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Preparing for the Spectrum Reallocation Sale.

19 January, 2012

 

Legal News & Analysis – Asia Pacific – Australia – TMT

 

 

The Federal Government is now in the preparatory stages of the auction process for the simultaneous sale of the 700 MHz and 2.5 GHz bands that is to take place during 2012-13. 
 
How does it affect you?
 
  • Spectrum in the 700 MHz (digital dividend spectrum) and 2.5 GHz bands (electronic news gathering spectrum) is to be spectrum licensed and re-allocated by the Australian Communications and Media Authority (the ACMA) through a single auction process towards the end of calendar 2012.

 

  • For affected incumbent apparatus licensees, the re-allocation period ends towards the end of the calendar year 2014 and the period within which the ACMA must conduct its auction process (called the re-allocation deadline) ends towards the end of the calendar year 2013.

 

  • Incumbent apparatus licensees operating in 2.5 GHz bands can still operate transmitters under their licences until at least 31 December 2014, after which their apparatus licences will be cancelled.

 

  • Broadcasting (commercial and national) apparatus licences in the 700 MHz spectrum will not automatically be cancelled at the end of the re-allocation period, but will be migrated to target frequencies in the broadcasting services bands, through the process known as 'restacking'.

 

  • The Federal Government's aim is for the re-allocated spectrum to be cleared within 12 months of analogue commercial television switching off on 31 December 2013, that is, by 31 December 2014.

 

  • The ACMA has indicated that draft spectrum allocation instruments will be released for comment in the first quarter of 2012 and the complete applicant information pack will be published in July 2012.

 

  • To date, the ACMA has engaged in a review of both bands and received submissions from interested parties.  It is expected that further information, including reserve prices and auction dates, will be released in mid 2012.
 
Background
 
The digital dividend
 
"There are three key areas of work related to yielding the digital dividend. The first is completion of the switchover to digital television, which results in the cessation of analogue television services. The second is the process of clearing digital television services from the identified digital dividend band. The third is the configuration and allocation of the cleared spectrum to new users.1"
 
Australia has been transitioning from analogue television broadcasting to a system requiring broadcasting in digital mode for some time. Since 2010, the process of the progressive switch over from analogue television has commenced in certain regional areas and will conclude with metropolitan areas. Final switch-off is scheduled for December 2013.
 
As a result of the switch-off of analogue transmission, approximately 126 MHz of radiofrequency spectrum in the UHF band known as the 700 MHz band will become available. This contiguous block of spectrum is known as the 'digital dividend'. The process of clearing existing television services from the digital dividend spectrum will be implemented by ACMA under the Broadcasting Services Act 1992 (Cth) (the BSA) under a process known as restacking. The process of restacking involves all digital television services in a target frequency range in the broadcasting services bands (520-694 MHz and 174-230 MHz) being relocated and organised more efficiently. In effect, this involves changing the channel on which all digital television services are transmitted in a particular area. As a consequence, this process has involved heavy engagement with the commercial television and national broadcasters and will be accompanied by a public education campaign, as all digital television receivers will need to rescan for the new frequencies.
 
The digital dividend spectrum block will then need to be reallocated in a manner consistent with the Radiocommunications Act 1992 (Cth) (the Radcomms Act) and ACMA's policy objective of maximising the overall public benefit derived from the use of that spectrum. 
 
In addition, spectrum in the 2.5 GHz band, which is currently used for electronic news gathering by free-to-air broadcasters, has been earmarked by the ACMA for reallocation. The ACMA's stated preference for the simultaneous reallocation of the 2.5 GHz and 700 MHz bands has been reiterated by mobile telecommunications providers, as next-generation technologies, such as long-term evolution and 4G technologies, require large blocks of spectrum at both low and high frequencies.
 
Both the 700 MHz and 2.5 GHz bands are considered highly valuable. The 700 MHz band's high propagation characteristics enable deep building penetration, reduced interference risk and efficient data carriage (and, consequently, reduced infrastructure costs), making it ideal for the provision of wireless access services such as mobile broadband.  Importantly, the 2.5 GHz band was earmarked internationally in 2000 for wireless access services. 
 
International harmonisation
 
The switch from analogue to digital television broadcasting is a worldwide trend, with several countries having already auctioned off the 700 MHz and 2.5 GHz bands during their switchover to digital-only television broadcasting.  For example, the Federal Communications Commission (the United States' equivalent to the ACMA) held an auction for the 700 MHz band in 2008 and raised nearly US$19 billion. Verizon and AT&T acquired the most spectrum in the FCC auction with the remainder being split between smaller telecommunications providers, Qualcomm Inc (a chipset manufacturer) and Chevron (an energy company). 
 
International harmonisation through consistent spectrum allocation across borders is important both to both service providers and consumers. Device manufacturers have less incentive to produce a device modelled on the current Australian frequency allocations and even where they do produce such devices, Australian service providers face higher costs in acquiring compatible devices and infrastructure. 
 
