The Hong Kong administration and communication regulator released on 23 September a decision to set new fees for spectrum use. Up to now, spectrum fees had only been charged through auctions. The new system will set specific fees for spectrum assigned through administrative procedures in bands that are being used intensively.
The new fees stem from a consultation issued on 26 November 2010, by Hong Kong's Secretary for Commerce and Economic Development and OFTA, the Office of the Telecommunications Authority. The consultation proposed a Spectrum Utilization Fee ("SUF") for spectrum assigned through non-auction procedures.
Under the existing system, a SUF applied only to spectrum that was auctioned, mainly that used for public mobile communication services. Hong Kong authorities believed this system needed to be adjusted due to increasing spectrum congestion, in particular for Electronic News Gathering / Outside Broadcast ("ENG/OB") links and fixed backhaul links by mobile network operators.
Under the new rules announced on 23 September, SUF will apply only to "congested" spectrum bands, which the rules define as bands where (a) further assignments might cause harmful interference to existing users, with a threshold of 75% occupation; and (b) demand for the frequency band in question for other uses is expected to grow, for instance, in the next three to five years.
The frequency bands that Hong Kong has initially designated for SUF payments and the level of SUF payable are summarised below:
Click here to see table.
The rules contain certain exceptions for public interest uses (e.g., broadcasting or service in parks and remote areas); short range "commons approach" uses (e.g., WiFi or cordless phones); and temporary assignments, such as technical trials, field tests and special event usage.
Hong Kong bases its SUF level on the Least Cost Alternative ("LCA") approach, intended to reflect the opportunity costs of spectrum use. The designation of exclusive use in the table is not absolute but instead covers situations where the regulator will not allow sharing between services, in order to avoid potential harmful interference.
Because lower C-band spectrum in the 5875-6425 MHz band is shared between FSS and FS on a co-primary basis, the value of the SUF for satellite uplinks in that band is based on the (lower) value of fixed service links as the next alternative use. Fee levels are much higher, however, for the upper C-band between 6425-7075. The 23 September paper explained that the lower band is assigned on a non-protected and uncoordinated basis, while the higher band is assigned on a protected and coordinated basis, and hence the latter should be charged the much higher fee.
The new charging scheme will require SUF payments on an annual basis, in order to encourage spectrum users to review their spectrum use on an on-going basis and return any surplus spectrum to the regulator for reassignment.
To minimize the initial impact of the new fees, a two-year grace period will apply to allow users to review their spectrum usage. A one-off grant also will be available to spectrum users that return spectrum to the government within this grace period, calculated as the lower of 10% of the applicable SUF or the actual cost incurred in migrating to alternative spectrum. After the two-year grace period, a three-year phased in approach for payment of SUF will apply, with 30% of the SUF imposed at the beginning of the first such year, and 70% imposed at the beginning of the following year. Starting from the last phase-in year, spectrum users will have to pay the full SUF.
Once in effect, the new SUF charging scheme will be reviewed by the administration every five years. It is anticipated that the scheme will commence in early 2012, with the first payments due in early 2014.