RadComms 2014: Spectrum in the Age of Digital Innovation
ACMA - RadComms 2014 Conference
Australian National Maritime Museum, Sydney
Wednesday 10 September 2014
It is hard to go anywhere without being reminded about the history of communications. Consider the semaphore flags here at the Maritime Museum - a relic of a bygone age for most of us here today. They are derivatives of the first system of semaphore communications devised by Parisian engineer, Claude Chappe in 1792. At the time they were first used they were considered so revolutionary, contemporaries likened them to the compass, the printing press and gunpowder. For the first time, it meant the Government could send a detailed message from Paris to Bordeaux in less than a day.
In my youth I was fairly continuously involved with the broadcasting industry. First as a television reporter and then for years as a lawyer representing the Packer interests and later as a banker buying, selling and restructuring television and other media businesses.
My last television transaction was the restructure and later sale of the Ten Network after it went into receivership, nearly twenty five years ago.
It was back then, in 1992, that the current Radiocommunications framework was introduced. It led the world in how it dealt with the complexities of spectrum management.
But the introduction of the current framework coincided with a revolutionary moment in telecommunications. In 1993, Telstra launched its first GSM network and Optus and Vodafone followed suit later that year. Like Chappe’s semaphore line, GSM was a totally new way to communicate. Rather than sending messages using analogue signals, GSM was the first mobile technology to use digital transmission.
It’s worth thinking about some of the implications of that - because these are things that policymakers 20 years ago could not have considered.
First, when you’re sending a digital signal everything looks the same -- no matter whether you’re transmitting an SMS or a high-definition video stream, you’re transmitting a series of 1s and 0s. This means as we move towards a fully digital world, there will be less need for Governments to create complex spectrum allocation charts to make sure one analogue service does not interfere with another. Think about this: Under the current framework, there are 200 spectrum regulatory instruments in place and up to a third of these describe the different licence types.
Secondly, a great attribute of digital signals is that amid all the 1s and 0s, you can detect patterns and further compress the amount of information you send.
Once you have a block of spectrum, advances in compression technologies mean you can deliver ever more data over it. In the recent Cost-Benefit Analysis on the NBN that I released a fortnight ago, it included a study by Communications Chambers in the U.K. that gives some indication of how transformational some of these compression technologies have been, with efficiency gains of around 10 per cent a year.
This means a chunk of spectrum allocated today could be used for ever more services tomorrow. Consider the explosion in the data sent over our mobile phone networks; during the two years to 2013 smartphone penetration has increased by around 34 per cent, and data downloads by smartphones has increased by 453 per cent.
As FCC chairman Tom Wheeler recently said:
“Slavishly sticking to analog age concepts of spectrum allocation can become, in the digital age, a government-imposed chokepoint that burdens competition and innovation by creating unnecessary and artificial scarcity of this essential resource.”
Finally, digital transmission means that services can be delivered using common infrastructure - such as our mobile, fixed line broadband and cable networks - rather than having to build bespoke analogue transmission networks. IP over everything and everything over IP. Of course there are other contributors to the high cost base of broadcasting such as acquiring access to content and control of the advertising market. Nonetheless, this shift has had a profound impact on the economics of pretty much every industry that uses spectrum, but in particular for our broadcasters.
For nearly forty years free to air television licensees had a monopoly on the delivery of television to the home. Some described them as a licence to print money, but that wasn't always true as TEN proved in 1990 when it went into receivership and there was a time when many industry wiseacres argued that there was not enough advertising revenue to support more than two commercial broadcasters.
We proved that wrong. With the help of Cass O'Connor and a great CEO in Gary Rice, we restructured TEN with a mean lean cost base that enabled it to be a ratings laggard but a profits leader. I recall that restructuring was designed on large sheets of butchers paper with every division and cost centre carefully itemised and all laid out on our kitchen table in Paddington.
And yet, since the introduction of digital television, there are 17 channels on five broadcasters -- all of them free to the the around 13.5 million Australians who watch each day. And people have more access to content online than ever before. As of May 2013 there were 7.9 million people in Australia using professional content services over the Internet such as catch-up TV, video on demand and IPTV.
Demand for broadcast radio also remains very high and there is no doubt that radio will continue to play a key role in Australia’s media landscape, but it is interesting to see the growth in streamed radio over the net - from 4.5 per cent in 2009 to 8.1 per cent as at June 2013.
And in addition to that of course we have hundreds of pay channels, on Foxtel and other services delivered by satellite and increasingly over the Internet - over the top. And then there is Youtube!
In other words there is more competition, more innovation, more disruptive dynamic change than ever before. It means the cost of Government regulation has never been greater; both because it inhibits new business models from prospering and forces unnecessary costs on the incumbents when their profitability is under increasing pressure.
For these reasons, the Government is looking hard at how we allocate spectrum and how this scarce public resource can be used most efficiently.
