Spectrum Pricing of the Aeronautical Radio Bands
Closing date 30 October - but Ofcom will accept late inputs
In the September magazine I wrote about the move by Ofcom to charge for the use of spectrum in the aeronautical and maritime frequency bands. For us that would include VHF comms, radar and transponders. Since then I have been to Ofcom twice and studied all the documents so I have a better idea of the issues and I mentioned this in the November issue. Please note that the deadline for responses is 30 October but Ofcom have agreed to accept submissions a few days late. You may need to be quick.
The consultation document is here.
First, what is Ofcom and what does it do? It is the communications regulator set up by government but it is neither part of government nor an agency like the CAA. Therefore it does not have to comply with such things as consultation guidelines and it does not answer to a minister. This makes it almost impossible to challenge. It has the legal power to apply charges for the use of the (electro-magnetic) spectrum to ensure its optimal use, the proceeds from which go to the Treasury. So if they choose to charge us for using radios and radars, they can just do it. Interestingly they can also charge government departments and there is not much they can do either! Charges can take the form of auction proceeds as in the 3G mobile phone licence auction but Ofcom does not propose to auction our spectrum. The main income generation is from AIP, Administered Incentive Pricing, which is a one-off charge for the allocation of a particular frequency and an annual charge for a licence to use it. This is the scheme already applied to business use such as taxi radios. It also applies to bodies such as the RNLI who until now had a large discount which Ofcom proposes to remove.
Ofcom can apply AIP charges to create an incentive to use spectrum efficiently basing the amount on the “opportunity cost” which is what the frequency would be worth to somebody else. By this means it is said that users are motivated to use frequencies efficiently and to bring forward new technologies. In this “marketplace” licences to use frequencies can be traded and should eventually end up having the most “valuable” use, that is to say they will be owned by the body that can pay the most. You may think that it would be possible to create efficiencies without applying these significant charges to users. I could not possibly comment save to note that last year Ofcom collected £232.4M for the Treasury and about £130M for itself. Ofcom cannot apply a charge for the sake of it as that would be a tax and they are not a tax raising body (honest). But they are not interested in fairness or equity; it is their business to apply charges for use of spectrum in accordance with the communications act 2002 which sets out their statutory duties.
In 2004 the Treasury commissioned Prof Martin Cave to study spectrum holding and what could be done to release spectrum for other users as there was not enough to go around. He recommended that AIP be applied to the aeronautical and maritime sectors and Government has accepted this. Ofcom are now implementing that decision starting with VHF coms.
You will know that the use of aeronautical frequencies is very highly regulated to comply with international standards based on ICAO and cannot be changed or used for other purposes. To do anything different would be patently unsafe and we could soon expect to see significant loss of life as a result. So we cannot trade frequencies nor use them for any other purpose and we cannot change technologies without changing every aeronautical radio installation in the World. There is no reasonable prospect that any efficiency can be made or that we the users can persuade ICAO to make sweeping changes to worldwide aviation. If we give up a frequency it is given back to the international community and reallocated to another nation so there is no efficiency outcome.
Prof Cave recognised this and in his report he said that:
“where there is no prospect of alternative use because of international restriction,
the opportunity cost is zero”.
That is to say the frequency is of no value to anyone else except the allocated user so there should be no charge. You might think that the aviation sector could easily demonstrate this to Ofcom. However, Ofcom have chosen to adopt a special definition of opportunity cost which says they would:
“consider all alternative uses that are technically feasible, ignoring constraints imposed by regulatory policy or international agreement”.
So even though frequencies cannot be sold or used in any other way, Ofcom has decided to pretend that is not the case and to pretend that we can trade and use frequencies for other purposes and change technologies at will. You may think that they have done this as their objective is really to create revenue for the Treasury and their stated aim of improving spectrum efficiency is just a ruse. Again, I could not possibly comment but it does seem to be an excellent example of Catch 22. We will challenge Ofcom on this as we believe this places the whole consultation outside their legal powers.
Setting that aside for the moment, the charge Ofcom proposes to make for a 25khz channel is £5000 per year assuming the channel can only be used once in the UK. For GA airfields the same frequency can be used in several places so we expect to negotiate some proportionate lower amount; OFCOM seem content with that. Nevertheless we can expect some airfields to give up radio because they cannot afford it. Realistically, a small airfield with one frequency could expect to see its total licence costs double and in a time of economic crisis this will be unmanageable in a number of cases. Ofcom say they are not minded to charge on aircraft licences, just ground stations.
A trawl through Pooleys produced the following approximate numbers of airfields in the UK:
145 licensed aerodromes of which 77 have more than one frequency. These aerodromes must take the new cost or become unlicensed.
155 unlicensed airfields of which about 65 already have no radio
Some licensed aerodromes may become unlicensed joining the 90 aerodromes that currently have a single frequency and which may have to give it up in the face of the new charge. Of course, if they do there will be no efficiency improvement, the frequency will be reallocated to another country and the UK will be the loser.
