Nokia public response to the Independent Review of Radio Spectrum Management
(Professor Cave for the Department of Trade & Industry and Her Majesty’s Treasury)
Response to the Independent Review of Radio Spectrum Management
1. INTRODUCTION
We welcome this UK Government initiative exploring spectrum management but note that this is only
one aspect – economic theory. Spectrum is the critical resource that enables society to reap all the
benefits of the converging communications world. As we move into the global mobile information society
and UK Government seeks to bring ‘UK Online’, the way in which spectrum is managed is critical and
requires a review that goes beyond just economics.
It is important that spectrum licensing is explored within the trend of globally harmonised spectrum and
the proven role of industry led open international standards. Any changes to spectrum management
based solely on economic theory would therefore not allow the UK to realise the true benefits from
spectrum and damage UK competitiveness.
A key test for the approach outlined in the review paper would be how under this economic approach
would the successes of GSM, IMT-2000, Digital Video Broadcasting, Wireless LAN, etc, ever have been
realised? And how would the future growth of Bluetooth, Tetra and Fixed links be impacted?
And would a 'fourth generation' ever be realised with a purely economic approach of auction to the
highest bidder for any technology in any spectrum without any globally harmonised spectrum / standards
/ licensing approach?
2. MOBILE INFORMATION SOCIETY
The explosion in mobile communications, coupled with the boom of the Internet is driving the need for
new, innovative ways for consumers to stay connected, independent of time or location. This "Mobile
Information Society" creates increased efficiencies which gives people more leisure time for activities
maximising the individual experience, from spending more time with the family to increased efficiency
and flexibility in handling your own personal or business matters.
The vast consumer acceptance of mobile terminals as the communications device of choice is having a
major impact on the design of both the underlying technology and the new Internet-based services being
introduced. Only solutions which provide immediate access to the services with high quality and that are
easy to learn and use will gain foothold.
To examine this concept in greater detail we believe that there are three trends driving the evolutionary
development towards Nokia´s vision of the Mobile Information Society. These are personal mobility, the
Internet, and convergence.
Personal Mobility
The continuously and rapidly growing popularity of mobile phones throughout the world is the first
powerful driver of the Mobile Information Society. In only twelve years, the number of mobile phone
users worldwide will have grown a hundred-fold: from less than 10 million in 1991 to over one billion in
2002. Several markets are expected to reach a 70-80% penetration rate in the relatively near future. The
mobile phone industry has, in other words, become the world's largest consumer electronics industry.
The mobile phone is one of the most personal accessories that we carry around with us. Not only does it
allow us to connect with other people and to be reachable whenever and wherever we want; it also
contains a lot of important personal information like contact lists, calendar bookings and notes. We can
Nokia public response to the Independent Review of Radio Spectrum Management
(Professor Cave for the Department of Trade & Industry and Her Majesty’s Treasury)
also choose between various models to match our usage needs, lifestyles and individual preferences. In the near future, personalization possibilities both in terms of features and services will multiply.
Internet
The Internet has become an increasingly popular and familiar source of information, entertainment and
services for hundreds of millions of people throughout the world. It has also had a profound impact on all
businesses, irrespective of the industry. But its utilisation is still restricted by one profound element location. Today, the Internet is typically used either in the office or at home - much like voice
communication used to be conducted only a few years ago.
Convergence
Convergence means that the information technology and software industry, the media and consumer
electronics industry, and the telecommunications industry are all approaching one another, jointly
forming a completely new, huge digital industry.
As a result, the number of different wireless terminal product categories is bound to increase: wireless
connectivity is being incorporated into digital cameras and palmtop computers, for example - and vice
versa. However, devices within different categories will be optimised for different purposes.
Visual information will play a key role in products enabled by convergence: first in the form of graphics
and images, followed by video streams (streaming favourite TV programs or movies from the Web to the
terminal), and gradually evolving into real time videoconferencing and mobile multimedia.
The technological enablers functioning as stepping-stones on the path to the Mobile Information Society
are the Wireless Application Protocol (WAP), Symbian, and Bluetooth. Beneath these, there is the digital
evolution towards 3rd Generation mobile communications standards. Two of the latest MIS enablers are
the SyncML and the Mobile Electronic Transactions (MeT) standardisation initiatives. All are open, nonproprietary industry initiatives in which Nokia is playing a leading role.
3. GLOBAL HARMONISATION
Spectrum by its nature does not recognise national boundaries and therefore the UK approach has to be
consistent with at least the rest of Europe and increasingly the rest of the world as the communications
market becomes global. Indeed the UK, along with other countries, should continue to drive this
harmonisation.
