80%

100%

1992 1994 1996 1998 2000 2002 2004 2006

Pen

etr

ati

on

(ap

pro

x)

Mobile Phones (per person) Analogue TV DTV

WLan Hotspots (per thou.) DAB radios (per person) Digital Satellite

5

6

There are three ways to manage spectrum

Command & control All decisions made by

the regulator

Market mechanisms Decisions made in the

market

Licence-exemption Regulator sets rules,

but users not licensed

Approach that has historically been adopted

for over 90% of the spectrum

Approach advocated by Cave Reviews in UK. Trading, liberalisation,

technology & use neutrality

Approach currently adopted for 9% of

spectrum. Some argue for radical increase

7

Three ways - continued

Command & control Market mechanisms Licence-exemption

8

The effects of regulation are huge

Numerous studies have shown that existing spectrum policy has very large effects:

– An assessment of FCC spectrum management suggests costs to the US economy of $77 billion per annum (lack of spectrum for mobile, price effects) (Ellig, 2005)

– Other studies show delay in innovation in US in 1980s reduced consumer welfare by $34 billion (Hausman, 2002)

– Consumer benefits of UK 3G auction estimated at £40 billion NPV (Hazlett, Munoz, 2004)

Excessive regulation and intervention, often poorly justified. Lack of flexibility, leading to extra scarcity, adverse effects on competition, innovation, and rigid industry structures

9

Ofcom’s spectrum vision

• Spectrum should be free of technology, policy and usage constraints as far as possible

• It should be simple and transparent for licence holders to change the ownership and use of spectrum

• Rights of spectrum users should be clearly defined and users should feel comfortable that they will not be changed without good cause

Spectrum Framework Review, June 2005

10

Major priorities for Ofcom

releasing more spectrum, to allow new services to develop

- Digital Dividend, 2.6 GHz

- public sector spectrum eg 3.4-3.6 GHz, 2.7-3.1 GHz

liberalisation and trading of spectrum now in use

- 2G bands

licence exemption

- Cognitive technologies

11

WiMAX in the UK

Two operators using spectrum at 3.4 – 3.6 GHz

2.6 GHz award scheduled for winter 2008/9

• Currently subject to litigation

• Technology neutral award will allow flexibility between FDD and TDD

WiFi in the UK

Thousands of hotspots in the UK in range of locations (airports, cafes, hotels…)

Number of companies that provide service

12

Conclusions

• Spectrum is a scarce resource– Huge importance to the economy– Increasing demand from ever greater range of services which are dependent on

spectrum– Demand focused on certain spectrum bands which are very scarce

• Regulators should not attempt to pick winning technologies– Increasingly impossible in dynamic electronic communication markets– Costs of getting such decisions wrong are huge

• Technology and service neutral policies combined with market mechanisms will promote innovation and competition– Gives spectrum users maximum flexibility to deliver the services most wanted by

consumers– Spectrum trading will get spectrum into the hands of the user that will make best use

of it – Promotes technology development, the provision of new services and maximises

benefits for citizens and consumers