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CTU Policy Workshop on Unified Spectrum Policy Framework Day I Session VI Key Features of Administrative and Market Ba PowerPoint Presentation
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    1. March 27-29, 2006 McLean Foster & Co. 1 CTU Policy Workshop on Unified Spectrum Policy Framework Day I Session VI Key Features of Administrative and Market Based Approaches to Spectrum Management Chaired by Adrian Foster Presented by Robert Jones, Martin Cave Antigua March 27-29, 2006

    2. March 27-29, 2006 McLean Foster & Co. 2 Agenda and Topics Introduction Administrative Approaches Market Based Approaches Discussion

    3. March 27-29, 2006 McLean Foster & Co. 3 Policy Objectives 1. Ensure efficient use of the radio frequency spectrum 2. Maximize the economic benefit derived from spectrum use 3. Cover the costs of spectrum management activities 4. Spectrum beneficiaries should pay 5. Promote social and cultural objectives *** Before getting into a discussion of spectrum pricing, it is a good idea to list the policy objectives of spectrum pricing. In order words, what are we hoping to achieve when we undertake pricing of the radio frequency spectrum? *** First and foremost, spectrum pricing should be done in a way which promotes spectrum efficiency. But efficiency always comes at a cost and spectrum regulators need to find the optimum cost/benefit tradeoff. *** Secondly, use of the spectrum can provide considerable benefit to the national economy and this benefit should be maximized. *** It is rather obvious that managing the radio frequency spectrum costs money and someone has to pay these costs. *** Those who benefit from the use of the spectrum should be the ones to pay these costs. In other words, the famous user pay principle should apply here. *** Important social and cultural objectives can be advanced by use of the spectrum and spectrum pricing should facilitate the achievement of such objectives. These then are the five policy objectives that should be borne in mind when considering pricing of the spectrum. Now, let us look at each of these objectives in more detail. *** Before getting into a discussion of spectrum pricing, it is a good idea to list the policy objectives of spectrum pricing. In order words, what are we hoping to achieve when we undertake pricing of the radio frequency spectrum? *** First and foremost, spectrum pricing should be done in a way which promotes spectrum efficiency. But efficiency always comes at a cost and spectrum regulators need to find the optimum cost/benefit tradeoff. *** Secondly, use of the spectrum can provide considerable benefit to the national economy and this benefit should be maximized. *** It is rather obvious that managing the radio frequency spectrum costs money and someone has to pay these costs. *** Those who benefit from the use of the spectrum should be the ones to pay these costs. In other words, the famous user pay principle should apply here. *** Important social and cultural objectives can be advanced by use of the spectrum and spectrum pricing should facilitate the achievement of such objectives. These then are the five policy objectives that should be borne in mind when considering pricing of the spectrum. Now, let us look at each of these objectives in more detail.

    4. March 27-29, 2006 McLean Foster & Co. 4 Conceptual Distinctions to be Made Structural Approach/Approaches Total revenue level desired Partial cost recovery Full cost recovery Greater than full cost recovery Application of revenues Spectrum management authority Central government coffers Combination of the above *** In any discussion of spectrum pricing, it is important to keep three concepts quite distinct from each other since often they are all mixed up together when people discuss spectrum pricing. *** The first is the structural approach or approaches to be selected; *** The second is what level of revenue is to be achieved?; and, *** Thirdly, who will be the recipient of these revenues? Let us now look at each of these concepts in more detail.*** In any discussion of spectrum pricing, it is important to keep three concepts quite distinct from each other since often they are all mixed up together when people discuss spectrum pricing. *** The first is the structural approach or approaches to be selected; *** The second is what level of revenue is to be achieved?; and, *** Thirdly, who will be the recipient of these revenues? Let us now look at each of these concepts in more detail.

