Ofcom on Spectrum Trading: 2004 and Beyond…

Apologies for the untimely post on this topic. I finally got around to reviewing Ofcom’s ‘Statement on Spectrum Trading‘ and here are my initial thoughts:

* Section 1.6 – The statement that this ‘represents a new approach to spectrum management’ is only true for those who have ignored academic, marketplace and regulatory developments over the past 40 years. Simply stated: Ofcom is playing catch-up here. Through no fault of its own, the new regulator has unfortunately been placed years behind the curve on these issues.

* Trading regulations are coming – November 2004. This is a decent pace for Ofcom. Just under one year – and a busy year at that – to consult and adopt regulations for this vital area.

* The phase-in schedule for spectrum trading (see Table 1) puts 2G and 3G mobile near the end of the process. That’s disturbing: 2G and 3G are the home of the major, well-funded players most likely to benefit and least likely to be adversely affected by a trading scheme. See, for example, section 2.12 where Ofcom lists large companies first as those who would benefit. Ofcom provides a justification for the delayed onset of trading in these bands in Section 4.53, but it’s just not convincing.

* Section 1.19 – Intermediaries. I’ve seen a few of these companies pop-up on the internet. Unlike traditional brokers such as Daniels & Associates, these new intermediaries don’t seem to add any real value to the process. Spectrum trades are not similar to securities trades.

* Section 3.15 – Ofcom describes spectrum trades that result in a trade of something less (either geographically or spectrally) than the full license at issue. The FCC calls those concepts ‘partitioning’ and ‘disaggregation’ of spectrum licenses.

* Section 3.28 sets out the conditions under which Ofcom will deny a proposed spectrum trade. True to its word, Ofcom specifies a narrowly-drawn list of conditions.

* Section 3.42 – Ofcom will generally not seek public comment on proposed spectrum trades. This would be a major difference with the U.S. scheme, which is more legalistic and basically permits the general public to intervene in certain cases, notably for broadcast properties. I generally favor Ofcom’s approach in the vast majority of cases.

* Section 5 of the Statement addresses liberalisation. As we said some time ago, this should have been in a separate document and a separate consultation altogether. Liberalisation and trading are separate concepts. For example, a regulator can allow the trading of broadcast television licenses, but still completely require the assignee or transferee of a traded license to strictly adhere to non-liberalised license term and conditions. Ofcom’s liberalisation efforts appear mostly geared toward license term and revocation issues. This is necessarily the case because different portions of the spectrum have different technical characteristics and it is nearly impossible to fashion a broad liberalisation scheme that makes sense.

* In Section 7.42, Ofcom outlines a scheme that address how much license-specific information will be released to regulatees and the public. Nothing terribly unusual here.

* Section 7.59 – Does Ofcom seriously want to become part of the due diligence process between traders of spectrum? Bad idea. Ofcom should simply make more of its records public and available for inspection so that potential buyers of traded licenses can perform their own due diligence.

* Overall – good start. But Ofcom needs to: (i) move faster, (ii) remove itself from the marketplace elements of trading, and (iii) resist the temptation to over-regulate in this fast-paced area.