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AMTA - Spectrum Trading Submission

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					Australian Communications and
               Media Authority

                Spectrum Trading


Submission by: Australian Mobile Telecommunications Association

                         January 2009
1.     Introduction and overview                           

1.1	   The Australian Mobile Telecommunications Association (AMTA) is the peak industry
       body representing Australia’s mobile telecommunications industry. AMTA’s mission is to
       promote an environmentally, socially and economically responsible, successful and
       sustainable mobile telecommunications industry in Australia. AMTA members include
       mobile Carriage Service Providers (CSPs), handset manufacturers, retail outlets,
       network equipment suppliers and other suppliers to the industry. For more details about
       AMTA, see

1.2	   AMTA welcomes this opportunity to comment on the Australian Communication and
       Media Authority’s (ACMA’s) Spectrum Trading: Consultation on trading and third party
       authorisations of spectrum and apparatus licences paper (ACMA’s Paper).

1.3	   AMTA notes that it has made a number of submissions to ACMA in relation to spectrum
       issues over recent months in response to various discussion papers, including the Five-
       year Spectrum Outlook 2009-2014 and Spectrum Principles Paper. A number of these
       submissions touched on secondary trading issues. AMTA also provided relevant input to
       the Department of Broadband, Communications and the Digital Economy in relation to its
       recent consultations on spectrum licence reissue.


1.4	   AMTA supports a robust secondary trading market. As ACMA recognises in its paper,
       the level of trading activity to date has been limited. AMTA believes that there are two
       key reasons for the poor functioning of the secondary trading market in Australia: licence
       tenure and the transaction costs associated with trading.

2. 	 Key issues impeding secondary trading
2.1	   There are two key barriers to the effective functioning of the spectrum secondary trading
       market in Australia: licence tenure and transaction costs associated with trading. These
       issues are examined below.

Licence tenure 

2.2	   A significant impediment to spectrum trading is uncertainty regarding the security of
       licence tenure beyond licence expiry. As stated in ACMA’s Paper, the length of tenure
       affects the dynamism of trade in secondary markets as well as the willingness of

                  AMTA Submission: ACMA Spectrum Trading Consultation, Jan 09.                 2
        operators to continue to invest in the network with limited remaining tenure when there is
        currently no certainty of licence re-issue.

2.3	    The need for greater certainty is highlighted by the current situation in which spectrum
        licensees face considerable uncertainty about how the licence renewal process will work,
        likely licence length, the cost of reissue and other attached conditions.

2.4	    This uncertainty of tenure for spectrum licences is likely to be greatly amplified for
        secondary markets and is therefore likely to limit trading. This is because it is even less
        clear how renewal would be handled for secondary holders.

2.5	    To address this issue and promote trade in secondary markets, there must be some
        level of business certainty or presumption of continuity at the end of the tenure for both
        primary and secondary holders.

        Competing users, new technologies and changing market opportunities impose a
        discipline on incumbents to use the spectrum efficiently or sell or lease it to others who
        can. Certainty of tenure would make it more attractive to those wanting to gain access to
        additional spectrum to make long-term investments.

        Fully tradeable spectrum property rights – with a level of certainty beyond licence expiry
        – would result in a good outcome in spectrum use and management.

2.6	    AMTA does not consider that the length of a licence should be restricted to an arbitrary
        fifteen year period and would support the Government having the flexibility to offer
        licences for greater periods of time.

2.7 	   Another issue relates to the ability of interested parties to plan investment decisions.
        Strategic planning, including the need to trade (whether selling or buying) is dependent
        on an understanding of what spectrum is currently available and what is likely to be
        available in the future. For example, the World Radiocommunication Conference in 2000
        designated the 2500-2690MHz band for IMT technologies. In early 2007, ACMA
        consulted on the 2.5GHz band and its potential availability for wireless access services.
        To date, there has been no decision announced.