    5. March 27-29, 2006 McLean Foster & Co. 5 Structural Approaches Administrative Based Options No fee or charge for spectrum use Licence fees for spectrum use Market Based Options Lotteries Auctions Spectrum Trading *** As far as possible structural approaches to spectrum pricing, *** there are four options: *** As mentioned previously, for certain uses of the spectrum, it may make sense to charge no fee at all such as for the use of cordless phones and other low power devices particularly if their use is widespread and it is not practical to issue thousands of individual licences. These would be referred to as devices or uses which are licence-exempt and fee-exempt. Another possibility could arise even where a licence is issued for spectrum management purposes but where, for policy reasons, it is decided to not charge for certain classes of licences. These would be referred to as fee-exempt licences. One example would be licences issued for the radio equipment located within the embassies of foreign countries which offer fee-exempt licences on a reciprocal basis pursuant to the Vienna Convention. 2. *** The second option is to charge fees for licences issued. 3. *** The third option would be to charge for entry into a lottery which is being used to decide among mutually exclusive applications for the use of the spectrum. 4. *** And the final option, which also might be applied in such a case of competing applications for the use of the same portion of spectrum, would be to hold an auction.*** As far as possible structural approaches to spectrum pricing, *** there are four options: *** As mentioned previously, for certain uses of the spectrum, it may make sense to charge no fee at all such as for the use of cordless phones and other low power devices particularly if their use is widespread and it is not practical to issue thousands of individual licences. These would be referred to as devices or uses which are licence-exempt and fee-exempt. Another possibility could arise even where a licence is issued for spectrum management purposes but where, for policy reasons, it is decided to not charge for certain classes of licences. These would be referred to as fee-exempt licences. One example would be licences issued for the radio equipment located within the embassies of foreign countries which offer fee-exempt licences on a reciprocal basis pursuant to the Vienna Convention. 2. *** The second option is to charge fees for licences issued. 3. *** The third option would be to charge for entry into a lottery which is being used to decide among mutually exclusive applications for the use of the spectrum. 4. *** And the final option, which also might be applied in such a case of competing applications for the use of the same portion of spectrum, would be to hold an auction.

    6. March 27-29, 2006 McLean Foster & Co. 6 No Charge Option May be appropriate for some spectrum use e.g. low power devices such as cordless phones, medium power devices such as CB radio, and higher power devices such as microwave ovens, etc. *** Ill now go through the structural approaches in more detail and look at their advantages and disadvantages especially in terms of the policy objectives for spectrum pricing which I mentioned at the beginning of this presentation. You will recall that the first option was no charge for the use of the spectrum. *** As I mentioned previously, this may be appropriate for some uses of the spectrum where it is not practical to issue licences, often because the volume of licences that would have to be issued for only a nominal fee is very large. Such widespread uses can include low, medium or even high power devices as shown in this slide.*** Ill now go through the structural approaches in more detail and look at their advantages and disadvantages especially in terms of the policy objectives for spectrum pricing which I mentioned at the beginning of this presentation. You will recall that the first option was no charge for the use of the spectrum. *** As I mentioned previously, this may be appropriate for some uses of the spectrum where it is not practical to issue licences, often because the volume of licences that would have to be issued for only a nominal fee is very large. Such widespread uses can include low, medium or even high power devices as shown in this slide.

    7. March 27-29, 2006 McLean Foster & Co. 7 No Charge Option Advantages/Disadvantages Administratively simple May satisfy certain social objectives but No revenue earned No financial incentive to use spectrum efficiently Associated spectrum management costs not directly covered by users *** The No Charge option has both advantages and disadvantages. *** It avoids what could be a heavy administrative burden. *** It may also satisfy certain social objectives. For example, radio or television receivers may be fee-exempt or both licence-exempt and fee-exempt such as is the case here in Canada since the early 1950s. But, *** Obviously no revenue will be obtained if no charge for the use of the spectrum is levied; and, *** There is no financial incentive for users of the no-charge spectrum to use the spectrum in an efficient manner or more likely, for the manufacturers or distributors of the equipment to build and sell more spectrum efficient equipment; and, *** The costs of managing these no-charge portions of spectrum are not paid by the users of that spectrum but rather either by other users of the spectrum who do pay fees or by the taxpayers at large. Of course, if the portion of spectrum in question is used in a widespread fashion by most of the population, there is some logic in general taxation covering the associated costs. Also, often the relevant direct spectrum management costs are not that significant.*** The No Charge option has both advantages and disadvantages. *** It avoids what could be a heavy administrative burden. *** It may also satisfy certain social objectives. For example, radio or television receivers may be fee-exempt or both licence-exempt and fee-exempt such as is the case here in Canada since the early 1950s. But, *** Obviously no revenue will be obtained if no charge for the use of the spectrum is levied; and, *** There is no financial incentive for users of the no-charge spectrum to use the spectrum in an efficient manner or more likely, for the manufacturers or distributors of the equipment to build and sell more spectrum efficient equipment; and, *** The costs of managing these no-charge portions of spectrum are not paid by the users of that spectrum but rather either by other users of the spectrum who do pay fees or by the taxpayers at large. Of course, if the portion of spectrum in question is used in a widespread fashion by most of the population, there is some logic in general taxation covering the associated costs. Also, often the relevant direct spectrum management costs are not that significant.

