The content on this page and other DBCDE document archive pages is provided to assist research and may contain references to activities or policies that have no current application. See the full archive disclaimer.

 

Anti-hoarding regime low powered open narrowcasting licences - Regulation impact statement

 

Low powered open narrowcasting (LPON) services were introduced by the Australian Broadcasting Authority (ABA) in 1993. LPONs typically carry regional racing and tourist radio services, ethnic broadcasting, information services, niche music services and religious programming. They operate on very low power outputs ranging from 1 watt in metropolitan areas to 10 watts in regional and remote areas. Their range is correspondingly limited. To date about 1600 LPON licences have been issued in the broadcasting services bands (BSB) subband 87.5 to 88.0 MHz.

Responsibility for the allocation of LPON licences was transferred from the ABA to the Australian Communications Authority (ACA) in 1996. Allocation is subject to the availability of a limited range of frequencies. As LPONs are the most lightly regulated licence in the broadcasting services bands, a minimal "over the counter" payment for the licence ($346 initial fee and $34 annual renewal, representing recovery of administrative costs) currently applies.

Commercial broadcasting licences and transmitter licences for HPONs include "use it or lose it" provisions which oblige the licence holder to commence to provide a service within a fixed period of acquiring the licence. Under paragraph 8(1)(h) of Schedule 2 of the Broadcasting Services Act 1992, commercial licensees are required to provide broadcasting services within one year of being allocated the licence. The ABA has the discretion to extend this period. Failure to commence a service is a breach of licence condition, and the ABA may then issue a notice under section 141 of this Act requiring a service to commence within one month. Failure to comply with the notice could result in prosecution (section 142) and/or suspension or cancellation of the licence (section 143).

HPON licences include conditions, in accordance with section 107(g) of the Radiocommunications Act 1992, that services be commenced within six months of the issue of a licence. Failure to comply with conditions of apparatus licences, knowingly or recklessly, is an offence under section 113. The ACA may also suspend (section 126) or cancel (section 128) an apparatus licence - these decisions are subject to review in accordance with part 5.6 of the Radiocommunications Act.

Problem

Concerns have been expressed from the radio industry, including representatives of the racing radio sector, that the apparent "hoarding" of low power open narrowcasting licences was limiting the ability to provide local radio services in some areas.

The recent report of the House of Representatives Standing Committee on Communications, Transport and the Arts into regional racing radio services reported concern from a number of sources about spectrum hoarding and recommended the introduction of a "use it or lose it" provision to LPON licences.

The ACA has estimated the extent of LPON licence stockpiling to be significant. Field audits have indicated that approximately 65% of approximately 1600 LPON licences are not being used. In addition, 49% of LPON licences are held by only ten licensees.

The current regulatory arrangements for the allocation and renewal of LPON licences have no anti-hoarding condition. Many licences are being transferred to new ownership once they have been acquired ' the ACA has advised that a typical "going rate" for these licences on the market is $5,000 but anecdotal evidence is that some have fetched several times this amount. This "hoarding" of licences is preventing new entrants being able to access scarce radiofrequency spectrum. It also severely restricts the diversity of services which is available to the public, and effectively prevents small licensees from extending their networks.

The current single fixed price does not deal effectively with the competing demand for LPON licences in some markets, or take account of the different uses and values for spectrum in different markets in order to optimise the return on the sale of the spectrum.

Objectives

The objective of the proposed action is to create opportunities for a more diverse range of narrowcasting radio services through the introduction of an anti-hoarding regime and the more efficient and equitable use of radiofrequency spectrum.

Options

In June 1999 the Minister for Communications, Information Technology and the Arts asked the ACA to develop options for addressing the problem of apparent hoarding of LPON licences. The ACA proposed several options in a Discussion Paper released in July 1999. Other options put forward by stakeholders were published in the ACA's summary of comments on the Discussion Paper in September 1999. The proposed options included:

  • the retention of the current licensing arrangements;
  • the application of a 'use it, or lose it' condition to LPON licences;
  • the re-allocation of cancelled or returned licences by price-based allocation;
  • an increase in licence fees;
  • the replacement individual LPON licences with a class licence system; and
  • the introduction of ownership and control rules for LPON licences.

