Assignment procedures for DTTB and MTV services

Observing the DTTB licensing assignment procedures across the world we can conclude that in almost all countries the DTTB license for Public Service Broadcasting (e.g. assigned to a Public Broadcaster) are assigned by priority and that the DTTB spectrum rights are assigned by means of a public tender or by renewal to commercial parties⁹⁵.

In some cases the public tender was accompanied with additional instruments to return (parts of) the economic value to society. In the table below an overview is provided:

Table 2.5.2 Applied assignment instruments for commercial DTTB services.

Country Applied policy for existing analogue

tele-vision license holders

Applied assignment instrument for other DTTB spectrum rights

Remarks

Australia Renewal Public Tender In Australia, most of the digital television spectrum licenses were renewals of existing analogue licenses⁹⁶

Belgium⁹⁷ By priority Public Tender Only the Public Broadcaster had an analogue television license

Additional digital license fees to be paid on the basis of a percentage of the gross revenues

Denmark⁹⁸ By priority Public Tender Only the Public Broadcaster had an analogue television license

Finland By priority By priority⁹⁹ National network operator was assigned the license with roll-out obligations.

The Public Broadcaster had an analogue television license and got automatically facilitated on the DTTB platform.

France⁹⁸ By priority Public Tender The Public Broadcaster and other existing analogue broadcasters got facilitated on the DTTB platform.

Please note that this right to be facilitated will expire at the time of the ASO. This does not apply to the Public Broadcaster.

95 ‘By priority’ is referring to (Public) Broadcasters getting their digital license first, without any competition, to carry-out their digital Public Service Broadcast obligation. This might entail that they can offer more services as compared to the analogue situation. The remaining digital spectrum is then assigned to other commercial interested parties/bidders. ‘Renewal’ is referring to (commercial) analogue television license holders getting their license/analogue rights ‘converted’ to a digital license enabling them to at least continue broadcasting their current program(s) after ASO. This might result in spectrum efficiencies if the digital license holder only facilitates a limited number of channels.

96 For more details see www.acma.gov.au.

97 See See State publications in ‘Belgisch Staatsblad’ no 2008-3603 (Decision of 18th of July 2008) and no.

2008-4155 (Decision of 17th of October 2008), respectively the licensing procedure and licence terms &

conditions.

98 See country reports on www.digitag.org and www.dvb.org

99 The initial license was assigned by priority to the National Broadcast Network Operator (Digita, fully government owned), before this operator was acquired by the commercial TDF group. In this way, TDF acquired the DTTB frequency license. To date there is only one DTTB network operator in Finland.

Country Applied policy for existing analogue

tele-vision license holders

Applied assignment instrument for other DTTB spectrum rights

Remarks

Germany By priority By priority¹⁰⁰ National network operator was assigned the license with roll-out obligations.

The Public Broadcaster and other existing analogue broadcasters got facilitated on the DTTB platform. Please note that the Public Broadcasters (ARD/ZDF) got a full multiplex assigned. Others have to share a multiplex.

Netherlands By priority Public Tender Only the Public Broadcaster had an analogue television license Additional license fees based on percentage of gross revenues¹⁰¹ New

Zealand⁹⁸

By priority, FCFS The Public Broadcaster, in cooperation with commercial broadcasters developed a proposal for DTV

Spain⁹⁸ By priority Public Tender The Public Broadcaster and some other commercial broadcasters had an analogue television license. They are facilitated on the first multiplexes

Sweden⁹⁸ By priority Public Tender Only the Public Broadcaster had an analogue television license United

Kingdom

By priority Public Tender The Public Broadcaster and three other commercial broadcasters had an analogue television license. They were facilitated in the first two digital multiplexes

United States Renewal¹⁰² Public Tender Additional license fees based on percentage of gross revenues

A similar picture can be observed for the applied assignment instruments for the MTV licenses. The table below provides an overview¹⁰³:

100 The initial license was assigned by priority to the National Broadcast Network Operator (T-Systems, part of Deutsche Telecom, fully government owned), before this operator was (partly) privatized and acquired by the commercial TDF group. In this way, TDF acquired the DTTB frequency license too.

101 Next to paying the monthly license fee to the spectrum manager, the license holder has the obligation to pay an additional annual charge of 15% over that part of its annual revenues above € 45 m, commencing in the 8^th year of operation (license duration is 15 years).

102 In the US most of the DTV spectrum licenses were renewals of existing analogue licenses (as most broadcasters/stations operate their own transmitter network). For more details see www.fcc.gov.

103 For more details see BMCOforum, Best practice regulatory frameworks for mobile TV, June 2008.

Table 2.5.3 Applied assignment instruments for MTV services.

Country Applied assignment instrument for MTV

spectrum rights

Remarks

Australia Not assigned or planned yet

Belgium Public Tender Additional license fees based on

profitability

Denmark Public Tender

Finland Public Tender

France Public Tender

Germany Public Tender Media license (broadcast rights

to be re-assigned)

Korea Public Tender

Netherlands Public Tender¹⁰⁴ Additional license fees based on percentage of gross revenues New Zealand Not assigned or planned yet Digital Dividend is delaying

(political) decisions

Spain Not assigned or planned yet

Sweden Not assigned or planned yet Digital Dividend and HDTV is delaying (political) decisions United Kingdom Not assigned or planned

yet¹⁰⁵

Digital Dividend debate is delaying process

United States Not assigned or planned yet In Trial phase

The above discussed assignment instruments should be embedded in a carefully prepared assignment procedure. A general overview of the steps in a typical assignment procedure is described in Appendix 2.5.A.

