Ofcom published their final statement on simplifying spectrum trading on 29 June 2011 (click here) (Final Statement).

This follows Ofcom’s consultation published in September 2009 (click here) (Consultation) and their interim statement published in April 2010 (click here). Ofcom were concerned that the existing spectrum transfer process was hindering market developments and acting as a barrier to spectrum trading.

Ofcom therefore propose to simplify the spectrum trading process, leading to the more efficient use of spectrum, by:

  • introducing spectrum leasing;
  • removing the requirement to obtain Ofcom’s consent to transfers; and
  • allowing subleasing.

Background

The Consultation contained a number of proposals to streamline the spectrum trading process, the purpose of which was to make the market for spectrum more efficient and dynamic, resulting in the earlier introduction of new services and enhanced competition. The deadline for responses to the Consultation was 1 December 2009.

Ofcom categorise spectrum trading into two main types: (i) spectrum transfer; and (ii) spectrum leasing. At present, all spectrum trading in the UK is done by spectrum transfer.

Spectrum transfer requires an agreement between a transferor and a transferee, where the transferor holds rights under a licence or grant of RSA (recognised spectrum access). The transferor and transferee then need to apply to Ofcom, who will then revoke or vary the transferor’s licence or grant of RSA and grant a new licence or RSA to the transferee.

On 4 May 2011 the Secretary of State made the Electronic Communications and Wireless Telegraphy Regulations 2011 (Regulations) (click here), which amends the Wireless Telegraphy Act 2006 and the Communications Act 2003. The Regulations implement the revised EU Framework Directive (Directive) (click here for a mark-up of  the revisions). Article 9b of the Directive introduces spectrum leasing. Spectrum leasing allows the holder of rights under a licence or grant of RSA to lease these rights to a transferee directly without having to apply to Ofcom for revocation or variation of its licence or grant of RSA. The Regulations came into force on 26 May 2011.

The Final Statement therefore takes into account both the responses to the Consultation and the changes that the Regulations have made to the permitted categories of spectrum trading.

The Main Changes

The main changes that Ofcom propose to make to the spectrum trading process in the Final Statement are as follows:

  • The introduction of a spectrum leasing process in the UK. Ofcom see this as a simpler and quicker trading process as it will not require Ofcom to be notified or to issue new licences. Ofcom had originally proposed in the Consultation that their consent would be required for leases over 24 months in length, but has now concluded (based on responses to this) that its consent should not be required regardless of the length of the lease. Spectrum leasing will initially be limited to auctioned and Area Refined assignments.
  • The introduction of one level of sub-leasing. Leaseholders, having leased spectrum from a licensee, can sub-lease spectrum, but those sub-leaseholders may not further sub-lease that spectrum. Licensees must also maintain and make available to Ofcom the necessary information to identify leaseholders and subleaseholders. This differs from the original proposal in the Consultation, which did not allow for sub-leasing.
  • The imposition of a number of obligations on spectrum lessors. These include an obligation to provide dispute resolution and an obligation to draw leaseholders’ attention to the terms and conditions of the licence governing use of the leased spectrum.
  • A streamlined transfer process. This will have significantly fewer requirements than the current process. Ofcom had originally proposed automation of the existing process but have decided, following responses to the Consultation, that simplifying the process would be preferable. Ofcom had also proposed to introduce a stopgap process called ‘transfer without licence issue’ (TWLI) but has now abandoned this proposal because the Regulations now permit spectrum leasing.
  • The introduction of a process for single-transaction time-limited transfers. (Without the need for a separate reversing transaction once the period of transfer expires.) Ofcom do not currently have sufficient resources to make this process widely available and intends to offer it selectively, such as where leasing does not provide a solution (such as in the case of timelimited transfers involving RSA).1
  • The appointment of band managers and lessors. These people will be the first port of call for complaints of interference from leaseholders. Ofcom intend to intervene only if the lessor cannot resolve such a complaint.

In particular, Ofcom believe that spectrum leasing may be useful for trades of low-value spectrum holdings for short periods, for which the spectrum transfer process may be too cumbersome. However, the availability of spectrum leasing will not be limited by value or length of term and Ofcom intend to give the parties as much flexibility as possible.

Ofcom expect that the introduction of spectrum leasing will also help the emergence of commercial band managers, who will manage certain blocks of spectrum. This is expected to address criticisms that costs and legal uncertainty are inhibiting the development of a more efficient spectrum market and the emergence of commercial managers, which could make spectrum more readily available for innovation.

Next Steps

Ofcom intend to publish guidance on the operation of spectrum leasing. They also intend to require lessors to have written contracts with leaseholders, and will consider compiling a non-exhaustive list of issues that might be usefully be considered in drawing up lease agreements, but will not be drafting model contract terms.

The guidance on leasing will be included in the updated Spectrum Trading Guidance Notes, which will be made available on its website (click here). Any suggestions for additional topics to be covered in this notes should be emailed to Ofcom’s spectrum trading desk at spectrum.tradingdesk@ofcom.org.uk.

Ofcom currently expect to be ready to accept applications for licence variations to allow leasing later in 2011, but will publish details of the application process on the spectrum trading page of their website (click here). It intends to introduce leasing on a phased basis, limiting it initially to exclusive Business Radio Area Defined assignments and auctioned licences.

Not all auctioned licence classes will be considered suitable for leasing. In particular, Ofcom intend to consult on whether to allow leasing of auctioned public wireless network mobile spectrum licences, including auctioned licences at 2100 MHz.

Ofcom have, however, stated in the Final Statement that they would consider extending leasing to higher-volume licence products if there is sufficient market interest, but have warned that this will take longer to implement.

It is therefore advisable to continue watching the spectrum trading page of Ofcom’s website for updates on this towards the end of this year.