Study of Market-based Exclusive Spectrum Rights

2. Introduction

2.1 Background

In April 2005, the Minister of Industry appointed the Telecommunications Policy Review Panel to review Canada's telecommunications policy framework and provide recommendations for change.

The Panel recommended that Canada adopt a new spectrum policy calling for reliance on market-based approaches to spectrum management as much as possible, the establishment of market-based exclusive spectrum rights, and the elimination of barriers to the development of secondary markets in spectrum. The Panel's recommendations are consistent with a sizeable body of economic, legal and technical analysis appearing in the literature that considers that market-based approaches to spectrum management would bring significant improvements in economic efficiency, competition and innovation.

On June 13th, 2007, the Minister of Industry announced that a study of market-based exclusive spectrum rights had been initiated. This report documents the results of the study.

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2.2 Market-Based Exclusive Spectrum Rights

When spectrum licences change hands via the normal process of buying and selling assets, this is referred to as 'market-based methods'. Market-based methods are being employed both at the primary level of spectrum licences, when auctions are used, and more significantly when spectrum rights are bought and sold in the lifetime of a licence, allowing a change of use of the relevant spectrum.

Spectrum trading and flexibility are viewed as more efficient than the status quo. Indirect positive effects of spectrum trading include making it possible for companies to expand more quickly than would otherwise be the case. It also makes it easier for prospective market entrants to acquire spectrum since greater flexibility provides a considerable incentive for incumbents to invest in new technology, in turn boosting market competition. These economic efficiency gains will not be realized if transaction costs are too high or if external effects intervene.

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2.3 Objectives

The objectives of this report are to provide Industry Canada with a better understanding of international trends in adopting market-based exclusive spectrum rights and the associated benefits and to make comparisons with current Canadian policy and practice in order to assist Industry Canada in the policy formulation process.

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2.4 Scope and Report Structure

We have reviewed international trends and experiences in spectrum usage rights in Chapter 3 and include the following:

  1. A review of the rationale behind the adoption of more market-based approaches to spectrum management including the implementation of spectrum usage rights and secondary market trading.
  2. A summary of changes made by countries leading in the adoption of market-based exclusive spectrum rights.
  3. References to available studies of the potential or realized welfare gains associated with such liberalization.

In Chapter 4, we have also reviewed current Canadian spectrum management policy and practices and reviewed and commented upon the core documents which guide the Spectrum Management Program. Chapter 4 provides the following:

  1. A description and general assessment of the processes by which spectrum in Canada is allocated and assigned, and of the extent to which these processes sufficiently maximize net social benefit.
  2. A review of a representative sample of current spectrum licence definitions and the conditions attached thereto. The extent to which these provisions are compatible or incompatible with those required for exclusive spectrum rights and market-based approaches are described.
  3. A description of the regulatory and statutory reform options to increase reliance on market-based approaches and description of the relative advantages and disadvantages.

Chapter 5 of the report provides an analysis and comparison of key aspects of spectrum management policy and practice required to maximize reliance on market-based approaches to Canadian legislation and regulation. We also include definitions of spectrum usage rights and a functioning secondary market in spectrum.

In Chapter 6 we provide our recommendations to assist in the policy formulation process.

Perhaps it is useful to clarify terminology at this point. The word "telecommunications" in the strict legal sense includes radiocommunications and broadcasting. Often, however, the word "telecommunications" is used in a more narrow sense when speaking of revenue-based services for remuneration to entities including companies, governments, the general public, etc. Examples, some of which utilize radiocommunications, would be voice and data services including cellular services, paging, etc. For purposes of this report, we shall use the term "telecommunications" in its correct legal sense and the term "telecom"when referring to the narrower segment of "telecommunications" as in "telecom services", "telecom sector" (which usually is taken to mean the manufacturing and supply of telecom equipment as well as the supply of telecom services), etc. For a more complete explanation, see Annex 2.

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