In May, I launched the first review of the use of public spectrum in Australia in more than a decade. Specifically, the review is examining:
● How markets that make use of spectrum have developed since the 1992 Radiocommunications Act was introduced
● What elements of the regime have served us well, and what have not, and;
● What needs to change so that we have an effective and efficient framework for future technologies to flourish.
The endpoint of this review is to create a framework that allows spectrum to be allocated and used efficiently over the short, medium and long term.
If this is achieved then the framework will recognise continued rapid technological change; promote investment; accommodate a range of different uses and incentivise transformations.
As I mentioned there are more than 200 Australian regulatory instruments in place that deal with spectrum matters.
Converting and reallocating spectrum between licence types is an unnecessarily lengthy process and renewal processes for spectrum licences are difficult and can lead to uncertainty for users.
It took seven years to release the digital dividend and three years to conclude the policy elements of the 15 year spectrum licence re-issue process, with the ACMA assessment of use and the actual re-issue of licences on top of that.
Our arrangements need to be simpler and more flexible.
Whilst we have commenced work through the Government’s deregulation agenda on repealing and winding back various licence conditions, the spectrum review is key to improved processes and reduced regulation in the spectrum management space.
The economic benefits to the country of having an efficient spectrum management framework are immense. A study commissioned by the ACMA found that in the six years to 2013, mobile broadband alone contributed more than $33 billion to Australia’s GDP. The recent Cost Benefit Analysis into the NBN showed how much the public benefits of broadband are the result of low bandwidth applications, which are being deployed increasingly over radio spectrum. Emergency health care monitoring for instance, requires bandwidth of 1 mbps; school of the air needs between 2 and 24 mbps; smart grids require 1 mbps.
An economy wide study on the economic value of radio spectrum in the U.K. found that it added AUD$90 billion a year (£52 billion) to their GDP, in 2011.
Since 2006, the economic value of public spectrum in the U.K. has seen a real increase of 25 per cent. But some sectors use of spectrum has seen higher growth than others. The highest growth in value has been in the spectrum used by television broadcasters. The use of microwave links has decreased in economic value, presumably as telcos have built out their transit networks with fibre links.
Efficiency in the management of radio spectrum will be enhanced by further use of market mechanisms and Australia has been a leader in this area as an early adopter of auctions to allocate spectrum and permitting the trading and leasing of spectrum and apparatus licences.
But there is more that can be done. All users - whether telecommunications providers, broadcasters, public sector users and so on - must be given incentives to make efficient use of the spectrum, for example through use of appropriate pricing.
We can drive further efficiency by encouraging greater trading and leasing of spectrum, facilitating the movement of spectrum for new uses, and by providing the flexibility and incentives for users to upgrade to more efficient technologies.
There are two important points:
● The first is that for markets to work well the people investing need certainty about regulatory arrangements and spectrum access terms and conditions.
● The second is that Government should retain the right to intervene to make spectrum available for public and community services and for other uses where there is a clear public benefit that would not otherwise be met – this should occur in a transparent framework including in relation to value and benefits of that spectrum.
There are a number of interesting trends and developments in spectrum management taking place internationally that can inform the development of a new Australian framework.
We should be ready to learn from the experience of other jurisdictions where they are dealing with common policy challenges in comparable circumstances.
In March this year the UK government released its Spectrum Strategy. It put forward a number of initiatives with the goal of growing the value of spectrum’s contribution to its economy and society including by:
● Setting a vision to double spectrum’s annual contribution to the economy by 2025;
● Making the most of globally agreed changes in use such as those supporting mobile broadband to ensure harmonisation with other jurisdictions;
● Not discriminating against or favouring one sector or another when it comes to the use of spectrum; and
● Encouraging innovation through sharing arrangements.
The OECD also published a paper in May which set out new approaches to spectrum management including valuing spectrum’s economic contribution, facilitating shared use of spectrum and the use of incentive auctions to assist in managing changes of use.
The report showed that there is huge value in spectrum harmonisation among regional blocs. The OECD pointed out that the ACMA has been leading the way in the Asia Pacific with its 700Mhz band plan. The recent digital dividend saw 60 MHz of spectrum in the 700 MHz band and 140 MHz of spectrum from the 2.5GHz band redeployed and sold, for a dividend of almost $2 billion. Spectral efficiency and harmonisation have obvious economic benefits. The OECD report points out that over 20 countries in the region are now adopting parts of the ACMA plan to maximise harmonisation efforts, including New Zealand, Japan, Indonesia and India.
I am outlining today three areas of potential reform that should be considered as part of the spectrum review and related reforms.
The first is to create a clearer and simplified policy framework to ensure transparency and accountability in decision-making.
Throughout the year, I have been in detailed discussions with the industry, both informally and through my Ministerial Advisory Council. I know that as the demand to deliver ever more services over spectrum increases, supply tightens and so does the tension between existing users of spectrum.
Most of the industry wants to see a clear division in the way spectrum is planned, allocated and managed. Where decisions have significant public policy implications, these should remain in the hands of the Minister and the parliament. Where there are issues requiring technical, planning and enforcement expertise they should be left with the regulator.