    8. March 27-29, 2006 McLean Foster & Co. 8 Licence Fees Advantages Can be structured to promote efficient spectrum use Can relate to the relevant costs of spectrum management users pay Can be simply cost based or can also reflect economic benefit obtained Can be structured to promote social and cultural objectives *** The second structural option I indicated earlier was to charge licence fees. This option is in widespread use in most countries for most of the radio frequency spectrum. The advantage of charging licence fees are several. *** A licence fee structure can be designed so as to encourage efficient use of the spectrum. If you use more, you pay more. *** Licence fees can be related fairly directly to the costs of managing the portion of spectrum involved and so it is possible to make the users of that portion of spectrum pay for the costs of its management. *** Licence fees can be of many different types and can be simply cost based or may also include what some have called an economic rent for the use of the spectrum. *** Licence fees also offer the potential to encourage use of the spectrum in a way which is in harmony with a countrys social or cultural objectives.*** The second structural option I indicated earlier was to charge licence fees. This option is in widespread use in most countries for most of the radio frequency spectrum. The advantage of charging licence fees are several. *** A licence fee structure can be designed so as to encourage efficient use of the spectrum. If you use more, you pay more. *** Licence fees can be related fairly directly to the costs of managing the portion of spectrum involved and so it is possible to make the users of that portion of spectrum pay for the costs of its management. *** Licence fees can be of many different types and can be simply cost based or may also include what some have called an economic rent for the use of the spectrum. *** Licence fees also offer the potential to encourage use of the spectrum in a way which is in harmony with a countrys social or cultural objectives.

    9. March 27-29, 2006 McLean Foster & Co. 9 Licence Fees Disadvantages Can become rather complex Requires some effort to establish unless kept very simple (the simplicity/equity tradeoff) *** Of course, the introduction of licence fees is not without its downsides. *** The development of a licence fee structure for all radio services in all frequency bands can become quite complex as can be seen by examining the regulations setting out licence fees in many countries. I can recall years ago comparing our regulations governing fees in Canada with those in the UK and they marveled at how brief and simple ours were compared to theirs. Then, in the years that followed, ours in Canada become more and more complex until they were far more complex than those in the UK. *** With complexity comes more effort to keep the fee regulations current and capable of adapting to new uses of the radio frequency spectrum as well as always striving for fairness. There is a very basic tradeoff in designing a fee structure. This is what I call the simplicity/equity tradeoff. One can have a very simple fee structure but people will say that it is not equitable when they compare what they are paying with what other users or uses of the spectrum are paying. But the drive for greater equity inevitably brings with it greater complexity.*** Of course, the introduction of licence fees is not without its downsides. *** The development of a licence fee structure for all radio services in all frequency bands can become quite complex as can be seen by examining the regulations setting out licence fees in many countries. I can recall years ago comparing our regulations governing fees in Canada with those in the UK and they marveled at how brief and simple ours were compared to theirs. Then, in the years that followed, ours in Canada become more and more complex until they were far more complex than those in the UK. *** With complexity comes more effort to keep the fee regulations current and capable of adapting to new uses of the radio frequency spectrum as well as always striving for fairness. There is a very basic tradeoff in designing a fee structure. This is what I call the simplicity/equity tradeoff. One can have a very simple fee structure but people will say that it is not equitable when they compare what they are paying with what other users or uses of the spectrum are paying. But the drive for greater equity inevitably brings with it greater complexity.