Spectrum re-allocation
 
On 19 August 2011, the ACMA formally recommended to the Minister for Broadband, Communications and the Digital Economy, Senator Stephen Conroy (the Minister) that he declare that specified spectrum in the 700 MHz band is to be subject to re-allocation. The ACMA recommended that two 45 MHz blocks within the 700 MHz band should be auctioned off as national spectrum licences. Such licences would allow the licensee to operate transmitters, receivers and/or other devices within the specified band range across Australia in order to 'provide licensees with the flexibility and security of tenure needed to encourage investment in infrastructure.'2   
 
On 1 November 2011, the Minister made two spectrum re-allocation declarations under section 153B of the Radcomms Act: one for the 700 MHz band3 and one for the 2.5 GHz band.4 The effect of these declarations is that at least one national spectrum licence must be issued for each band before the end of the re-allocation deadline on 30 September 2013. A reallocation period runs from 2 November 2011 until 31 December 2014. During this period, incumbent apparatus licensees can still operate transmitters under their licence. Other than broadcasting apparatus licences, any incumbent apparatus licences will automatically be cancelled at the end of the reallocation period.
 
Broadcasting apparatus licences in the 700 MHz band will not automatically be cancelled. This is because the Radcomms Act provides that the holder of a commercial television broadcast5 licence or a national broadcast licence6 must be issued with an apparatus licence that authorises the operation of one or more transmitters for transmitting content in accordance with the related broadcast licence. Those apparatus licences will effectively be cancelled by a process undertaken by the ACMA under the BSA, including by variation of licence area plans under s26 of the BSA.
 
The new spectrum licences in the 700 MHz and 2.5 GHz bands are to be granted on a national basis, with two minor exceptions. First, the spectrum licences will not extend into the Mid-West Radio Quiet Zone: an area established for the present and future deployment of radio telescopes for deep space exploration. Second, the re-allocation period will extend 15 months longer in the Perth area.
 
Auctions
 
How does the ACMA allocate spectrum?
 
When allocating spectrum, the ACMA assesses the level of supply and demand for a particular part of the radiofrequency spectrum. Generally, where supply exceeds demand, the ACMA allocates spectrum 'over the counter' on application from potential licensees. Conversely, where demand exceeds supply, the ACMA conducts spectrum auctions to ensure that the highest-value use of spectrum is realised. Spectrum is most commonly auctioned off as spectrum licences and less commonly as apparatus licences.
 
On 27 May 2011, the ACMA announced that spectrum in the 700 MHz and 2.5 GHz bands will be reallocated by auction.
 
Auction format
 
In September 2011, the ACMA announced that the auction would be held in the Combinatorial Clock Auction (CCA) format. The CCA is a method used to sell multiple items in a single auction process. It will allow potential bidders to bid on packages of spectrum in both the 700 MHz and 2.5 GHz bands, so that they may have the opportunity to acquire specific combinations of spectrum that meet their commercial needs. 
 
The CCA is relatively complex and the ACMA has published some guidance on the auction format and process. In addition, the ACMA will be hosting workshops in 2012 to provide interested parties with an opportunity to gain insight into, and ask questions about, the CCA methodology.
 
According to the ACMA, a CCA is:
 
 
"the auction format most likely to put the spectrum in the hands of the bidders who value it most highly, and ensure winners pay a competitive price for the spectrum. It is the auction format that best promotes the object of the Radiocommunications Act 1992 (Cth); namely, to maximise the public benefits derived from the use of the spectrum by ensuring spectrum is efficiently allocated.7"
 
 
The UK, Ireland and Switzerland have all expressed a preference to implement the CCA auction format for their equivalent digital dividend bands.
 
Reserve prices have not yet been set.
 
Next steps
 
Applicant information pack
 
Before the commencement of spectrum auctions, the ACMA will make an applicant information package available to the public. The package contains a plain English covering paper, the required regulatory instruments, a sample licence, details on unacceptable interference, advisory guidelines and application forms. In developing the applicant information pack, the ACMA thus considered approaches taken in the past, as well as overseas regulator 'best practice'. In addition, there is scope for public comment on drafts released by the ACMA.
 
The ACMA has indicated that a draft package will be released for comment in the first quarter of 2012 and the complete information pack will be published in July 2012. 
 
Regulatory instruments: marketing plan and allocation determination
 
As part of the applicant information pack, the ACMA is required to prepare a number of regulatory instruments, including a marketing plan and an allocation determination. 
 
The marketing plan sets out all the information about the bands that are being auctioned including the division of lots for sale and a sample spectrum licence that outlines any technical restrictions under the spectrum licence, such as emission limits and technical advisory guidelines. The allocation determination outlines the auction process, including rules, registration, fees, reserve prices, deposits payable and methods of payment.
 
Conclusion
 
It is likely that dates for the auction will form part of the applicant information pack released in July 2012. In early 2012, the ACMA will be seeking submissions on draft allocation instruments. The complex nature of the CCA auction process means that the ultimate winners, and their respective allocations, is difficult to predict. However, given the increasing demand for wireless data services and the benefits of international consistency, it is highly likely that telecommunications service providers will see the digital dividend auction as a prime opportunity to secure valuable spectrum to provide new and profitable services to their customers.
 
 
For further information, please contact:
 
Ian McGill, Partner, Allens Arthur Robinson
ian.mcgill@aar.com.au
 
Valeska Bloch, Allens Arthur Robinson
 
Matthew Tracey, Allens Arthur Robinson
 

 

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