Ministry squelches spectrum criticism

By ADAM GIFFORD

The Ministry of Economic Development has brushed under the carpet key parts of a report that identified fundamental problems with the way radio spectrum is managed.

The ministry says the report from Australian firm Market Dynamics strayed outside the project brief, which was to review how competition safeguards are working.

It will consider broader recommendations of the framework and management of the rights-based regime only "when the relevant issue comes up for review". An industry workshop on competition issues will be held this year.

In its briefing note for Associate Commerce Minister David Cunliffe, the ministry failed to mention a key argument - that it "should recognise that the goal of spectrum management is to protect receivers from harmful interference, rather than to create rights to transmit".

The report said too much of the management rights regime "is predicated on a flawed belief in the absoluteness and integrity of the rights and the 'entitlements' to transmit, and a belief that boundaries can be measured objectively in the way that a surveyor would peg a land parcel. This belief is not supportable in physics and engineering."

Management rights allow the owners to issue their own spectrum use licences, which led to the dispute this year between Broadcast Communications and Walker Wireless.

Radio spectrum planning manager Brian Miller said that section of the report was "a useful commentary on our current practice", but the recommendations were peripheral to the core competition issues.

The Market Dynamics report was written by Ian Hayne, formerly of the Australian Communications Authority, who was closely involved with spectrum policy reform in Australia, and David Wright, a former Australian Competition and Consumer Commission worker.

In the reforms of the late 1980s, New Zealand moved from a regime where the state managed all spectrum and licensed its use to a market-based system.

Since the changes were introduced, most of the radio spectrum rights have ended up in the hands of Australian-owned The Radio Network.

The company is based largely on what was previously Radio New Zealand's commercial network, and Canadian media company CanWest, which owns the More FM and Radio Works networks (and TV3 and TV4).

Management right auctions for telecommunications spectrum have allowed major players like Telecom and Broadcast Communications to aggregate large chunks of spectrum, much of which is still on the shelf.

Hayne and Wright said New Zealand's regulatory structure was world-leading, and the regime was light handed, market-based, technology neutral, flexible and relatively uncomplicated.

But they said there were ways the market could be made to function better, and it required some fundamental changes rather than just addressing the symptoms.

In past spectrum auctions the Ministry of Economic Development used spectrum allocation caps, restricting the amount of spectrum any one party could buy, as the way to ensure competition.

Hayne and Wright said they did not support the use of caps, except to restrain dominant incumbents.

This could have implications for the auction of additional FM licences this year.

One of the concepts behind the market-based system was that if mistakes were made in the initial allocation, they could be fixed through a secondary market, as unwanted or under-used spectrum was sold to parties with a more "efficient" use for it.

A 2000 report for the ministry by the Institute of Economic Research concluded the secondary market was functioning reasonably well.

Hayne and Wright said there was no such market and suggested spectrum hoarding, either to prevent competition or as a hedge against future needs, was a possible reason.

The ministry said most trades have been rationalisations of spectrum holding within particular firms, but "the fact there have been relatively few trades between firms does not necessarily imply that competition is being restricted".

"It may simply reflect that sufficient spectrum is available to meet commercial needs and/or firms are not ready to introduce services using the spectrum in question."

Hayne and Wright said they went beyond the brief because they believed in treating the disease rather than the symptoms.

"We observe that competition policy mechanisms are often applied as a fix to observed symptoms of market imperfection, whereas the source of that imperfection may emerge from other aspects of the design of the market," they said.

An example was the way they could not obtain online access to a database of management rights and licences. "This absence of information ... has a distortionary and anticompetitive effect.

"Well-resourced incumbents revel in these sorts of information asymmetries, because only they have the capacity to build their own data sets."

The ministry does, in fact, have a searchable database of frequencies at rfr.med.govt.nz

www.med.govt.nz/pbt/rad_spec.html