    10. March 27-29, 2006 McLean Foster & Co. 10 Licence Fee Considerations Level of fee: Too low -> spectrum may be wasted Too high -> spectrum may go unused Basis for fee: Costs of making the assignment and issuing the licence Quantity of spectrum consumed e.g. bandwidth, coverage, time usage Spectrum scarcity Spectrum Suitability Gross revenue of licensee *** In designing a licence fee structure, in terms of the *** level of the fees, it is important that: *** They not be set too low or there may be no incentive for efficient spectrum use but also, *** Fees should not be set so high that they are a deterrent to using the spectrum, especially for new radiocommunication services which may have high start up costs. *** Different countries have based their licence fees on different factors and even within a given country, fees for different bands or radio services are often based on different factors. Fees are usually based upon: *** The direct cost of making an assignment and issuing a licence plus whatever indirect or overhead costs are deemed to be appropriate. *** The amount of spectrum consumed. This is usually measured in terms of occupied bandwidth, the extent of geographic coverage and the degree to which the frequency is shared with other users. Thus, uses which consume large amounts of bandwidth, which cover wide geographic areas and which require exclusive use of the frequency pay the highest fees. This is a principle which is employed in some way or other by most countries which charge licence fees although not always is this principle followed in all radio services. *** Then, to reflect the fact that not all parts of the spectrum are in high demand nor is demand uniform throughout the country except in very small countries, some notion of spectrum scarcity is factored into the calculation of fees. *** One approach which is used in some countries for some radio services, particularly those services which provide a telecommunication service for a profit and which could not earn those profits without having access to the spectrum (such as broadcasting or cellular), is to set licence fees simply as a percentage of the gross revenues earned from the use of the spectrum.*** In designing a licence fee structure, in terms of the *** level of the fees, it is important that: *** They not be set too low or there may be no incentive for efficient spectrum use but also, *** Fees should not be set so high that they are a deterrent to using the spectrum, especially for new radiocommunication services which may have high start up costs. *** Different countries have based their licence fees on different factors and even within a given country, fees for different bands or radio services are often based on different factors. Fees are usually based upon: *** The direct cost of making an assignment and issuing a licence plus whatever indirect or overhead costs are deemed to be appropriate. *** The amount of spectrum consumed. This is usually measured in terms of occupied bandwidth, the extent of geographic coverage and the degree to which the frequency is shared with other users. Thus, uses which consume large amounts of bandwidth, which cover wide geographic areas and which require exclusive use of the frequency pay the highest fees. This is a principle which is employed in some way or other by most countries which charge licence fees although not always is this principle followed in all radio services. *** Then, to reflect the fact that not all parts of the spectrum are in high demand nor is demand uniform throughout the country except in very small countries, some notion of spectrum scarcity is factored into the calculation of fees. *** One approach which is used in some countries for some radio services, particularly those services which provide a telecommunication service for a profit and which could not earn those profits without having access to the spectrum (such as broadcasting or cellular), is to set licence fees simply as a percentage of the gross revenues earned from the use of the spectrum.

    11. March 27-29, 2006 McLean Foster & Co. 11 Licence Fee Considerations (contd) Exemptions/Preferential Treatment One time and/or annual fee Application/renewal/modification fees Implementation period *** Another policy decision is whether to exempt certain uses of the spectrum or certain categories of users from having to pay licence fees or whether to charge them reduced fees. For example, in some countries, government users of the spectrum do not pay licence fees. In some countries, non-profit organizations pay a reduced fee. In other countries, there are no exemptions and no preferential treatment. All users of the spectrum pay the same licence fees for the same use of the spectrum regardless of the nature of the user. Any exemptions or preferential treatment result, of course, in cross subsidization by either other licensees or by taxpayers in general. *** Another question is whether to charge one time or ongoing fees or both. *** Usually a one time fee is just intended to cover the cost of processing the application. If licences have to be renewed, for example annually, renewal fees are usually charged as are modifications to the licence particularly if they result in the authorization of different technical parameters. *** Of course, a major policy decision involves determining the level of fees. Are they intended to cover all of the costs of spectrum management or just some of these costs or more than these costs? *** If a fee structure is already in place and changes to it are being proposed, consideration has to be given to the period over which the changes will be implemented. This is particularly important if some users will find their fees increasing significantly. If fees are increased too much over too short a timeframe, one can expect a significant level of complaints.*** Another policy decision is whether to exempt certain uses of the spectrum or certain categories of users from having to pay licence fees or whether to charge them reduced fees. For example, in some countries, government users of the spectrum do not pay licence fees. In some countries, non-profit organizations pay a reduced fee. In other countries, there are no exemptions and no preferential treatment. All users of the spectrum pay the same licence fees for the same use of the spectrum regardless of the nature of the user. Any exemptions or preferential treatment result, of course, in cross subsidization by either other licensees or by taxpayers in general. *** Another question is whether to charge one time or ongoing fees or both. *** Usually a one time fee is just intended to cover the cost of processing the application. If licences have to be renewed, for example annually, renewal fees are usually charged as are modifications to the licence particularly if they result in the authorization of different technical parameters. *** Of course, a major policy decision involves determining the level of fees. Are they intended to cover all of the costs of spectrum management or just some of these costs or more than these costs? *** If a fee structure is already in place and changes to it are being proposed, consideration has to be given to the period over which the changes will be implemented. This is particularly important if some users will find their fees increasing significantly. If fees are increased too much over too short a timeframe, one can expect a significant level of complaints.