In response to this I propose that the framework would include Government policy statements being issued to the ACMA, as well as specific powers of Ministerial intervention to direct major policy initiatives. This should improve certainty, streamline processes and reduce costs for all parties.
To support the policy process the Minister would be assisted by a requirement that the ACMA provide to the Minister an annual work program, to be made public, identifying key priorities over a 3-5 year timeframe. This arrangement would allow the Minister to indicate which processes are likely to be of interest to the Government and to request further information or become actively involved where it would be in the public interest.
The second proposal I want to explore with industry is moving to a single licensing framework where there is flexibility available on licence parameters.
In effect the current categories of spectrum, apparatus and class licensing would be removed and replaced with a single category.
Some core conditions may be provided in legislation or communicated to ACMA through Government policy statements, such as a maximum licence term and renewal arrangements – but the intent is for the licensing framework to be more flexible.
This has the potential to simplify processes and provide much greater flexibility and choice for users, as well as improve efficiency. The legislated categories will no longer be an impediment to innovative new use of spectrum.
Earlier I mentioned the high number of spectrum regulatory instruments, particularly in regards to different licence types. Switching between licence categories also requires specific instruments. Moving to a single licensing framework is likely to remove or significantly reduce the need for such regulation.
The third proposal relates to television broadcasting
Australians enjoy a wide range of free-to-air television services, particularly following the switch to digital television. Anti-siphoning rules ensure that our most important and iconic sporting events are free for anyone to watch, not just those who can afford a pay TV subscription. This is one of the great things about living in Australia and it’s available to everyone.
So free-to-air television, both commercial and national, remains an important part of the Australian media landscape and while change is a constant in the world of linear television, the Government considers it important to continue to reserve spectrum for these services.
But with the completion of the digital switchover, advances in compression standards and Australians increasingly accessing content that doesn’t require spectrum - such as cable and over-the-top services via the internet - the Government considers that it is timely to recast the current broadcasting spectrum policy framework to ensure it is fit-for-purpose for the next wave of innovation in the media sector.
So in line with the spectrum review a future broadcasting spectrum framework should consider the following elements:
The Government would retain the current restriction on the number of commercial television licences that can be allocated for the one licence area.
Commercial and national broadcasters would be increasingly permitted to use spectrum more flexibly and allow third party access to their spectrum.
The Government would not constrain the type of services broadcasters offer apart from retaining the restriction on subscription television services.
Broadcasters should be free to determine the most appropriate mix of services and formats for their audience accordingly the Government would not mandate that commercial and national broadcasters provide minimum numbers of multi-channels or minimum levels of high definition content.
We are also keen to encourage commercial and national broadcasters to commence their transition to MPEG-4 only broadcasting, with the aim that every service would move to an MPEG-4 standard. The Government expects that a transition such as this would be industry managed.
MPEG-4 uses spectrum much more efficiently and would allow broadcasters to use their existing spectrum to deliver more channels and content including in relatively bandwidth hungry formats such as high definition if they choose to do so.
In the short term, to allow for this transition to MPEG-4, the Government intends to free up the spectrum known as the sixth channel to assist in the testing and migration to this more efficient technology.
The sixth channel remains substantially vacant but is currently being used by community television in some state capitals. The Government believes that the best outcome for community television is that in future it uses the Internet as its distribution platform. To allow for this the Government will extend current licensing arrangements until the 31st of December 2015.
I have no doubt that this transition is in the best interests of community television. It will deliver wider audiences, at less cost on a wider range of devices and the ability to do more than linear broadcasting. Some community television representatives, acknowledging that the Internet is their ultimate home, have nonetheless argued that they should not be "rushed into the new media world". The Internet is not new. It is the universal uber-platform to which most people in Australia are connected 24/7.
The spectrum review will now consider whether the sixth channel spectrum will be replanned for alternative non-broadcasting uses, perhaps as the basis for a second digital dividend.
Finally, following a move to an MPEG-4 standard, in order to continue our drive to achieve maximum spectrum efficiency the Government will encourage spectrum sharing between television broadcasters. We expect the national broadcasters to lead the way in this regard, with the commercials to follow.
The spectrum management framework has over time developed and shifted to meet changing circumstances and has served Australia well.
But given the pace of technological change we need to look at a new approach. The spectrum review is an opportunity for you all to bring forward proposals and be involved in setting the direction for the future.
The proposals that I have outlined to you today clearly signal that the government is looking for innovative and substantial reforms to our spectrum management framework.
Given the fundamental role that spectrum will play in the development of an innovative and productive digital and networked economy it is vital that all stakeholders make the most opportunity that the spectrum review presents.
To progress the policy development process my Department will release a Spectrum Review Directions paper in October setting out a range of possible reform measures and will follow this with a stakeholder workshop before the end of the year. The Department will also shortly be releasing a separate discussion paper to seek the industry's views on future arrangements for television broadcasting spectrum
I trust that as an industry and as individual firms that you will take up the challenge that the review presents and bring forward proposals to ensure that we have a future ready spectrum management framework.
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