A Guide to the Government's Spectrum Making Process

Transcription

1 Liz Duthie Department for Transport Great Minster House 76 Marsham Street London SW1P 4DR Michael Richardson Ofcom Riverside House Southwark Bridge Road LONDON SE1 9HA Direct Line: Web Site: 30 October 2008 Dear Michael APPLYING SPECTRUM PRICING TO THE MARITIME AND AERONAUTICAL SECTORS The attached detailed comments, which are summarized in this letter, constitute the Department for Transport s response to the consultation paper of 30 July The Department s Maritime and Coastguard Agency (MCA) and the Civil Aviation Authority (CAA) are submitting separate responses in relation to their specific responsibilities. We strongly support those responses. We welcome the opportunity to comment. is already working to improve the efficiency with which the aviation and maritime sectors use spectrum, in co-operation with the CAA, private and voluntary sector industry users, and international partners. This work has two principal aims, which are specific to both sectors: to ensure that enough spectrum is available to accommodate forecast growth and in some cases to meet stricter requirements, for instance on improving safety or reducing the risk of pollution. We accept that wherever possible, spectrum should be made available for alternative or additional use, and that some aviation and maritime spectrum is attractive for other users, for instance in telecommunications. In some cases, however, international constraints mean it is not be possible to allow alternative use, so that freeing up spectrum in the UK could increase congestion for aviation and maritime users without bringing any corresponding benefits. In implementing the response to the Cave audit, the Government is committed to ensuring that safety remains paramount, and that there continues to be full compliance with international obligations. is also required, under the Government wide PSA targets, to deliver efficient, reliable and sustainable transport networks that support economic growth. Both aviation and shipping are important for the wider economy and the UK s international trade and connections. Spectrum used for navigation in each of these sectors is essential for delivering both safety and efficiency. In summary, fully supports the Government s aims of: achieving efficiency in the overall use of public sector spectrum making use of the potential for pricing to incentivise more efficient use, and

2 implementing the range of commitments made in response to the Cave audit. The proposals in the Ofcom consultation paper, however, give us cause for concern on two grounds. First, they go beyond the Cave recommendations and Government commitments, in proposing incentive charges for internationally regulated spectrum where Cave held that there was no alternative user, and so the opportunity cost was zero. Secondly, it is proposed that meet some costs for spectrum, including the navigation aids fitted to aircraft. This would conflict with long established Government and EC policy that transport industries and users should bear their own safety costs. Agreeing to meet some industry costs would set an unwelcome precedent and would potentially raise state aid issues, which have not been addressed. It is accepted that should bear the full cost, as determined by Ofcom, for spectrum which it uses operationally. The Maritime and Coastguard Agency (MCA) is operationally responsible for search and rescue and is a blue light Category 1 responder, using radio spectrum extensively for communications. Their response sets out their responsibilities under international obligations and for vessel traffic services in more detail. s use of spectrum is small compared with the use made by the private and voluntary sectors, and recreational users, in both maritime and aviation. The industries are both internationally competitive. Neither receives Government subsidy. As a result, charges for navigation are generally higher than in other EC countries. These are levied by airports, ports, air navigation service providers NATS for all en route air traffic - and through light dues to fund the services provided by the General Lighthouse Authorities. In most other countries, some of these services are subsidised or free at the point of use for instance, no charge equivalent to light dues is made to vessels using continental ports because navigational aids are funded from general taxation. UK airspace, particularly in the south east of England, is already some of the most congested in the world and is nearing capacity. The Government has recognised the need for a structured programme for airspace redesign to help protect safety standards, relieve constraints, take account of environmental impacts, and accommodate the forecast increase in traffic where additional capacity is supported. The redesign is the responsibility of the CAA. Its Safety Regulation Group has a strategic objective to ensure that the UK s excellent aviation safety performance is, at least, sustained at its present level. The CAA s response gives more information about the framework for navigation regulation, which is the responsibility of the Directorate of Airspace Policy. Shipping drives globalisation and the benefits that trade brings, while ports are the UK gateways to global distribution. Unlike many of their continental counterparts, all UK ports have to be run on a commercial basis, and they handle a higher volume of goods than in any other European country. The value of UK imports is equivalent to about 30% of UK GDP, and the UK economy is dependent more than ever on access to efficient, reliable, and resilient worldwide connections, for example because of reduced stockholding. As globalisation increases, the ports and shipping sectors will play an increasingly important role in the economy. agrees that incentive pricing can be helpful in ensuring that spectrum is used efficiently, and that such pricing should be extended to aviation and maritime. Incentive pricing is applicable only where it has the potential to achieve efficiency.