    12. March 27-29, 2006 McLean Foster & Co. 12 Other Spectrum Related Charges Application Fees Type Approval Fees Radio Operator Examination Fees Fees for Radio Operator Certificates Interference Complaint Investigation Fees Sale of Spectrum Related Publications *** Having now gone through the four options for spectrum pricing, for the sake of completeness, it is worth noting that there are a range of other fees and charges which spectrum management authorities usually levy. These include: *** Fees to apply for a radio licence. *** Fees for having radio equipment approved for use in the country. *** Fees to take an examination for the purpose of obtaining a radio operators certificate of some kind and sometimes there are *** Fees for the issuance or annual renewal of such radio operator certificates. *** Some administrations have introduced fees for the investigation of interference complaints particularly complaints from the general public when often it is their own devices that are at fault. Charging for any service is an excellent way of disciplining demand for that service even if the charge is quite modest. *** Another source of revenue is the sale of spectrum related publications. One caution is in order here, however. If the purpose of the publication is to encourage sound radio operator practice or proper use of the spectrum, it may be in the best overall interest to issue these publications free of charge particularly if they can be produced at low cost since the cost of spectrum control activities to deal with bad operator practices or improper use of the spectrum may far outweigh the revenue from the sale of the relevant publications.*** Having now gone through the four options for spectrum pricing, for the sake of completeness, it is worth noting that there are a range of other fees and charges which spectrum management authorities usually levy. These include: *** Fees to apply for a radio licence. *** Fees for having radio equipment approved for use in the country. *** Fees to take an examination for the purpose of obtaining a radio operators certificate of some kind and sometimes there are *** Fees for the issuance or annual renewal of such radio operator certificates. *** Some administrations have introduced fees for the investigation of interference complaints particularly complaints from the general public when often it is their own devices that are at fault. Charging for any service is an excellent way of disciplining demand for that service even if the charge is quite modest. *** Another source of revenue is the sale of spectrum related publications. One caution is in order here, however. If the purpose of the publication is to encourage sound radio operator practice or proper use of the spectrum, it may be in the best overall interest to issue these publications free of charge particularly if they can be produced at low cost since the cost of spectrum control activities to deal with bad operator practices or improper use of the spectrum may far outweigh the revenue from the sale of the relevant publications.

    13. March 27-29, 2006 McLean Foster & Co. 13 Lotteries Advantages/Disadvantages Can be administratively simple Can result in a flood of applications Efficient use of spectrum not ensured Winners may not be best qualified Economic benefit of spectrum not realized (lottery winners benefit) Unless entry is very costly, spectrum management costs not covered Difficult to promote social and cultural objectives *** Lotteries have many disadvantages, however and, as a result, their use has not been very widespread. *** Lotteries can result in a flood of applications unless the conditions for entry into the lottery are very stringent. *** There is generally no incentive for efficient use of the spectrum which should be a major objective of any spectrum pricing scheme. *** The winners in a lottery may not be the ones most qualified to implement a radio system in the spectrum in question. In the lotteries employed for cellular in the USA, for example, many winners had no telecommunications experience. *** As was discovered in those lotteries in the United States, often the lottery winners simply turned around and sold their winnings at a profit to others who were qualified to implement a cellular system. Hence, lottery winners earned the economic value of the spectrum rather than the government. Another reason, lotteries were not used in the USA after those experiences. *** And, of course, unless there is a relatively high cost associated with entering the lottery, the costs of managing the spectrum will not be covered. *** And lastly, it is difficult to ensure that a lottery will promote a nations social and cultural objectives.*** Lotteries have many disadvantages, however and, as a result, their use has not been very widespread. *** Lotteries can result in a flood of applications unless the conditions for entry into the lottery are very stringent. *** There is generally no incentive for efficient use of the spectrum which should be a major objective of any spectrum pricing scheme. *** The winners in a lottery may not be the ones most qualified to implement a radio system in the spectrum in question. In the lotteries employed for cellular in the USA, for example, many winners had no telecommunications experience. *** As was discovered in those lotteries in the United States, often the lottery winners simply turned around and sold their winnings at a profit to others who were qualified to implement a cellular system. Hence, lottery winners earned the economic value of the spectrum rather than the government. Another reason, lotteries were not used in the USA after those experiences. *** And, of course, unless there is a relatively high cost associated with entering the lottery, the costs of managing the spectrum will not be covered. *** And lastly, it is difficult to ensure that a lottery will promote a nations social and cultural objectives.

