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Recommendations
70. It is recommended that the Committee:
Policy on the Expiry of Commercial Radio Spectrum Rights
- 1. Note that in April 2003, Cabinet agreed to a policy for the reallocation of commercial spectrum rights on expiry, which provides that subject to case-by-case assessment, replacement rights will be offered to existing right holders five years before expiry, and that if the renewal offers are rejected, the rights will be reallocated by auction [POL Min (03) 9/1];
- 2. Note that the policy requires the offer price to approximate the market value of the rights and produce a fair financial return to the Crown;
Case-by-Case Review of Cellular Rights
- 3. Note that management rights for cellular services in the 800 and 900 MHz bands are due to expire in 2011 and 2012, necessitating policy decisions in 2007;
- 4. Note that the Ministry of Economic Development (MED) has undertaken a case-by-case review, including consultations with stakeholders on such issues as the current usage and likely future use of these bands, the level of infrastructure investment, whether the rights should be renewed, the appropriate renewal period, and the appropriate pricing approach;
- 5. Note that these bands are currently used for 2G and 3G services and that the significant investments made in these bands provide a reasonable case to make renewal offers to incumbent operators while on the other hand, Vodafone and Telecom have ample spectrum in these bands to operate nationwide cellular networks, and that NZ Communications and TelstraClear have expressed interest in also deploying cellular networks in these bands;
- 6. Note that a 20-year renewal period for these rights is preferred by Vodafone and Telecom, that TelstraClear would prefer the same period only if some spectrum is reallocated to new entrants, and that NZ Communications did not make any comment on this issue;
- 7. Note that MED considers the incremental optimised deprival valuation (ODV) approach to be an appropriate and reasonable pricing approach in the calculation of a renewal price, which is conditionally supported by TelstraClear, Telecom and Vodafone, subject to the inputs required, and that NZ Communications does not support this approach;
Arrangements for the Renewal of Cellular Rights
- 8. Note that freeing up 7.5 MHz to the open market would strike the best balance between providing certainty for incumbents and making the mobile market more attractive to new entrants, and that this quantity is within the range where overall network deployment costs are minimised, assuming a new entrant in each band;
- 9. Note […].
- 10. Agree that […] as a default, 7.5 MHz of the spectrum that expires in 2011 or 2012 in each band should not be offered for renewal but that renewal offers will be made to existing right holders for their remaining spectrum and 7.5 MHz would be offered by auction;
- 11. Agree, however, that if Telecom or Vodafone sell at least 5 MHz of 800 or 900 MHz spectrum on the secondary market to a person who does not currently hold spectrum in these bands within six months of the renewal offer being made, then:
- if the rights sold expire after 2012, (Vodafone has some rights expiring in 2022) then the seller (Vodafone) will be offered the 7.5 MHz otherwise intended for auction;
- if the rights sold expire in 2011 or 2012, the purchaser would be offered corresponding renewed management rights at the price and substantially on the same terms offered to Telecom or Vodafone, and Telecom or Vodafone (as the case may be) will be able to purchase renewed management rights over the remaining part of the 7.5 MHz otherwise intended for auction;
- 12. Agree that the management rights be offered for a period of 20 years, subject to equalisation of expiry dates, and that the Ministry should consult with the present rightholders regarding the exact spectrum to be offered for renewal and for auction, including guard band requirements;
- 13. Agree that if any renewal offer is rejected by the existing right holder, then all of these rights will be reallocated by auction;
- 14. Agree that the offer price be determined using an incremental optimised deprival valuation (incremental ODV) approach, which will be checked for reasonableness against New Zealand and overseas benchmark values;
- 15. Note there is some risk that the spectrum in each band which is to be reallocated (by way of renewal offer or auction) could become or remain substantially unused by the new owner, and this would not be a desirable outcome;
- 16. Agree that the Minister of Communications be authorised to develop criteria to ensure that the reallocated spectrum rights are effectively used, including usage criteria and requirements to relinquish spectrum without compensation, and/or other measures short of relinquishment that would encourage use, and to apply such measures to the renewal process;
- 17. Agree that the legal form of arrangements to effect the above policy proposals will be finalised prior to renewal offers being made to Telecom and Vodafone;
- 18. Agree to authorise the Minister of Communications to approve and announce the renewal price offer, the terms of offer and settlement, and the timing of the auction as soon as practicable;
- 19. Agree that the current right holders be given six months from the date of the renewal offer to accept or reject the offer;
- 20. Agree that all interested parties, including current right holders, will be allowed to bid at auction, subject to any Commerce Act requirements
[…]
- 21. […].
- 22. […].
Publicity
- 23. Agree to authorise the Minister of Communications to announce arrangements for the renewal of management rights for cellular services, and publish this paper and associated Cabinet papers and minutes in due course.
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