3 However, as the Government recognised in its response to the Cave audit, there are cases where there is no efficiency gain to be generated by applying fees, for instance where there is no prospect of alternative use because of international restrictions. Also, there are cases which are closely linked to overriding safety requirements, where there is equally no possibility of efficiency gain. We consider that it would be inconsistent with Government commitments for Ofcom to fail to take full account of international constraints in deciding its pricing strategy. We find that Ofcom s proposals fail to evaluate the additional cost that would be incurred by existing aeronautical spectrum aviation users denied or granted use at the margins. Again, this does not follow the Cave recommendations. Overall, the rationale given by Ofcom for pricing on the basis of alternative use is inconsistent with the basis on which the UK aviation and maritime sectors operate under international regulation. It could also disadvantage them in relation to international competitors. A recent study for the European Commission found that there would indeed be efficiency incentives for the public sector if it faced opportunity costs in an effective secondary market. However, since such markets do not yet exist, the report hesitated to recommend overall adoption of market-based mechanisms today 1. There is a risk that introducing market incentives in the UK only could damage the UK s credibility in arguing for spectrum efficiency, given that there is not yet firm support for market mechanisms either in Europe or among major international partners. We are also concerned about whether the proposals meet better regulation guidance. There has been no impact assessment or options appraisal of the principles behind the consultation. The impact assessment which is proposed for the next stage of consultation would cover only the impacts identified by individual licensees, without taking into account the full range of externalities, including the UK s competitiveness overall, adverse distributional impacts, any environmental impacts and safety. The evidence base is less weighty than would ideally be the case for a Government consultation. The CAA and the MCA have expressed their readiness to assist Ofcom on the technical factors involved in charging, and is equally willing to assist on the assessment of impacts. We accept Ofcom s view that it remains for Government to take into account factors such as international credibility and other reputational risks, particularly in terms of aviation and maritime conventions and agreements. The Government will also take note of the position on transport within the European Community. The CAA and MCA, with their responsibilities for safety regulation, will ensure that there is no adverse impact on safety from the introduction of incentive pricing, in whatever form Ofcom decides. Industry stakeholders have also stressed their commitment to safety. As they presently stand, Ofcom s proposals might entail unavoidable adverse impacts on transport efficiency, with potential economic disbenefits. Also, if non-regulated users were priced out of using VHF communications or radar coverage, this might require explicit new regulation in areas where codes of practice or voluntary measures apply at present. 1 Optimising the Use of the Radio Spectrum by the Public Sector in the European Union, presentation at public workshop, 1 October 2008

4 The Department s detailed comments are attached. We hope they will be useful in clarifying the issues to be taken into account in considering the way forward. We look forward to continuing to work collaboratively with Ofcom and other departments in this regard. We are content for this response to be published on the Ofcom website. Yours sincerely, Liz Duthie