    14. March 27-29, 2006 McLean Foster & Co. 14 Auctions Advantages Can result in efficient use of spectrum Has the potential to reflect the true value of spectrum May or may not promote social and cultural objectives Accelerated processing of competing demands for spectrum *** In recent years, auctions have become more popular for awarding licences when there are competing demands for the use of the same portion of spectrum. *** Economists would argue that auctions are the best way to allocate a scarce resource and ensure that it is used more efficiently than through a licence fee approach or what is often referred to as administrative spectrum pricing. *** Certainly auctions have the potential to reflect the true value of the spectrum, at least what those who are bidding perceive its value to be. But, as has been found in some auctions in the USA and Europe, bidders can seriously over value the spectrum. As a result, they won the auction by paying a very high price but then discovered that they no longer had sufficient funds to implement the planned radio systems. *** Depending on how the auctions are structured, they may or may not promote social and cultural objectives. *** One of the major benefits claimed by the proponents of auctions is that they can be used to award the use of spectrum in a much faster timeframe than other competitive processes.*** In recent years, auctions have become more popular for awarding licences when there are competing demands for the use of the same portion of spectrum. *** Economists would argue that auctions are the best way to allocate a scarce resource and ensure that it is used more efficiently than through a licence fee approach or what is often referred to as administrative spectrum pricing. *** Certainly auctions have the potential to reflect the true value of the spectrum, at least what those who are bidding perceive its value to be. But, as has been found in some auctions in the USA and Europe, bidders can seriously over value the spectrum. As a result, they won the auction by paying a very high price but then discovered that they no longer had sufficient funds to implement the planned radio systems. *** Depending on how the auctions are structured, they may or may not promote social and cultural objectives. *** One of the major benefits claimed by the proponents of auctions is that they can be used to award the use of spectrum in a much faster timeframe than other competitive processes.

    15. March 27-29, 2006 McLean Foster & Co. 15 Auctions Disadvantages Revenues uncertain May result in only periodic revenues Not suitable if no competing demands Difficult definition of acquired rights Can become a complex and costly process Can result in concentration of power *** Not surprisingly, auctions do have some disadvantages. *** Revenues from auctions cannot be predicted. Experience to date with auctions has shown that sometimes auctions result in revenue far lower than anticipated whereas in other cases, auctions have resulted in revenues far in excess of anyones expectations. *** Unless the auction is structured to include an annual payment component in addition to a one time, up front payment, spectrum pricing revenue streams will be quite irregular. *** Obviously if there are no competing demands for the use of spectrum, holding an auction would not be an appropriate approach for pricing of the spectrum. *** One major complexity associated with auctions is the definition of what exactly is being auctioned. Spectrum is not a simple commodity like oil or a piece of land. Defining what rights the winner of an auction will have is a complex matter. Also, depending on how these rights are defined, it could pose difficulties should the spectrum management authority want to make a reallocation of the spectrum in the future. *** Auctions can be costly to design and implement as some complex auctions have revealed. *** Unless safeguards are established, if spectrum is awarded to the highest bidder, small business and minority groups may not be able to compete thus resulting in a concentration of control of the spectrum by a few organizations with significant financial resources.*** Not surprisingly, auctions do have some disadvantages. *** Revenues from auctions cannot be predicted. Experience to date with auctions has shown that sometimes auctions result in revenue far lower than anticipated whereas in other cases, auctions have resulted in revenues far in excess of anyones expectations. *** Unless the auction is structured to include an annual payment component in addition to a one time, up front payment, spectrum pricing revenue streams will be quite irregular. *** Obviously if there are no competing demands for the use of spectrum, holding an auction would not be an appropriate approach for pricing of the spectrum. *** One major complexity associated with auctions is the definition of what exactly is being auctioned. Spectrum is not a simple commodity like oil or a piece of land. Defining what rights the winner of an auction will have is a complex matter. Also, depending on how these rights are defined, it could pose difficulties should the spectrum management authority want to make a reallocation of the spectrum in the future. *** Auctions can be costly to design and implement as some complex auctions have revealed. *** Unless safeguards are established, if spectrum is awarded to the highest bidder, small business and minority groups may not be able to compete thus resulting in a concentration of control of the spectrum by a few organizations with significant financial resources.