        In the absence of an efficiently functioning secondary trading market, and given
        difficulties in planning as noted above, an incumbent spectrum licence holder will be
        even less likely to trade or relinquish spectrum that they are not currently using if they
        have no certainty about opportunities to access spectrum at a later date.

                   AMTA Submission: ACMA Spectrum Trading Consultation, Jan 09.                  3
2.8	     AMTA suggests that the following steps would assist to address these issues and
         increase the efficient functioning of the market:

        (a) 	 To assist interested parties plan their investment decisions, it is essential that ACMA
              ensures that the market is advised as early as possible of decisions in relation to
              spectrum availability. As such, AMTA requests from ACMA clear planning and early
              advice on spectrum releases;

        (b) 	 At the time of re-issue, spectrum holders who have acquired spectrum through
              secondary trading should be subject to the same conditions as primary spectrum
              holders; and

        (c) 	 There should be a presumption of continuity of licence with incumbents given first
              right of refusal at the time of licence re-issue.

Transaction costs 

2.9	     The second critical issue impeding the secondary trading of spectrum licences is
         transaction costs.

2.10	    Taxation imposts currently vary across states, are complicated and are subject to
         inconsistent application. There is clear evidence that transaction costs are inhibiting
         trading, resulting in significant inefficiencies in spectrum use as illustrated below.

Evidence that transaction costs are impeding trade: 1800 MHz band 

2.11	    The spectrum auction for the 1800MHz spectrum conducted in 2000 was highly
         contested and undesirably resulted in non-contiguous lots being allocated and isolated
         2.5MHz lots being held by various operators. This is illustrated at Attachment A.

2.12	    The allocation of contiguous spectrum is important to reduce the need to maintain
         inefficient guard bands at the boundary of each spectrum lot. The non-contiguous lot
         allocation of the 1800MHz spectrum has therefore resulted in significant inefficiencies.
         Further, in the case of the 2.5MHz isolated lots, these lots may only be useful in a 2G

2.13	    In late 2000 the 1800MHz spectrum holders sought to arrange the rationalisation of the
         non-contiguous lot holdings. The methodology of swapping lots was agreed upon and a
         Memorandum of Understanding prepared but the rationalisation was not implemented
         because of significant taxation issues, with both capital gains tax and State stamp duty
         to apply to the swaps.

                     AMTA Submission: ACMA Spectrum Trading Consultation, Jan 09.                  4
2.14	    AMTA understands that submissions were made to the Australian Taxation Office to ask
         that relief be granted from capital gains tax when spectrum licences were swapped.
         Unfortunately, these submissions were unsuccessful.

2.15	    As identified in the ACMA Paper, stamp duty is also acting as a barrier to trade. AMTA
         understands that the States and Territories have agreed to support the abolition of stamp
         duty on non-land business conveyances and notes that some states already have an
         effective stamp duty tax rate of zero. This is encouraging. However, New South Wales,
         the last State to comply, will not abolish stamp duty until 1 July 2012. Thus stamp duty
         will continue to severely inhibit trade for another three years.

2.16	    These taxes serve as direct barrier to spectrum trading and mean that industry is left
         with spectrum lots that are inefficiently utilised and may inhibit their use for more
         advanced technologies.

Removing the transaction cost barriers 

2.17	    AMTA urges ACMA to work with the Australian Tax Office and relevant State and
         Territory Governments to remove these barriers to secondary trade by:

        (a) 	 Fast-tracking the removal of stamp duty;

        (b) 	 Introducing tax legislation to specifically deal with the swapping of spectrum licences
              to ensure a tax neutral outcome.

3.       O
         	 ther issues
Anti‐competitive behaviour 

3.1	     If a secondary trading market is working efficiently, and spectrum is treated in a similar
         way to other tradeable assets, it is unnecessary for the regulator to have a role to
         prevent spectrum hoarding – the non-utilisation of spectrum licences.

3.2	     In AMTA’s view, anti-competitive conduct – such as spectrum hoarding – is the remit of
         the Australian Competition and Consumer Commission (ACCC). The Trade Practices
         Act has an important and continuing role to play in ensuring that secondary trading does
         not result in anti-competitive outcomes.