Third Generation (3G), or IMT-2000 / UMTS as it is alternatively known, is a good example. The
spectrum for this new global mobile communications system is common throughout most parts of the
world. Around ten years ago (1992) the International Telecommunications Union (ITU) identified global
spectrum to be available from the year 2000 onwards for IMT-2000. This now means that many parts of
the world in Europe, Arab States, Asia Pacific, South Africa, parts of South America, etc, all have
identical spectrum. This, along with the industry led international standardisation process, under the
auspices of the ITU, has created a global market with a competitive environment between the
manufacturers, operators, service and content providers, etc, bringing benefits to all. It is hard to see
how 3G would have been realised if the regulators had taken only an economic perspective on spectrum
management and not identified specific spectrum with a specific set of compatible standards with a
specific start date. To adopt a purely economic approach of ‘any technology in any spectrum’ runs
counter to the success of the IMT-2000 approach outlined above.
Having global open standards and global frequency bands brings benefits to the industry. It enables
manufactures to keep the terminals affordable due to the economies of scale, introduce new and
innovative features as well as reduce the time to market, etc. Operators can benefit from their global
purchasing power, increased efficiency from deploying the same technology in the same frequency
Nokia public response to the Independent Review of Radio Spectrum Management
(Professor Cave for the Department of Trade & Industry and Her Majesty’s Treasury)
bands in different countries, etc. Users benefit from a wide range of competitive devices and service
offerings as well as global roaming and the ability to reap the benefits of the mobile information society
as discussed above.
4. TRADE POLICY
A critical element of spectrum management largely seems to have been overlooked within the
discussions, namely the trade policy and international aspects of the communications business.
Administrations, including the RA and DTI, play a crucial role in helping promote industry initiatives to
seek Europe wide and Global solutions and harmonisation. This involves working within the international
fora to promote and facilitate the development, harmonisation and adoption of new technologies
(licensing, standardisation, spectrum policy, etc) and ensuring that there are open interfaces,
interoperable standards and innovation. A purely economic approach to spectrum management would
loose many of these elements.
5. ECONOMIC PRINCIPLES TO SPECTRUM MANAGEMENT
While acknowledging that spectrum pricing has a role in influencing behaviour where spectrally efficient
alternatives are available, Nokia would challenge the view expressed in the consultation document that
charging the opportunity cost (via pricing or auctions) will maximise spectral efficiency. Leaving aside for
now the important issue of social (non-monetary) benefits, the main aim should be to maximise total
economic benefits to UK. As stated in the document this comprises the sum of producer surplus and
consumer surplus. To the extent that consumers bear some or the entire spectrum costs the spectrum
price that maximises producer surplus will be higher than that which maximises consumer surplus and
therefore total economic benefits (noting also that demand will also be increased if price decreases).
Auctions and "Opportunity cost" pricing (eg for fixed links and PMR) will tend to maximise revenue.
Taking PMR and fixed links as examples, an increase in spectrum costs towards opportunity cost will
dramatically reduce total economic value (table in para 16) which consists mainly of consumer benefits
(according the Economic Impact Report, Feb 2001)
Efficient use of spectrum is a recognised objective but not necessarily the only. Which criteria govern is a
political decision meriting full public debate on the applicable policy objectives.
Allocating spectrum solely to services that can afford to pay the highest price raises the barriers to entry
for the development of new and experimental services. This may lead to a dearth of new innovative
content and services and stifle development and the overall opportunity afforded by the availability of
spectrum. The blocking or delay in the introduction of new services, is an important policy consideration.
Similarly, the economic burden will reduce choice and diversity of content as the type of service and
content that is likely to reach a maximum market share of the available audience will preempt content
directed to more specialised niche audiences. Extracting a substantial economic price for spectrum use
disadvantages the use of radio over other media. This effectively subsidises the use of fixed
telecommunications and offline media (such as DVD and CD-ROM) over online mobile communications
services. There may be other economic impacts in related markets of publishing and distribution.
Maximising the price of spectrum is a risky proposition. The example of 3G auctions is an illustration of
the risks involved: a "successful" maximization of the auction prices may have occurred, but the overall
and long term consequences to competitiveness and the UK as a whole will be unknown for sometime to
come.
Nokia public response to the Independent Review of Radio Spectrum Management
(Professor Cave for the Department of Trade & Industry and Her Majesty’s Treasury)
6. ANSWERS TO QUESTIONS
Please note that we have chosen not to answer all of the questions. Some of the questions are too
narrow in focus and we would prefer to explain in person the wider perspective before answering the
specifics.
6.1 Economic gains from efficient use of spectrum
i.
How best can Government assess the economic gains from enabling more efficient use to be
made of spectrum?
Both social (non-monetary) and economic benefits need to be considered. So far as economic benefits
are concerned the total economic gain should be calculated as in the consultation document i.e.
summing producer surplus and consumer surplus.
6.2 Economic principles of spectrum management
ii.
How far can the over-arching principle, that spectrum users should bear the opportunity cost of
their usage, be applied in practice?
We would question even this principle, since it will not in general lead to a maximisation of economic
value. By bearing the opportunity cost the consumer surplus is reduced. The demand will also drop, also
leading to a reduction in total value.
iii.