Impact analysis (costs and benefits) of each option

The ACA's Discussion Paper identified three groups who were likely to be affected by an anti-hoarding scheme:

  • large existing licensees, who own a number of licences;
  • small existing, usually single license holders, wishing to expand their services; and
  • prospective licensees.

Regardless of the option implemented, there will be no significant effect on regulatory responsibilities, with the ACA continuing to administer the issue of LPON licences. As well, LPONs would remain the most lightly regulated broadcasting service, so that there would not be an onerous increase in administrative arrangements for the ACA.

Option 1

The retention of current licensing arrangements results in benefits for existing licence holders who do not wish to provide a service. In some cases these are holders of other licences (either commercial or high powered open narrowcasting licences) whose aim in holding an LPON licence is to ensure that no alternative organisation is in a position to provide a competing service.

These organisations have obtained access to spectrum for a very low price without being required to provide any corresponding benefit to the public in the form of access to narrowcasting services.

Other organisations wishing either to enter the market or extend the range of services they offer are also disadvantaged by this situation. The limited availability of spectrum for LPON services means that once licences have been allocated in a region there is no capacity to provide additional licences without causing interference to existing services.

Option 1 maintains the status quo for consumers who currently do not benefit from a diverse range of local niche radio services. It also has no administrative consequences for regulatory agencies.

Option 2

The implementation of a 'use it, or lose it' licence condition seeks to maximise benefits through:

  • provision of a wider range of narrowcasting services to local communities and consumers in a short time frame;
  • relative immunity to avoidance or widespread legal challenge; and
  • relative ease of implementation.

These benefits are significant. The fact that existing owners of licences who have not yet provided a service would face some cost in establishing a service is likely to be more than offset by the community benefits from the proposal. The establishment costs for an LPON service can be as little as a few thousand dollars.

This option would impose a significant cost on organisations currently "hoarding" licences and thereby not contributing to Government objectives for the community at large. This includes organisations who may have bought licences at a premium to the price for which they were originally allocated ' as noted above, though, this premium is rarely above $5,000. Implementation of the preferred option would realise significant public benefits. Firstly, it would signal the Government's preference for the scarce public resource of spectrum to be used for the benefit of the community in the form of a diverse range of local niche radio services. Secondly it would discourage the exploitation of the licensing system by entrepreneurs with a view to securing windfall gains, while not providing any form of service.

This option will be implemented by the issue of a Ministerial direction to the ACA by the Minister for Communications, Information Technology and the Arts under s12 of the Australian Communications Authority Act 1997. The Direction provides for the ACA to act upon complaints that LPON licensees are not providing a service, or have commenced services but not maintained them. The Direction is expected to commence on 1 March 2001.

The "use it, or lose it" conditions require:

  • in the case of existing licences, that they commence a service within six months of the condition being imposed on the licence,
  • in the case of new licences, that a service be commenced within six months of the licence being issued; and
  • in the case of licences renewed within six months of the direction coming into force, that a service be commenced within six months of renewal.

In all cases, the conditions require:

  • the continuation of the service throughout the term of the licence with reasonable regularity; and
  • the maintenance of records of the commencement, hours of operation and provision of the service.

The ACA has the discretion to allow for an extension of the six month period in the event of a valid reason. The Direction sets out circumstances, such as restrictions on transfers of licences to relatives, which do not constitute reasons for a delay. Examples of situations which could be considered valid reasons, depending on the circumstances, might include technical difficulties beyond the operator's reasonable control, or unfavourable weather conditions, but the Direction is not prescriptive on what may constitute a valid reason because to do so might exclude other reasonable cases for extension.

The Direction provides for a complaints initiated licence cancellation process. Complaints are to be made on a form approved by the ACA, and accompanied by a statutory declaration. Licensees will have 30 days in which to respond. The ACA can take into account a range of factors relating to transmission facilities and programming material. In reaching a decision on the cancellation of a licence the ACA can also take into account circumstances beyond the reasonable control of the licensee.

The preferred option does not change the current rights of applicants to appeal against any administrative decision by the ACA. Reviews of decisions are covered by part 5.6 of the Radiocommunications Act 1992.

Option 3

The introduction of a price-based allocation system offers a wide distribution of benefits through:

  • re-allocation of licences cancelled or not renewed, and the allocation of new licences on an efficient and equitable basis; and
  • the realisation of some form of return to the Government for spectrum, a public scarce resource.