What of the GA safety aspects of this. Busy GA aerodromes need radio to operate safely. Quiet airfields and strips can manage with Safetycom but where should the line be drawn? What will be above the line and what below would change depending on the level of charge and economic circumstances but we are not playing bridge here we are considering safety of life. We cannot make an absolute statement about the safety effect of a particular level of charge but we know intuitively that taking the radio from busier airfields will push the risk up. If this proceeds we need to ensure that expert opinion lays liability for the increase in risk firmly on Ofcom.
This consultation has united the industry, GA, NATS, airlines, the CAA and the DfT. All are against it. The cost increase to NATS would be significant because of their range of VHF, radars and transponders. Ofcom also propose to charge the DfT for unused frequencies! To avoid this they would have to give them away to international reallocation and then they would be lost to us in the future.
So our plan is to argue that Ofcom have no legal right to apply a charge where “there is no prospect of alternative use” and then argue to reduce charges because of multiple use and indeed, to remove them from GA because of the safety issue.
If you wish to respond you may want to draw on the issues set out above and deal with some of the questions that Ofcom has set:
xxxxxYou may want to challenge the right of Ofcom to set charges where there are no efficiencies to be made.
xxxxxYou may want to argue that aircraft licences should not attract fees and that minor aerodromes should have their fees scaled according to the volume of airspace they cover.
xxxxxIt would be useful to discuss safety but it will be difficult to be specific at this stage. Expressions of concern would be good.
xxxxxYou will certainly want to refer to the looming recession and the wisdom of applying such substantial charges when companies and individuals are already becoming insolvent in their thousands.
The LAA draft response is here; please draw on it but please do not copy it directly.
Sorry it is so long.
How to Respond:
The Ofcom consultation and their online response form is at: http://www.ofcom.org.uk/consult/condocs/aip/. They would be grateful if you could complete the response cover sheet to indicate whether or not there are confidentiality issues. This response coversheet is incorporated into the online web form questionnaire.
You can also email email@example.com attaching your response in Microsoft Word format, together with a consultation response coversheet.
The questions you may be able to cover are:
Question 1: How should Ofcom manage the process of taking advice from users, regulators and government on efficient apportionment of AIP fees in the maritime and aeronautical sectors? Are any new institutional arrangements needed?
Question 2: If you consider that our proposals for pricing ground station users for any spectrum would be likely to have a detrimental impact on safety, please let us know. In order for us to understand your assessment fully, it would be helpful if you could outline the mechanisms whereby this might happen.
Question 3: Do you have any evidence which indicates that AIP charged to ground stations could have a material detrimental impact on UK competitiveness?
Question 4: Taking into account the information available in this document, including that set out in Annex 5, our initial views on VHF radiocommunications licence fees and on the reference rates for bands in other uses, and any information you have about the organisations to whom we are proposing to charge fees, please provide any evidence that you think is relevant to us in considering the financial impact of the fees we intend to propose for VHF radiocommunications, or for other uses.
Question 5: Do you agree that there is little to be gained, in terms of economic efficiency, from charging AIP to WT Act licences for aircraft?
Question 6: Do you consider that we should discount fees for any particular user or type of user? Specifically, do you consider that there should be a discount for charities whose object is the safety of human life in an emergency?
Question 7: Do you agree that Ofcom should apply AIP to ground stations’ use of maritime and aeronautical VHF radiocommunications channels, to help manage growing congestion in current use and to ensure that the cost of denying access to this spectrum by potential alternative applications is faced by current users?
Question 8: Do you agree with our initial view that it would be appropriate to apply a pricing system similar to that already existing for Business Radio licences to maritime and aeronautical VHF communications? If not, what are your reasons for proposing that we should develop a fee structure for maritime and aeronautical VHF channels which is distinct from that already established for Business Radio?
Question 9: Are there any short term reasons specific to the sector(s) why it would be inappropriate to apply fees from April 2009?
Question 10: Ofcom would welcome stakeholders’ views on the factors which should be taken into account when apportioning fees between individual users of radars and racons.
Question 11: Do you agree with our initial view that a reference rate of £126k per 1 MHz of national spectrum for L band and S band radar spectrum would achieve an appropriate balance between providing incentives to ensure efficient use of spectrum while guarding against the risks of regulatory failure in setting the reference rate too high? If you consider a different rate would be more appropriate, please provide any evidence that you think we should take into account.
Question 12: Do you agree with our initial view that a reference rate of £25k per single MHz of national spectrum would be appropriate for deriving fees for licences to use X band radar?
Question 13: Do you agree that, generally, spectrum used by aeronauticalradionavigation aids is currently uncongested? Do you believe that this may change during the next few years and, if so, approximately when? Question 14: Do you agree with the basis on which Ofcom has arrived at its initial view on reference rates for aeronautical radionavigation aids?