Expensive mobile spectrum licences threaten industry investment, lower productivity and innovation, warns UK expert

 A new report warns the Federal Government not to extract too high a price for renewal of mobile telecommunications spectrum licences because it would be counterproductive, resulting in reduced investment, lower productivity and higher consumer prices.


Leading United Kingdom economic regulatory and competition policy expert, Dr Chris Doyle, of Apex Economics, has released a paper outlining the need for a conservative approach to the pricing of radio spectrum and the renewal of radio spectrum licences.


The report, commissioned by the Australian Mobile Telecommunications Association (AMTA), is about the pricing of radio spectrum, a critical resource essential to the further development of mobile broadband and related technologies.


Dr Doyle is in Australia for meetings with senior government officials to advise on the need for a conservative approach based on economic efficiency when choosing the right spectrum price.


The Minister for Broadband, Communications and the Digital Economy, Senator Stephen Conroy, earlier this year announced the Government’s approach to the renewal of 15-year radiofrequency spectrum licences, which are due to expire between 2013 and 2017.


Dr Doyle said: “The central message of my report is the need to exercise caution when choosing a spectrum renewal fee and to approach the task conservatively.


“Confronted with a range of opportunity cost estimates means government will need to choose the ‘best’ estimate. If it chooses a licence renewal fee towards the upper end of estimates, this increases the risk of setting the wrong price for spectrum and would as a consequence jeopardise investment and adversely affect both digital productivity and the public interest.


“To ensure that mobile telecommunications contributes fully to the future prosperity of the Australian economy it is essential that the right spectrum price is selected at the moment the spectrum licences are renewed.


“This is far more likely to be achieved if a conservative approach to price setting is used. It is encouraging to note that the Australian Communications and Media Authority is on record as supporting the conservative approach.


“However, there is a worry in the current fiscal climate that government may be tempted to set a fee at the higher end of estimates. This would run the risk of inefficiency by causing scaled-back investment and higher customer prices for mobile services.


“The knock-on effect would pose a serious risk to digital productivity objectives.”


Dr Doyle said the UK and New Zealand had estimated opportunity cost spectrum prices based on a conservative approach, which was in line with international best practice.


He said the laws and principles governing spectrum management in Australia emphasised efficiency based on the application of opportunity cost spectrum prices, which measured the scarcity and value of radio spectrum frequency bands.


Dr Doyle said the Australian Communications and Media Authority (ACMA) had stated in a 2009 paper on opportunity cost pricing of spectrum that “when trying to set a market-clearing price, setting a conservative price is recommended.” (Emphasis added)


“It is encouraging to note that the ACMA is on record as supporting a conservative approach,” he said.


Dr Doyle said the significance of radio spectrum and the rapidly growing importance of mobile broadband in boosting productivity was emphasised recently by the Chairman of the United States Federal Communications Commission , who said:


Spectrum is the oxygen of our mobile communications infrastructure and the backbone of a growing percentage of our economy. Spectrum enables wireless innovation that will grow our economy and create jobs of the future.


View Dr Doyle’s report here.


For more information contact Randal Markey, Communications Manager, AMTA, (02) 6239 6555 or 0421 240 550