Aspirant licensees from business and community groups will incur costs through the requirement to bid for reallocated and new licences. In particular, the introduction of a price-based allocation system may be perceived as unduly confusing by community groups in that they would bid only for the right to apply for a licence, subject to site availability. However this effect is not expected to be significant given the planning work already required for LPON proposals to be accepted by the ACA (for example showing technical requirements can be met, and the identification of transmitter sites).

The more commercially oriented process could represent a greater cost to aspirant licensees with limited resources, such as community groups, who may be less likely to sustain higher priced bids than organisations with a greater commercial focus. However, while licences may fetch higher prices in a number of cases, the fact that the successful bidder will have to provide a service is likely to mean there will be less artificial inflation of the bidding price. Organisations which may have paid significantly increased prices in order to "hoard" a licence would not therefore be interested in bidding.

The details of the price-based allocation process, in accordance with the Radiocommunications Act 1992, are the responsibility of the ACA to develop, rather than the Minister. As a result, the determination of processes for the testing of demand levels and for a price-based licence allocation system are matters for the ACA and these details would be included in an information package which it develops. (The ACA will prepare a separate RIS on this issue.) However, it is expected that the process would be closely modelled on the auctions currently conducted by the ACA for Trunk Land Mobile Services (TLMS) licences.

The introduction of a price-based allocation system may result in some additional return to the Commonwealth although the net effect of such a system is not likely to be significant.

On balance, a price-based allocation process is likely to be a more economically efficient allocation of resources, given the extent of the hoarding problem identified by the ACA. The process will allow the ACA to better test demand levels in the LPON market, and will better reflect the value that aspirants attach to a licence (and that would also accrue to Government revenue).

Ultimately, the very low power outputs and restricted ranges of LPON services is unlikely to mean there will be a significantly higher market price for the majority of licences to be offered.

Option 4

An increase in licence fees, depending on its magnitude, would provide a strong disincentive to the hoarding of LPON licences, and a further benefit would be the relative ease of implementation. However, the increase would need to be very substantial to provide an effective signal to the market that greater value must be placed on the licence. Without a major increase in fees the hoarding issue would not be solved. In this case, there would be an equity cost in that greatly increased fees may present difficulties for licensees from localised community groups. A high over the counter fee would be contrary to the Government's intention that LPONs should increase the choice and range of available radio services for consumers.

Overall, this option is unlikely to resolve the hoarding problem or to realise new local services for consumers. This option would do little to prevent inefficient use of the spectrum, as it would not reflect different spectrum values in different markets.

Option 5

The replacement of individual LPON transmitter licences with a class licence system would mirror the current class licence arrangement for LPON broadcasting licences, whereby there is a general authorisation allowing any person to provide a narrowcasting service without holding an individual licence. An LPON class transmitter licence would permit a prospective LPON operator to transmit from any location providing that the standard LPON technical conditions were met. Over time, individual licences, and therefore hoarding, would cease to exist.

However, a transmitter class licence system would effectively remove almost all capacity for regulation of the sector at all. Because a 'no protection' arrangement would apply, many operators would have an insufficient guarantee of interference-free reception. This would damage operators and consumers alike. In addition, resolution of ensuing disputes over allowable parameters would impose an administrative burden on the ACA. Commonwealth revenue from the allocation of these services would also be foregone.

The ACA's Discussion Paper has suggested a possible compromise approach would be to retain individual licensing in metropolitan and larger regional centres, and introduce class licensing for other areas. This could increase services to consumers in those less populated areas where there are only a few aspirant licensees. However, while there is certainly high demand for licences in major regional centres, this proposal assumes there would be no demand in other centres, a situation not supported by existing hoarding levels, and the problems raised in the paragraph above would continue to apply. The proposal was largely unsupported in the ACA's consultation process.

Option 6

Ownership and control rules for LPON licences would control hoarding but be unacceptable on broader policy grounds. If introduced, this proposal would create a new level of regulation for this level of licences which is inconsistent with overall Government policy - that services with limited tenure, range and influence should be subject to minimum regulation. Such an approach could only be considered after a comprehensive review of the relationship of the narrowcasting sector to other categories of broadcaster. This option offers no obvious offsetting benefits to consumers in terms of increased levels of niche radio services.