5 APPLYING SPECTRUM PRICING TO THE MARITIME AND AERONAUTICAL SECTORS responses to the Ofcom questions, and detailed comments 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? 1.1 considers that this process goes well beyond the efficient apportionment of fees. We believe there is a prior question, which requires more consideration, on whether the introduction of AIP as proposed will increase spectrum efficiency in the aviation and maritime industries. This may require a more complex options appraisal, as well as a cost benefit analysis. is anxious to contribute fully to this work, and to ensure that the Government s commitment to increasing the efficiency of public sector spectrum use is carried forward effectively. We also consider that, in keeping with the Government s Better Regulation commitments, the costs and administrative burdens of improving spectrum efficiency should be kept to the minimum required to meet the policy goal. Our comments below expand on our views. Detailed comment 1.2 Ofcom, as an independent regulator, has developed its spectrum policy beyond the commitments made by Government in its response to the Cave audit of 2005 and in the Forward Look The most recent of Ofcom s policy statements, since the Spectrum framework review of November 2004, are the Spectrum framework review for the public sector, January 2008, and Progress on key spectrum initiatives, April Ofcom has a principal duty to further the interests of citizens and consumers in communications markets, and to secure optimal use of the spectrum. Its position is to allow public bodies to release and share spectrum on a flexible, liberalised basis, since too rigid an approach would risk locking in sub-optimal use, and Government has accepted this approach. However, where spectrum is regulated internationally under command and control type arrangements, as it generally is for aviation and maritime, public and private sector users can neither make use of any opportunities offered by flexible and liberalised mechanisms, nor freely respond to pricing signals. In Europe and worldwide, spectrum markets are at a very early stage of development, and this makes the costs and benefits of a liberalised approach uncertain for aviation and maritime. 1.3 Government has also made binding commitments to ensure safety and to comply with international obligations. Whereas Ofcom may decide to price spectrum on the basis of users who value it most highly, for example in terms of price paid at auction, Government also has to consider and to assess the costs of externalities and market failures. In aviation and maritime these include quantifiable and non-quantifiable costs and benefits, and risks which could be catastrophic. Government s commitment to its international obligations does not sit well with Ofcom s proposal to set fees for aviation and maritime under an application neutral approach, especially when it is recognised that international harmonisation can create economic benefits.

6 1.4 So for these sectors, a fully liberalised approach and incentive pricing is unlikely to be either sufficient or appropriate to encourage more efficient spectrum use by private sector users airlines, shipping companies, ports and airports, and navigation providers. There are also voluntary sector providers like RNLI, and a large number of recreational users. Another factor which needs to be taken into account is the slow pace of technological change in the industries, because equipment, operational standards, and spectrum frequencies are all regulated internationally. 1.5 As a public sector spectrum user, accepts that it should pay, comparably with the private sector, for spectrum which it uses operationally. In some cases, for instance where Ofcom has allocated frequencies to the Highways Agency, this process could be put in hand quickly. In aviation and maritime, the own use is confined to a relatively small number of MCA installations. These include the International Maritime Organization (IMO) mandated Channel Navigation Information System at Dover, with two MCA X-band radars and shared feeds from two others. For the future, with the continuing development of offshore renewable energy installations, and consequent vessel traffic surveillance requirements, this usage is likely to increase. HM Coastguard also co-ordinates ship to shore communications, and operates search and rescue, and counter-pollution communications. 1.6 and MCA, together with Defence, are also directly responsible for fulfilling the Government s international responsibilities on search and rescue, for which there is no individual user who can be licensed. There are also internationally designated ship to ship VHF channels, reserved to protect their use in the waters around the UK. 1.7 The use of spectrum by Government departments for operational purposes, like MCA s counter-pollution communications or MOD operational uses, can be distinguished from spectrum which is used by private and voluntary sector transport operators to comply with international requirements or safety regulation, as a condition of their doing business. In many cases the users are not free to make decisions on their use of spectrum in response to market pressures. Some aviation and maritime spectrum use, however, while sometimes constrained by international co-ordination, is not specified in the same way, and there may be opportunities for improving efficiency in response to market mechanisms. is committed to pursuing these. 1.8 Ofcom also proposes that the responsible Government department should pay for spectrum which is reserved for a sector where there is no licensed user. This proposal would have to be considered across Government, because there could be no basis for such payment unless Government reviewed its conclusions on the Cave audit. The Audit position was clear: Where there are international requirements which mean that the UK has no scope to act unilaterally, the opportunity cost of use is zero and there is no merit in introducing AIP for these licence classes. In these cases, spectrum efficiency measures should instead be pursued through international negotiations to update frequency allocations or adopt new standards or through the prescription of

