Original URL: http://www.theregister.co.uk/2011/03/17/ofcom_auctions/
Spectrum-guzzling operators will TAKE TV off THE AIR
The scramble for more radio spectrum
Ofcom has threatened to put the spectrum used by broadcast TV on the block.
Speaking at this week's Westminster eForum on spectrum policy, Ofcom's Hyacinth Nwana made several references to the 700MHz band that carries about two-thirds of our national (digital) television broadcasting. He said it was "open to discussions" and that "there are players waiting" to snap it up just as soon as we stop wanting to watch it.
Not that Ofcom was the only one resorting to hyperbole: Three all but threatened to pull out of the UK market entirely; the British Entertainment Industry told us that our TVs would go silent and our concert halls would lie empty; and Barclays Capital reckoned that smaller operators would decide to hold out just too long.
The shadow minister for business then pointed out that spectrum management has no place in the Ministry of Fun... which is where it now lives. Thanks to the demands of the Olympics, spectrum management is now officially the responsibility of the Secretary of State for Culture Media and Sport, much to the annoyance of Chi Onwurah, shadow minister for Business, Innovation & Skills, who demonstrated her grasp of the industry by describing radio spectrum as being like North Sea oil that would never run out.
Alan March, representing the British Entertainment Industry Radio Group, was very worried that once the network operators got a taste of the good stuff they'd only want more – eventually forcing wireless microphones off the dial and making it impossible to make new TV shows or live music. But the PMSE (Programme Making & Special Events) crowd have already won their battle, and are now gathering up all the old bits of kit they can find to send off to Ofcom and exchange for shiny new kit paid for by the taxpayer, and operating in a frequency that isn't about to be sold off by Ofcom.
Going once, going twice ...
It is only days until Ofcom publishes its consultation into the best way to auction off those frequencies, which form part of the bands at 800MHz and 2.6GHz; and while Ofcom still clings to the mantra that auctions are the best way to fairly allocate spectrum - because the company who pays most for radio spectrum will be most incentivised to use it - the evidence is stacking up that neither proposition is actually true.
During the debate there was much talk of spectrum hoarding – companies buying up radio spectrum purely in order to prevent the competition getting hold of it. And there were calls for "use it or lose it" clauses to be added to spectrum licences. The UK's L-Band auction was highlighted as a time when the auction process failed entirely, with India's 4G auctions also mentioned.
The UK's L-Band spectrum (1452-1492MHz) was bought up by US technology company Qualcomm, which bid an outrageous £20m for the frequencies. Qualcomm only had to pay the highest losing bid, but despite parting with more than £8m the company has done nothing with the spectrum for the last four years: utterly failing Ofcom's mandate to ensure efficient use of radio spectrum. Qualcomm won't admit it publicly, but it bought the spectrum for the UK launch of its mobile TV service MediaFLO. Unfortunately none of the UK operators were interested in mobile TV, which also went titsup stateside and will never be spoken of again. But that left Qualcomm holding a lot of valuable spectrum.
The Indian auction again featured Qualcomm, but this time the company bid for radio spectrum without having any intention of ever using it. Having secured significant holdings it then sold them on, with the additional condition that the buyer use LTE rather than WiMAX technology - Qualcomm having considerable patent holdings in LTE and few in WiMAX.
None of that is illegal, but it demonstrates the fallacy in believing that whoever is willing to pay most for a chunk of radio spectrum is the one who will make best use of it - undermining the principles under which Ofcom operates.
One can impose "use it or lose it" restrictions on the licence, but this penalises companies that fall foul of changing business conditions - as with the UK's L-band, or the swaths of microwave bandwidth bought up by Aquiva to provide backhaul for all those LTE networks we're supposed to have by now. It's not Aquiva's fault that no-one has built a 4G network yet, and neither is it Qualcomm's fault that we don't want to watch mobile TV, so demanding they fill the airwaves just for effect seems pointless and cruel.
Dismay, anger and threats of litigation Ofcom's best-case scenario
We didn't always auction off radio spectrum; allocations used to be by beauty contest. Companies would present a business plan and the one that made best use of the frequencies got the licence. The problem lies with beauty being in the eye of the beholder, and judging such competitions became increasingly difficult and prone to litigation when the losers took it badly. There were some attempts at a lottery-based system, but no one really takes that seriously, preferring to muck about with the packaging rather than the way in which it is awarded.
When the UK sold the 3G licences – an auction of such excess that the whole industry now finds it slightly embarrassing – the spectrum was parcelled into paired chunks (required for 3G telephony) and the parcels were then bundled into five lots: one for each of the existing operators and one for a new entrant. That model was echoed across Europe, which saw 18 new entrants, with seven of them still operating independently.
But these days Ofcom's policy is to let the free market decide, and rely on the flawed premise about auctions to ensure efficient spectrum utilisation (which is Ofcom's remit: competition is to be encouraged, but only because it encourages greater exploitation). The regulator is prepared to consider caps on ownership, ensuring that no monopoly exists, but that's as far as it will go in fiddling with the auction model.
The general consensus of the debate was that caps could work, as long as they are applied to low and high frequencies independently. This would ensure everyone gets a stab at some of that 800MHz goodness when it comes up for auction. Which is all good in theory, but when the actual numbers come out, the companies involved are unlikely to be so accommodating.
Ofcom's best-case scenario has its proposals greeted with dismay, anger and threats of litigation from everyone in the industry; that way we'll know the regulator isn't playing favourites, or that the favourites are complaining just as loudly as everyone else. ®