    16. March 27-29, 2006 McLean Foster & Co. 16 Spectrum Trading Property-like, exclusive rights Flexibility of use/unified licensing Spectrum trading/secondary markets Examples Australia, Guatemala, and New Zealand and, partially, the U.S.

    17. March 27-29, 2006 McLean Foster & Co. 17 New Zealand The Managed Spectrum Park A new model that integrates the best features of radio licensing, management rights and public parks. A shared band of spectrum that relies on coordination between users and the use of smart technologies to manage interference. Open access subject to users agreeing to conditions of use such as: Behavior requirements Implementation requirements Other requirements to meet policy objectives Minimal technical constraints. Access fee to cover any administration costs.

    18. March 27-29, 2006 McLean Foster & Co. 18 Guatemala Spectrum Trading: Users receive a TUF Ttulo de Usufructo de Frecuencia which can be traded and has flexibility under technical constraints; Whereas a Spectrum Licence is a right for a particular use, a TUF is a property right, with the freedom to use the spectrum as one sees fit, subject to technical restrictions; TUFs describe: Maximum transmission power, Coverage area, Maximum interference at border of coverage area and schedule of operation.

    19. March 27-29, 2006 McLean Foster & Co. 19 Guatemala

    20. March 27-29, 2006 McLean Foster & Co. 20 Conclusions Sound spectrum management not simply revenue generation Solid legal framework is necessary Simplicity/Equity tradeoff Spectrum pricing must be tailored to the specifics of each country *** In closing, I would like to leave you with just a few thoughts: *** It is important that the spectrum is seen as valuable resource but not one which is exploited just for generating revenues but as a resource that needs to be carefully managed in the best possible way so as to bring the maximum benefit to the country in the fulfillment of its social, economic, cultural and political goals. *** Secondly, the management of the radio frequency spectrum and its pricing requires the appropriate legislative and regulatory framework. This framework should be flexible enough that it can adapt reasonably easily to the rapidly changing radiocommunication environment *** Thirdly, when designing a methodology for the pricing of the spectrum, the tradeoff between simplicity and equity can never be avoided. The challenge is to find the right balance between simplicity and equity. *** Finally, no two countries are identical, not in terms of their spectrum use, their geography, their governmental structure, their state of development, etc. and so the pricing of the spectrum must be tailored to the needs and situation of each country. There is no one size fits all model when it comes to the pricing of the spectrum.*** In closing, I would like to leave you with just a few thoughts: *** It is important that the spectrum is seen as valuable resource but not one which is exploited just for generating revenues but as a resource that needs to be carefully managed in the best possible way so as to bring the maximum benefit to the country in the fulfillment of its social, economic, cultural and political goals. *** Secondly, the management of the radio frequency spectrum and its pricing requires the appropriate legislative and regulatory framework. This framework should be flexible enough that it can adapt reasonably easily to the rapidly changing radiocommunication environment *** Thirdly, when designing a methodology for the pricing of the spectrum, the tradeoff between simplicity and equity can never be avoided. The challenge is to find the right balance between simplicity and equity. *** Finally, no two countries are identical, not in terms of their spectrum use, their geography, their governmental structure, their state of development, etc. and so the pricing of the spectrum must be tailored to the needs and situation of each country. There is no one size fits all model when it comes to the pricing of the spectrum.

    21. March 27-29, 2006 McLean Foster & Co. 21 Thank you and Discussion