7 carriage requirements for more efficient technology (but again these would need to be implemented for equipment satisfying internationally recognised standards) Another proposal is that should pay for spectrum where it is not practicable or efficient to charge individual users. This would conflict with Government and EC policy that users pay for their own safety costs, as Ofcom recognises in paragraph 3.47 of the consultation. Subsiding the safety costs of some transport users could not be justified unless the policy were changed. It would not be a rational basis for subsidy that it was impracticable to charge individual users, and such subsidy might attract criticism or challenge as a state aid. For these two reasons, disagrees with Ofcom s proposals that it should pay for such spectrum Ofcom s policy is not clearly stated in the consultation paper. It is based, at least in part, on a 2007 consultancy study 3. In the consultation paper, the methodology and conclusions of the study are described as robust and reasonable (paragraph 3.6). However, when stakeholders were consulted on the study, it was stated that the study did not represent Ofcom policy or proposals (Annex 6, para. A6.2.) Annex 6, which gives Ofcom s responses to the comments stakeholders made, represents an explanation of the position. However, in terms of better regulation guidance, a transparent exposition of policy would be preferable. The consultancy study aimed to develop concrete proposals for the extension of AIP to frequency bands allocated to aeronautical and maritime services. It did not assess externalities, on the basis that these should be tackled by regulation or other pricing mechanisms. So in the evidential base for Ofcom s proposals is not complete In summary, does not accept that there is a substantiated case for introducing AIP in cases where the Cave audit found it to be inappropriate because it would not improve spectrum efficiency. Also, it would be inconsistent with Ofcom s past practice. In February 2007, Ofcom set non-incentive fees for radio astronomy in frequency bands in which international constraints prevent sharing with other applications. We accept that it is for Ofcom to decide on spectrum pricing and charges. But in doing so, Ofcom has proposed to take no account of policy constraints, including those imposed by regulatory policy or international agreement. Government cannot ignore such constraints, and has made firm commitments on maintaining safety and international obligations Another factor is the availability of such spectrum for trading or sharing. Ofcom s view in the January 2008 Spectrum framework review for the public sector (SFRPS) was that: The objective of the new framework is to enhance the efficiency with which public sector spectrum holdings are used. Allowing public bodies to trade spectrum will provide important new opportunities and incentives for them to act in a way that secures the effects of AIP. However, it would not be possible for Government to trade or share spectrum which is required to be made available under an international agreement, unless that agreement were changed. Nor would it be possible to allow sharing without satisfying the 2 Independent audit of spectrum holdings, 2005: section Aeronautical and maritime spectrum pricing, 2007

8 international organisation concerned the International Civil Aviation Organization (ICAO) or International Maritime Organization (IMO) - that there was no risk of interference to the international use of spectrum. The current discussion concerning search and rescue spectrum under the COSPAS-SARSAT agreements, in the context of Ofcom s RSA proposals, demonstrates the complexity of such a process. In the SFRPS, Ofcom s view was that: It is for the public bodies themselves to judge how much spectrum they need to discharge their responsibilities and their statutory duties and they are better placed than Ofcom to do so. MOD, in its May 2008 consultation, concluded that for many of the aviation and maritime bands shared with MOD, decisions regarding RSA cannot be taken yet and no proposals are made by the MOD for sharing or releasing [them]. So if spectrum cannot be traded or shared, for whatever reason, there will be no efficiency gain if users give it up Ofcom s proposals affect two major industries, as well as the recreational and voluntary sectors, whether the spectrum use is regulated or not. The aviation and maritime industries operate essentially without subsidy, and all key players are either in the private sector or operate commercially, with the exception of voluntary search and rescue services such as the RNLI. In these circumstances, we consider it essential that a comprehensive impact assessment is produced and we welcome Ofcom s commitment to do so. The impact of the proposals is not simply the sum of the impact on individual users of spectrum, if a socially optimal allocation is to be achieved. There is also the potential for impacts on citizens and consumers more generally, across a wide range, including safety of aviation and shipping, pollution and other environmental impacts, and the costs and efficiency of transport, including freight. Equally, we believe, there is a potential impact on the Government PSA target for reliable and efficient transport networks to support economic growth A comprehensive impact assessment, and an appraisal of the available options for increasing spectrum efficiency, would also help to clarify the basis for the proposals. It is not always clear whether the main objective is spectrum efficiency, or the improvement of decision making. We accept that having a reliable basis for estimating the cost of spectrum used would be helpful in promoting better decision making. However, it is not clear that the UK s cost estimates would be accepted in international regulatory discussions, when few if any other states charge for spectrum used for public safety. Some states which have a liberalised approach on spectrum, like the US and the Netherlands, have nevertheless explicitly rejected the option of charging for aviation and maritime use of spectrum. So UK arguments on spectrum efficiency in aviation and maritime international discussions could be criticised as being driven by the objective of reducing costs to UK industry, or to, and this would be counter-productive In terms of incentive pricing, the Cave audit approach was cautious. It considered that in some cases, the opportunity cost of internationally regulated spectrum was zero, since trading or sharing was not possible. Government accepted this position, and the