2.5.3 Implementation guidelines

In addition to the above tables, the following guidance can be provided for DTTB and MTV assignment procedures:

1. Although additional requirements (like service roll-out and channel line-up/bouquet, must carry obligations, etc) can be stipulated in an auction procedure (see step 6, but only as a threshold), in most cases a public tender should be preferred because of the following considerations:

a. The Regulator strives to achieve media objectives and would like to compare service offering as to select the ‘best’ service (and not just check whether the offer passes the threshold). Comparison of offerings is very often necessary as the Regulator is not familiar with what commercially is possible;

104 In the Netherlands (and Italy) the MTV licensing was related to the DTTB license by allowing the license holder to offer MTV service as well. The initial DTTB license was assigned through public tender.

105 The UK had a commercial launch based on the radio standard DAB (-IP) but not on television designated bands yet. BT Movio launched its mobile broadcast entertainment service based on DAB-IP technology and a wholesale business model. Virgin Mobile started retailing the service to customers, but discontinued services in July 2007.

b. In most cases, the DTTB/MTV market is not a ‘proven’ market (in the sense that the revenues are still hard to predict with high levels of uncertainty¹⁰⁶) and the risks of a Winner’s Curse is relatively high in the case of an auction¹⁰⁷;

2. Avoid combining a ‘beauty parade’ and an auction instrument to assign DTTB/MTV licenses. In such an approach the Regulator first selects the ‘best’ bidders and then assigns the spectrum license to the highest bidder between the selected bidders. Or alternatively, the Regulator request bids with a qualitative offer (e.g. channel bouquet/line-up and service roll-out) and a bidding price. Practice has demonstrated that such an assignment procedure results in bizarre outcomes (e.g. bidders compensate a perceived relatively weak qualitative offer with extraordinary high bidding prices or, conversely, bidders believed to have an excellent qualitative offer do not offer a reasonable price). Also such an approach is prone to legal procedures as the balancing between the qualitative offer and price is not clear/transparent and/or not perceived to be fair;

3. Avoid combining auctioning spectrum licenses and forms of administrative incentive pricing (i.e. levying license fees based on market or economic value)¹⁰⁸. In general the license holders or market players perceive such a combination as paying twice for the same license. This should not be confused with paying the auction price in various installments during the license duration (so as to lower the need for attracting capital and consequently increasing the financial resources for service roll-out);

4. If the Regulator would like to exclude possible bidders, prepare these exclusions of possible bidders thoroughly as these rules can be legally contested. The Regulator might like to exclude parties with significant market power (and a potential risk that they will abuse this power). The Regulator publishes these qualification rules upfront (see step 4 in the above table). National or international legislation might limit the possibilities of excluding parties upfront;

5. Stipulate aggregation rules in cases where more than one DTTB and/or MTV licenses/multiplexes can be applied for in the assignment procedure. Without aggregation rules, there is risk of ‘deep pockets’ acquiring all available licenses which can limit the quality and/or diversity of the service offering (especially in the case of auctions without any ‘must carry’ type of rules);

6. If possible/known, determine and publish other future DTTB/MTV assignments, when the first DTTB/MTV assignment procedure is announced (in the case of assigning available multiplexes/frequencies in stages). Bidders need to know their competitive environment during the license duration. Special caution is required in the case where bidders are allowed to ask for clarification during the bidding procedure (see step 4 in the above table). The Regulator’s answers might be used in legal appeal procedures;

106 In contrast, in a proven market the revenue side is relatively easy to predict, especially through comparing similar business in other markets/countries (i.e. benchmarking) because the service is homogenous and the uptake curves ‘look’ similar across the various markets.

107 The Winner’s Curse is the problem of assessing the revenue side as in most case the cost side is relatively easy to estimate. In Auction design the problem of the Winner’s Curse can be reduced by having multi-round auctions. In competitive markets, auctions do not lead to higher end-consumer prices, they reduce operating margins. Hence this is not a reason not to select auction as an assignment instrument.

108 See also section 2.4.

7. Start preparing the assigning procedure for DTTB licenses (see step 1 in the above table) when:

a. There is a market initiative requesting a license. The application and applicant should satisfy admissibility and minimum requirements, before starting any preparations. Such a request does not necessarily result in a FCFS procedure;

b. The Government would like to take the lead in the introduction of DTTB services as it sees the availability of such services crucial in the further economic, social and human development of the country;

c. Analogue television licenses (are about to) expire, because assigning DTTB licenses will provide an opportunity to terminate analogue television licenses (for example, by stipulating ‘must carry’ rules for analogue channels in the DTTB license);

d. ASO plans have been formulated and decided, because DTTB licenses are required to facilitate the continuation of existing (analogue) television services and to free-up spectrum (for ASO planning and timing see section 2.16);

8. If possible, combine the licensing procedure for MTV and DTTB licenses as this will allow bidders to reap infrastructure and operating synergies (e.g. combined network roll-out and service provisioning). In cases where the DTTB business case seems to be weak, such a combination could be critical for market parties to be interested. In practice such combined licensing is carried out by either¹⁰⁹:

a. Stipulating that at least one of the multiplexes should be used for MTV, or;

b. Organizing separate DTTB and MTV assignment procedures closely after each other, or;

c. Assigning the national DTTB network operator the MTV license as well by priority (in combination with strict access and pricing rules for the MTV platform, to avoid anti-competitive behavior).