Established by the Office of Communications Act in 2002 Ofcom is, among other things, responsible for issuing, policing and importantly, costing spectrum space in the UK. It is often accused of being inefficient and overly costly with accusations of a “top heavy salary bill” and “extravagant offices” being levied at it continuously. More importantly though, it can be argued that it is inefficient and high-cost spectrum licensing is stifling competition, innovation and growth in the UK’s telecommunications market – something that with the impending cloud of Brexit and an increasingly skills-based economy is an even more concerning situation.
Ofcom reports that, for the year 2014/15, total spectrum management costs totalled just under £51.5 million, whilst fees totalled just over £267.9 million (Source: Ofcom: Spectrum management costs and fees 2014-15). Removing the MoD’s contribution from this (as this is essentially just public money moving hands) Ofcom brought in a spectrum licensing surplus of a little over £61.5m. Two questions arise from this:
Firstly, it is hard to see how the costs of managing such a fundamentally intangible asset can be so high. Spectrum is, after all, not a physical asset that has to be maintained. Applications for frequency use require a comparatively binary decision as to whether or not the requested assignment is (or should be) available within an area. Applying for a licence at the moment, however is not a straight-forward process. Fixed wireless link licence details still largely have to be submitted in paper form (albeit though PDFs) and are manually processed by Ofcom’s spectrum licensing team. This paper-pushing exercise is slow, ineffective and one directional, often incurring a high opportunity-cost loss to businesses. A self-administered, truly digital, solution with instant licence approval and payment would be an obvious solution to this problem.
Secondly, these surplus generating licence fees are simply a tax on business, equivalent to the rates / “fibre tax” paid on traditional infrastructure. As with any tax, this has two effects. In the first instance it pushes up the cost to the licensees end users and in the second it reduces the capital that companies have availed to spend on infrastructure improvements and R&D. A fraction of the £199.6 million annual licence fees (source: Ofcom: Annual licence fees mobile spectrum) set for the mobile spectrum in 2015 would go a long way to improving coverage and stability in a now vital communications channel. And that’s only the start, it is a regularly voiced concern of the imbedded mobile networks that they are forced to focus on returning their investment in this extortionately priced band when they could be looking at pushing forwards the next generation of service delivery – namely 5G. For the smaller companies, and in particular wireless ISPs who are innovating in lower-cost delivery solutions, this tax adds substantial extra costs, which in a B2C environment can be hard to justify.
It is therefore easy to argue that the high costs Ofcom places on spectrum licensing, combined with the bureaucratic costs associated with processing a licence, act to discourage effective competition and innovation in the market. Access to the mobile operators’ spectrum space is cost prohibitive to anyone other than big business, and for WISPs looking to stabilise outside the self-coordinated licence bands, the costs significantly hamper growth. With the self-coordinated bands looking likely to become increasingly saturated (and in the case of the 5Ghz spectrum telcos still being the secondary user) the problem looks likely to increase further. If the UK really wishes to invest in the digital economy and to truly connect 100% of the country to “Superfast Britain”, removing or reducing these barriers would be a good way to go.
It can also be argued that Ofcom’s focus is too heavily split. The numerous amends, clarifications and additions to Ofcom’s responsibilities (the Communications Act 2003, the Wireless Telegraphy Act 2006, the Digital Economy Act 2010 and the Postal Services Act 2011) only serve to muddle the situation further. Ofcom’s roll appears now to be more focused on reporting and mediation than strategic forethought and spectrum administration. Is it any wonder that the costs of running the agency are so high?
Perhaps Ofcom is simply too large and dealing with too many areas. A remit ranging from infrastructure reporting to arbitrating and monitoring digital broadcast media and from handling domain name squabbles to oversight of the postal system is bound to spawn a large and bureaucratic machine. Would an entirely separate smaller, lighter and above all more ‘digital’ agency not be more effective at both managing the current UK spectrum space and planning for its future? David Cameron certainly though so in July 2009 when he pledged to remove the policy making function and return them to the Department for Culture Media and Sport. Perhaps it’s time to reverse the 2001 decision to form this “super-regulator”.