9 Forward Look made a commitment to the initial application of pricing, in selected bands. Government s aim is spectrum efficiency, and the objective proposed by Ofcom, that pricing will increase awareness of spectrum costs, could contribute to efficiency. But the introduction of pricing cannot inform past decisions, or change the timescale for international regulation. This should be taken into account in the impact assessment and options appraisal It is clear that the generalised incentive pricing approach developed by Ofcom s consultants is not a best fit for aviation and maritime, and nor is the comparison with Business Radio usage, for technical reasons. Where there is international regulation, responses to market signals are not possible and users cannot change to an alternative technology or a less congested band. Where only a limited number of bands are available under international regulation, congestion may be unavoidable. For instance, ports have to use designated port operations channels: these are co-ordinated by Ofcom If there are historic allocations of spectrum, which have not been increased and traffic has increased significantly in the intervening period, congestion could mean that the bands are being used to maximum capacity as a consequence of previous efficiency gains. In aviation, the number of passengers using UK airports quadrupled between 1980 and 2006 and the number of air transport movements at these airports has doubled. Over the same period, the rates of passenger fatality, per billion passenger kilometres, dropped from 2 to flatlining at zero. The use of spectrum in air traffic management was, of course, only one contributing factor to this increase in efficiency and safety, but it was an essential one. One good example of increased efficiency is the phased change of aeronautical VHF channel spacing from 25 KHz to 8.33 KHz allowing more use of the same frequency allocation accepts, however, that congestion might arguably be an indication that more economically valuable uses of spectrum are being crowded out. We also accept that, over a longer timescale, there is potential for newer technologies to be applied to aviation and maritime spectrum use. This could enable transport users to use either less spectrum, or spectrum of a type which is less desirable for the communications industries, or both. None of these changes can be introduced at short notice, and in our view, incentive pricing will make little if any positive contribution to bringing them about. For one thing, the high costs of changing technology, added to the cost of spectrum, may be a disincentive. For any safety-critical use, and some uses which are safety-related, a complex technical assessment is likely to be required before a new frequency can be adopted, or type approval of equipment can be granted. The technical criteria for such an assessment are not yet available, and work is continuing to scope them through the interdepartmental Radar Group. is committed to this work These technical assurances are essential requirements for any changes of frequency. The Government is committed to ensuring that aviation and maritime traffic operates safely in the UK s airspace and around its coasts. Sea passenger traffic has not increased as much as for aviation, and (as with aircraft) ships have got larger, so the number of commercial arrivals in UK ports has not increased. However, the volume of freight carried is over a third higher than in Recreational traffic has also increased significantly.