                     AMTA Submission: ACMA Spectrum Trading Consultation, Jan 09.                  5
Other ways to improve secondary trading conditions 

3.3	      In its Spectrum Trading discussion paper, ACMA references a proposal to increase
          participation in (and therefore the thickness of) the market by increasing the ability and
          incentives of government spectrum users to trade1.

          AMTA supports this proposal and suggests that the resultant increased transparency of
          government spectrum holdings would be beneficial to spectrum management overall,
          assisting ACMA meet its obligation under the Radiocommunications Act 1992 (the Act)
          to ensure that that the allocation, use and full value of spectrum is understood and
          accords with ACMA’s spectrum management principles.

Flexibility in licensing  

3.4	      Flexibility in licensing is necessary to encourage trade and AMTA is supportive of this
          aspect of the current regime. That is, AMTA regards technology-neutral spectrum
          licences as essential to a spectrum trading regime.

          To illustrate the benefits of such a regime, consider the expected upcoming digital
          dividend. Flexibility of spectrum allocation in that band could bring substantial community
          benefits through the potential re-allocation of digital dividend spectrum to technologies
          and applications other than broadcasting.

Spectrum licence trading rules 

3.5	      The changing wireless technology environment inevitably leads to opportunities for the
          introduction of higher data rates and richer service applications. Such developments
          demand wider spectrum channels for efficient operation. This leads to the need for larger
          Minimum Contiguous Bandwidths (MCBs) in some bands. AMTA submits that bands
          suitable for the deployment of expected high-speed wireless 4G/LTE or similar should
          have increased MCBs – to 10MHz, for example. AMTA notes that this would prevent the
          undesirable fragmentation that occurred in the 1800MHz band.

Radiocommunications register 

3.6	      AMTA recognises the potential for market failure in spectrum allocation and supports in
          principle ACMA’s desire to facilitate the operation of the market by reducing information
          asymmetry, including the publication of information on current spectrum use and trading.

          In practice, however, AMTA does not believe that the additional time and cost imposition

    Reference to proposal by M Bykowsky, P18, ACMA Spectrum Trading Consultation Paper.

                     AMTA Submission: ACMA Spectrum Trading Consultation, Jan 09.                  6
       required to fill and maintain such an information register would be justifiable, particularly
       given that any published data would have to protect commercial sensitivities. The current
       market structure suggests that even publishing data in aggregate form would often not
       be sufficient to protect the source, leading AMTA to conclude that the little information
       that could be published would likely be of limited value to potential trade seekers.

3.7	   Similarly, while AMTA considers that the publication by ACMA of information on third
       party authorisations might be useful in informing all interested parties that an
       authorisation for use of existing licensed spectrum is being considered in a specific
       situation, the benefits need to be considered against the commercial reasons behind
       such authorisations. The existence of public information of this nature is quite unlikely to
       generate additional authorised use agreements and indeed could inhibit such initiatives.
       It would also create additional costs for industry.

       In summary, AMTA does not support the collection and publication of third party
       authorisation information.

3.8	   AMTA is supportive of electronic submission of the necessary paperwork associated with
       trading or leasing, noting that electronic lodgement of paperwork is usually more efficient
       and cost-effective than requiring posted hard copies.

4.     C
4.1	   There are two major barriers to the secondary trading of spectrum licences: licence
       tenure and the transaction costs associated with trading.

4.2	   AMTA contends that it should be relatively simple to address the barrier created by
       trading transaction costs and urges ACMA to work with the Australian Tax Office to
       introduce tax legislation to specifically deal with the swapping of spectrum licences to
       ensure a tax neutral outcome, and with relevant State and Territory Governments to fast-
       track the removal of stamp duty on non-land business conveyances.

