Assign spectrum licences by auction and trade licences like private property: Report

The government could improve spectrum efficiency and access if it moved to an open market approach in which spectrum licences are assigned by auction and traded like private property, says a controversial new report by the C.D. Howe Institute. Experts are expressing caution about the recommendations of the The C.D. Howe report, titled “Solving Spectrum Gridlock: Reforms to Liberalize Radio Spectrum Management in Canada in the Face of Growing Scarcity,” released last week. Its authors, Martin Cave, a professor at the Warwick Business School in England, and Adrian Foster, a partner with McLean Foster & Company in Ottawa, say Industry Canada should move from an administrative to an auction-based approach to assigning spectrum rights. The approach would make more efficient use of spectrum because it “puts a price on spectrum and allows permit trading and the disposal of any surpluses,” the report says. Industry Canada currently takes an administrative approach to spectrum licence assignment, in which the department, as regulator, calls the shots on who uses spectrum and for what purposes, based on perceptions of demand, economic and social benefits, and technical efficiency, the report says. In a market-based approach, the private sector would determine how spectrum is assigned based on “broad technical and free-market rules.” “The government’s use of radio spectrum to provide services similar to those provided by the private sector should, at a minimum, be subject to market prices or opportunity cost. Moreover, these services should be tradable in secondary markets,” the report says. Ben Dachis, the paper’s coordinator and a policy analyst with the C.D. Howe Institute in Toronto, said auctions would draw more competition, offer more transparency, and increase the value of spectrum licences. But moving to a wholly-market based approach to spectrum rights could limit some public access to Canada’s airwaves. Wayne Stacey, a spectrum expert at Wayne A. Stacey & Associates in Ottawa, said spectrum management involves consideration of its social purposes. Broadcasting, for example, requires public interest obligations like meeting Canadian content quotas and funding contributions. “If you’re saying to people, ‘You can’t put your transmitter on the air without putting up more money just to occupy the spectrum, how can you expect them to also pay the levels they’re paying now to achieve these other social benefits?” he said. Stacey added that the broadcasting framework is geared to allow organizations that aren’t well financed, such as non-profit organizations or community services, access to the airwaves. An auction system would also create questions for the CBC, he said, which would have to decide how much taxpayers’ money it wants to spend on spectrum. “As soon as you auction spectrum, you’re pretty much moving it into a realm where the guys with the most money are going to be able to afford the best spectrum,” he said. “They seem to be pushing for the auctioning of everything. That may not be suitable for all bands for all purposes.” The paper notes that auctions would drive up the cost of spectrum, and that organizations and companies should be prepared to pay market prices for it. But it would also encourage the more efficient use of underutilized spectrum. “Current administrative methods, whereby the government manages and determines spectrum allocation and use, exacerbate rather than diminish spectrum scarcity,” the report says. It says Canada needs a “pricing scheme” similar to that devised in the United Kingdom following an audit of spectrum holdings in 2005. Following the audit, the U.K. government made efforts to release government-held spectrum and attached prices to spectrum use based on scarcity. The C.D. Howe report’s key recommendations are spectrum licence trading and a move toward spectrum assignments by auction. “The Canadian government could begin such a process through consultations and preparation of a draft policy statement,” it says. The report adds that exceptions should be made in the government’s use of spectrum to fulfill national security needs and international treaty requirements. Industry Canada auctioned 105 MHz of valuable spectrum in the summer of 2008. The spectrum, allocated for advanced mobile wireless services, was auctioned to incumbents and new entrants. Eamon Hoey, a senior partner with Hoey Associates in Toronto, said the study did not present enough research to warrant overhauling the spectrum assignment system and move to auctions. The problem, he said, is not the existing system for spectrum assignment. “The title of their study says ‘Solving Spectrum Gridlock,’” he said. “Where’s the gridlock? The problem has not been gridlock. The problem is bad policy.” Hoey said spectrum has been incorrectly assigned to companies that are American-owned, and that major companies like Bell Canada and Rogers Communications have been permitted to “hoard” spectrum to prevent competitors from gaining access. Hoey suggested that caps on spectrum ownership—as the U.K. government intends to implement—could address spectrum hoarding. Industry Canada removed its 1995 spectrum cap policy in 2004. “The issue is how much spectrum should these carriers own? We need to go back to spectrum caps,” Hoey said. Dachis said Industry Canada’s approach to spectrum rights has led to the inefficient use of government-held spectrum. The federal government currently holds spectrum in the range of 14.3-14.99 MHz for the broadcast of the National Research Council Time Signal, he said, signaling 1 p.m. each day for radio stations. “There’s a specific part of the spectrum that this takes up, and they use it for maybe a minute a day,” Dachis said. “There’s this chunk of spectrum the government is sitting on, and it’s valuable.” sdoyle@thewirereport.ca

Assign spectrum licences by auction and trade licences like private property: Report

News | May 12, 2010

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