10 1.19 Another factor which Government must consider is the importance of protecting the sea and the coast from accidental pollution. Both the International Maritime Organisation (IMO) and the European Community have put in place regulations for carriage of automatic identification system (AIS) technology. Under the EC requirements, ship movements are monitored through a network of shore-based stations. Ship-source pollution can create significant economic as well as environmental damage In the light of Government commitments on safety and international obligations, and the clear conclusions of the Cave audit, remains of the view that some internationally regulated spectrum has a zero opportunity cost. Ofcom takes a different view, based on the consideration of other demands for the spectrum. That is, if there are strong grounds for believing that the competing use is valuable, then incentive pricing is valid. Government has not accepted this development of the Cave approach. It is also questionable whether Ofcom s concept of a long run opportunity cost would be acceptable in international negotiations. An OECD report of April 2005, Secondary markets for spectrum: policy issues concluded that the secondary market for spectrum remains under-developed in those relatively few countries that have introduced it. In most countries, including those that support a market approach, public services are allocated a significant portion of valuable spectrum. Moreover,countries that have introduced spectrum trading continue to reserve spectrum for public services, including aviation and maritime. Some countries have argued that spectrum used to support services for which governments require universal service provision should be deemed unsuitable for secondary trading and should thus be ring-fenced In the context of international regulation, we disagree with Ofcom that users might be encouraged by low spectrum prices to lobby ICAO or IMO for exclusive use of spectrum which was not in fact required. Such arguments would not be acceptable, and would certainly not be supported by the Government. We agree that users should not be able to freeload because of international requirements eg by using a free internationally required channel in preference to paying charges for a UK-specified channel. However, it is not a tenable argument that in aviation and maritime, the same services could be offered in compliance with an international requirement or not in compliance with it, since the safety regulators would not allow operators to circumvent, or substitute for, international regulations. In terms of HMG s international obligations, it is immaterial whether frequencies are used by some or no UK users, and whether these users are fixed or mobile. If the frequency is required to be made available for international use, it must not be constrained by UK-specific limitations. 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. 2.1 The Government is committed to maintaining safety standards and, where possible, improving safety performance. Commercial aviation and maritime operators and service providers regard safety as an essential business requirement. They cannot therefore respond to pricing signals where safety requirements are mandated, because there is no alternative option or frequency.

11 2.2 Recreational users and small ports or airports might be deterred from using radar or VHF communications because of increased cost., MCA and the CAA would have to assess whether this increased risks overall, and if necessary, introduce regulation where voluntary measures currently apply. This would unnecessarily increase the burden of regulation, contrary to Government policy. 2.3 The responses of individual users are unlikely to provide a comprehensive basis for any decisions on potential safety impacts, and this should be considered in the full impact assessment of the proposals. is keen to help by providing information, from established transport models, on safety, interoperability, and environmental costs and benefits. Any impact on transport efficiency would also have to be included for instance if there had to be a reduction in the volume of traffic through a shipping channel or port, or the runway rate at an airport. Options appraisal might be necessary to consider whether creating a requirement for regulation by charging for spectrum was the optimum outcome. Question 3: Do you have any evidence which indicates that AIP charged to ground stations could have a material detrimental impact on UK competitiveness? 3.1 Just as for safety, the responses of individual spectrum users should be considered as part of a comprehensive impact assessment of the proposals. Both the aviation and the maritime industries make important contributions to the competitiveness of the UK economy, and evidence is available in Treasury reports. The Eddington Report, commissioned by the Treasury and and published in December 2006, examined the long-term links between transport and the UK's economic productivity, growth and stability. There is also evidence that aviation is particularly important for service industries and other key growth sectors of the economy. 3.2 NATS and the three largest airports Heathrow, Gatwick and Stansted - are subject to price cap regulation by the CAA. As part of this, the CAA sets the maximum charges that NATS and the airports are permitted to levy, generally every 5 years. This may limit their ability to pass on directly any increased charges for spectrum. 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 that you have about the organisations to whom we are proposing the 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. 4.1 is anxious to work co-operatively with Ofcom to ensure that all relevant information is considered in the impact assessment, to ensure it is comprehensive. We consider this could be best achieved by collaboration, as envisaged in the Government response to the Cave audit. Our views on the principles on which Ofcom has based the current proposals are set out in this response. Our views on specific bands are in line with the Government response to the Cave audit and the 2007 Forward Look. We also support the detailed comments made by MCA and CAA in their responses. 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?