4.3	   To address the barrier to trade created by uncertain licence tenure, AMTA suggests that
       ACMA make it clear that there is a presumption of continuity of licence with incumbents
       given first right of refusal at the time of renewal, and that spectrum holders who have
       acquired spectrum through secondary trading will be subject to the same conditions as
       primary spectrum holders. AMTA also strongly encourages ACMA to advise the market
       about spectrum availability as early as possible to enable businesses to effectively plan
       their very significant investment decisions in the most appropriate timeframes.

                  AMTA Submission: ACMA Spectrum Trading Consultation, Jan 09.                    7
4.4   AMTA thanks ACMA for the opportunity to comment and would be pleased to participate
      in further discussions on any of the issues raised.

                AMTA Submission: ACMA Spectrum Trading Consultation, Jan 09.           8
            Attachment A
            1800 MHz Capital City Spectrum Holdings 

  Lower         Upper          Lower         Upper    Bandwidth         Sydney      Melb       Brisb'n       Adel          Perth

1710         1712.5          1805.0        1807.5    2.5MHz paired      Telstra    Telstra     Telstra      Telstra       Telstra
1712.5       1715            1807.5        1810.0    2.5MHz paired
1715         1717.5          1810.0        1812.5    2.5MHz paired
1717.5       1720            1812.5        1815.0    2.5MHz paired
1720         1722.5          1815.0        1817.5    2.5MHz paired     Vodafone   Vodafone
1722.5       1725            1817.5        1820.0    2.5MHz paired       Optus
1725         1727.5          1820.0        1822.5    2.5MHz paired                 Optus       Optus      Vodafone
                                                                     Rail Corp                   QR
1727.5       1730            1822.5        1825.0    2.5MHz paired
                                                                     NSW           VIC Rail   Telecom    TransAdelaide   PTA WA
1730         1732.5          1825.0        1827.5    2.5MHz paired     Vodafone    Telstra                Vodafone       Vodafone
1732.5       1735            1827.5        1830.0    2.5MHz paired                            Vodafone      OneTel
1735         1737.5          1830.0        1832.5    2.5MHz paired
1737.5       1740            1832.5        1835.0    2.5MHz paired
1740         1742.5          1835.0        1837.5    2.5MHz paired                                                        Optus
1742.5       1745            1837.5        1840.0    2.5MHz paired                 Optus                    Optus
1745         1747.5          1840.0        1842.5    2.5MHz paired       Optus                 Optus
1747.5       1750            1842.5        1845.0    2.5MHz paired
1750         1752.5          1845.0        1847.5    2.5MHz paired
1752.5       1755            1847.5        1850.0    2.5MHz paired

1755         1757.5          1850          1852.5    2.5MHz paired
                                                                        Telstra    VIC Rail    Hutch     TransAdelaide    Hutch
1757.5       1760            1852.5        1855.0    2.5MHz paired        Hutch
                                                                     Rail Corp
1760         1762.5          1855.0        1857.5    2.5MHz paired
1762.5       1765            1857.5        1860.0    2.5MHz paired                                        Vodafone
1765         1767.5          1860.0        1862.5    2.5MHz paired                  Hutch     Vodafone                   Vodafone
1767.5       1770            1862.5        1865.0    2.5MHz paired                                          Telstra
                                                                     Rail Corp
1770         1772.5          1865.0        1867.5    2.5MHz paired
                                                                     NSW                       Telstra
1772.5       1775            1867.5        1870.0    2.5MHz paired       Hutch                               Hutch
1775         1777.5          1870.0        1872.5    2.5MHz paired
                                                                                              Telecom                    PTA WA
1777.5       1780            1872.5        1875.0    2.5MHz paired
1780         1782.5          1875.0        1877.5    2.5MHz paired
                                                                     Rail Corp
1782.5       1785            1877.5        1880.0    2.5MHz paired
                                                                     NSW           VIC Rail              TransAdelaide

Hutch          HUTCHISON
Optus          OPTUS
Vodafone        VODAFONE
                Formerly ONE.TEL - State
(various)      railways/transport
Telstra        TELSTRA

                                      AMTA Submission: ACMA Spectrum Trading Consultation, Jan 09.                          9