Consultation

The ACA's discussion paper received wide circulation.

Submissions from large licence holders opposed any regulatory action by the ACA. These submissions generally argued that trading and leasing licences were legitimate entrepreneurial activities and that there was insufficient evidence that these practices were causing widespread problems. By contrast, submissions from small existing licensees wishing to expand their services, and some prospective licensees, supported the application of a 'use it or lose it' condition to LPON licences.

Other submissions from small existing licensees and prospective licensees, argued for alternative arrangements, such as the introduction of ownership and control rules, in order to reduce the hoarding of LPON licences and the replacement of individual LPON licences with an LPON class licence.

Some licensees suggested that a major factor in the low use of LPON licences was that many licensees found operating a service with the current technical parameters to be unviable. However, increasing power levels would be likely to cause interference to other services. If a service is not viable because of limited range, operators are always able to return them so that they can be re-allocated.

The House of Representatives Racing Radio Inquiry also consulted widely in developing its proposals. Notably it received a submission from the Tasmanian Government outlining the scope of hoarding in that State and calling for the introduction of a "use it or lose it" provision.

Conclusion and recommended option

Option one, the retention of the current licensing arrangements, would not result in any significant alleviation of the problem. Instead, it would continue to limit opportunities for small existing and potential licensees to introduce services which expand the range of radio services available to the community. It is therefore necessary to take remedial action.

Option two, the introduction of a 'use it, or lose it' condition to LPON licences, together with the implementation of a price-based allocation system for new licences, represents an opportunity for significant community and industry benefits.

The application of a 'use it, or lose it' condition to LPON licences represents a relatively minor change to the current regulatory arrangements governing their issue, and would not be new in broadcasting regulation. High powered narrowcasting, commercial and community radio services already operate under a similar licence regime. The condition should effectively remove a major constraint to entry (ie hoarding) for players in many areas, improving the choice and diversity of radio services for some consumers.

Option three, the introduction of a price-based allocation scheme is consistent with the ACA's existing powers. The ACA also has considerable existing expertise in the allocation of licences through price-based allocation.

Option four, simply increasing annual licence fees, may result in more limited opportunities for many small existing and potential licensees to introduce services which expand the range of radio services available to the community. This option received little support in the ACA's consultation process.

Option five, the replacement of individual LPON transmitter licences with a class licence system, would prevent hoarding as individual licences would no longer be renewed. The option could provide services to low population area, although demand levels in these areas are uncertain. There would be additional administrative costs to the ACA in resolving the interference disputes likely to accompany the introduction of the proposal. The consultation process attracted little support for this option.

Option six, the introduction of ownership and control rules for LPON licences would introduce a level of regulation inappropriate to the limited tenure, range and influence of these services.

The preferred approach is for the simultaneous introduction of options two and three. Option two provides for greater consumer benefit through increasing the availability of services, which itself also represents a more efficient use of the spectrum. However, option three provides additional benefits in terms of efficiency through the introduction of a fairer mechanism for realising the value of the spectrum.

The combination of these options is therefore likely to realise more benefits and fewer costs than other options to Government, current and aspirant LPON licensees and consumers. It also fulfils the Government's intention that LPON licensees would continue to have minimal regulation compared to other radio services.

Implementation & review

The preferred options will be implemented through the issue of Ministerial directions from the Minister for Communications, Information Technology and the Arts to the ACA under s.12 of the Australian Communications Authority Act 1997. The Minister is expected to announce the scheme in late 2000 and the Directions are expected to commence on 1 March 2001. This timetable will allow the ACA to amend its determinations consequential to the Radiocommunications Act 1992 prior to the Directions coming into force, and to make the necessary arrangements for auctions to be held in mid 2001. It will also allow time for the ACA to notify current licensees of the changed arrangements.

To ensure clarity in the price-based allocation process, the ACA proposes to develop an auction information package similar to its Trunked Land Mobile Service price-based allocation auctions.

The effectiveness of the preferred options will be kept under regular review by the ACA once licence holders have had the opportunity to start up new services. The frequency and nature of any review is a matter for the ACA.

 
Document ID: 8833 | Last modified: 6 February 2008, 2:17pm