12 5.1 The Cave recommendation was that Ofcom should review this in conjunction with the CAA, and we note the CAA s view that the application of reasonable fees could be an effective tool to incentivise operators to move to radios which use less spectrum. Since the Government s objective is to increase the efficiency of spectrum use, we believe this option should be considered by Ofcom. In terms of Ofcom s own objective, that users should recognise the costs they impose on society by using spectrum, it would seem inconsistent to exempt some users from the proposed charges. 5.2 We do not see any cogent evidence for Ofcom s assumption, in paragraph 4.8, that the incentive properties of AIP are expected to operate most strongly on users of aeronautical spectrum. 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? 6.1 We consider that the charging proposals should be internally consistent. Ofcom s current licence fees are discounted for maritime licences held by charities which have as their object the safety of human life in an emergency. No reasoning is given in the consultation paper that would support any decision by Ofcom to change these arrangements. 6.2 As MCA notes, Government has committed to provide rescue services at sea. recognises and commends the valuable contribution made by the RNLI and other voluntary search and rescue services. 6.3 We also consider that the difference between safety of life in an emergency and safety of life operational functions should be clarified in the impact assessment of the proposals, as CAA suggests. 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? 7.1 We agree with the comments made by MCA and CAA. Evidence on congestion in these channels should be given in the impact assessment, differentiating the aviation and maritime conditions. It is not clear that Ofcom has considered whether applying AIP will increase efficiency. 7.2 does not agree that policy decisions on regulated spectrum used by licensees would be better informed by incentive arrangements for. The Government is committed to increasing the efficiency of spectrum use, and incentive payments by individual departments would not strengthen that commitment. Departments are already required to take into account the costs and benefits of international and EC regulation, for instance in the assessments which have to be produced for all regulatory proposals and the explanatory memoranda which are laid before the European scrutiny committees.

13 7.3 Unless there were no constraints on public spending, incentive payments could reduce the funding otherwise available for promoting spectrum efficiency for instance through research to ensure adequate protection against interference in band sharing, or for the European Single Sky programme. We do not understand the proposal that Government should decide on the incentive arrangements for bands used only by airborne users. This is a decision for Ofcom as the spectrum regulator. 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 radiocommunications? 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? 8.1 In the absence of an impact assessment, there is no evidence on which to base a response to this question. In paragraph 1.14 of the consultation paper, the reason given for introducing pricing for these VHF channels is that the pricing regime for Business Radio provides an effective and reasonable template. This is a matter of administrative efficiency, not efficiency in spectrum use. We support the comments made by MCA and CAA on the inadequacy of the model. Question 9: Are there any short term reasons specific to the sector(s) why it would not be appropriate to apply fees from April 2009? 9.1 We consider it inappropriate to consider only the short term impact on the sectors, rather than the opportunities for producing longer-term efficiency in spectrum use. However, we accept that the short term impact on aviation and maritime industries should be carefully considered in any decision on the timing of pricing changes. 9.2 We consider the timescale proposed is too short to to be consistent with the recommendations of the Government s Better Regulation guidelines, including the production of a comprehensive impact assessment, and with Ofcom s practice in other sectors. The comments made by MCA and CAA about timescales should also be taken into account. Question 10: Ofcom would welcome stakeholders views on the factors which should be taken into account in apportioning fees between individual users of radars and racons These are complex technical questions, on which MCA and CAA stand ready to advise Ofcom. Stakeholders have also provided advice in meetings with Ofcom. We would expect Ofcom to take this into account in reviewing the technical basis of its proposals. 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.

14 and 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. 11/12.1 We believe that both these questions are premature, and that Ofcom should provide more evidence that the rates proposed will increase spectrum efficiency, in the light of international and safety constraints, and the technical characteristics of band use. Question 13: Do you agree that, generally, spectrum used by aeronautical radionavigation aids is currently uncongested? Do you believe that this may change during the next few years and, if so, approximately when? 13.1 We strongly endorse the CAA s response to this question. Question 14: Do you agree with the basis on which Ofcom has arrived at its initial view on reference rates for aeronautical radionavigation aids? 14.1 For the reasons given in our response to Question 7, we do not accept that there are potential benefits in either recognising the opportunity cost, or making payments, in respect of these bands. The potential damage to the UK s credibility in arguing for spectrum efficiency is probably not directly related to the amount and scale of the fees proposed. The direct impact of fees would be felt either as an additional funding requirement at a time of public sector constraints, or as a reduction in the amount of the money available for departmental priorities, including spectrum efficiency. Annex 5 and Annex 6 We would welcome the opportunity to discuss with Ofcom our detailed comments on these Annexes, including the impact assessment of the proposals and the evidence base for them.