How can the trade-offs between competing economic and social uses of spectrum be more
clearly articulated in the principles governing spectrum management?
By seeking to maximise the economic value (producer surplus + consumer surplus) tabulated in para 16.
That way social benefits are given a value. Spectrum pricing (para 98) maximises revenue but takes no
account of the reduction in consumer surplus.
6.3 Regulatory framework for spectrum management
iv.
To what extent would greater transparency of specific data on current and prospective spectrum
uses support efficient spectrum use? What are the key issues and trade-offs pertinent to the
provision, by RA, of an on-line database containing spectrum-utilisation details? How far is
transparency compatible with commercial confidentiality and public safety and security
considerations?
Statistical information (i.e. number of licences issued) on channel assignment is an essential first step in
assessing how efficient spectrum is being used. For example in the 58 GHz band there is no information
provided.
v.
To what extent could intermediaries play a valuable role in buying rights to manage a particular
frequency band and then selling access to parts of this spectrum to users on a commercial
basis?
If the intermediaries were paid a management fee only then there could be a useful element of
competition introduced. If however they make a profit by trading spectrum on their own account (or are
paid by %) then there is likely to be a damaging increase in spectrum costs to users.
Nokia public response to the Independent Review of Radio Spectrum Management
(Professor Cave for the Department of Trade & Industry and Her Majesty’s Treasury)
6.4 Spectrum use: marketed and non-marketed outputs
vi.
To what extent is the review’s distinction between radio spectrum used for marketed and nonmarketed goods a helpful one?
It is a useful distinction except that it doesn’t take in to account the large and growing unlicensed short
range devices, where the spectrum is non-marketed but the devices are.
6.5 Spectrum pricing and auctions
vii.
How far have economic incentives from spectrum prices helped to encourage efficient spectrum
use?
It is clearly too early to tell what the effect of the auctions will be. Regarding the other increases in
spectrum prices, the RA is in the best position to say what the effect has been. For efficient use to have
increased there must have been an increase in licence take-up. For those bands where spectrum prices
have increased, this is unlikely.
viii.
Where should the balance lie between administratively-set incentive prices and competitive
auction of spectrum licences? To what extent could the two approaches be combined to
encourage spectrum efficiency?
In general administratively set prices are preferred, as they offer the flexibility of reducing prices
(therefore increasing total economic value). Comparative selection can be used where there is a very
small number of licences available. If auctions are used, they should be designed so as to minimise the
revenue (again so as to maximise producer benefits and hence economic value) by using licence
conditions, forecasting future spectrum availability and allowing grouping of applicants. Reserve prices
may fall foul of the licence directive and should not be used.
6.6 Spectrum trading
ix.
Which areas of spectrum use are most amenable to and which areas offer the greatest potential
efficiency gains from the introduction of spectrum trading?
Spectrum trading is useful to the extent that a licensee can sell spectrum he no longer needs to another
party. This increases use and therefore spectrum efficiency.
Conversely, a full spectrum market will tend to lead to hoarding and price increases and therefore
REDUCE consumer surplus and spectrum efficiency. There is therefore a strong case for regulating the
profits arising from secondary trading to minimise hoarding and profits arising from regulatory
relaxations, in order to protect the consumers' interests.
6.7 The boundaries of spectrum regulation
x.
xi.
What factors should guide regulators in setting the boundaries of licence-exempt spectrum use?
What remit should regulators hold over licence-exempt spectrum use, other ensuring that it does
not interfere unduly with licensed spectrum use?
The category of unlicensed products has been omitted from the earlier economic discussion in the
consultation document (eg PMR446, Bluetooth, WLAN, cordless phones etc). They all have a consumer
surplus and therefore add to the UK economy even though the spectrum is not marketed. The table in
para 16 includes SRDs in 'others' but the Economic impact of radio report (page 29) shows that
consumer surplus has not been measured for SRDs. Although small in comparison with other radio
Nokia public response to the Independent Review of Radio Spectrum Management
(Professor Cave for the Department of Trade & Industry and Her Majesty’s Treasury)
sectors, the omission could lead to pressure to charge for SRD spectrum in future, and thereby reduce
the total economic value (since demand will decrease.)
xii.
How far can developments in radio technology provide an alternative to regulation in licenceexempt spectrum bands, particularly where the potential for interference with other users is very
low given the propagation and power characteristics of the signals concerned?
In terms of other regulatory measures, the most important for minimising interference between a range of
devices is to limit power and/or spectral density. Further technology measures can also be mandated in
certain bands, provided there is always spectrum kept for innovative technologies which may not meet
such requirements.
7. SUMMARY
We would once again thank the UK Government for the opportunity to comment on the Spectrum
Review. For any questions or comments on our response please contact either Stuart Cooke or James
Page at Nokia.
Stuart Cooke
Nokia UK
Tel: +447770647030
James Page
Nokia UK
Tel: +447770647027
stuart.cooke@nokia.com
james.page@nokia.com