The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Regulators have rejected calls by the Bahamas’ two leading communications providers that radio spectrum fees be based on administrative costs, finding that this would “not maximise” the potential benefits to society.

The Bahamas Telecommunications Company (BTC) and Cable Bahamas, together with Digicel, had argued that fees for wireless spectrum “be kept as low as possible” to boost investment in mobile and broadband Internet development.

The arguments, made in response to the Utilities Regulation and Competition Authority’s (URCA) review of radio frequency spectrum pricing, were dismissed by the regulator, which said prices should equate to asset value.

“All three respondents advocated setting fees based on the recovery of administrative costs, and argued that fees should be kept as low as possible so that investment and broadband development are encouraged,” URCA said.

“This is argued most strongly by Cable Bahamas and Digicel. Digicel advocated maximising the amount of spectrum available for high demand services, such as mobile broadband, as a way of keeping the price of spectrum at cost recovery levels (and reducing operator investment risk and allowing competitive service provision).”

Both companies were joined by BTC in pointing out that the level of congestion within spectrum categories helped determine fees, with Digicel arguing that spectrum should be released in bands used for mobile services.

URCA, though, proved impervious to these arguments, stating: “URCA remains steadfast in its view that the setting of fees at the level of administrative costs would not maximise the net benefits to the Bahamian society.

“Instead, in URCA’s view, the net benefit of radio spectrum is maximised when the price of spectrum approximates the economic value of this valuable and limited state asset, plus the costs of managing radio spectrum.”

URCA added that spectrum fees were intended, by law, to “ensure efficient and optimal use” of a scarce resource. It said Digicel’s suggestion to maximise the amount of spectrum available for high demand services ran counter to this goal./

“In URCA’s view, the objective to ensure optimal use of spectrum applies equally to congested and uncongested bands, especially given that the duration of the average spectrum licence is 15 years,” the regulator said.

“This implies to URCA that inefficient allocations and assignments can have long-term adverse consequences for the sector and for stakeholders. URCA notes, in particular, that it has received multiple requests for - and inquiries in relation to - the 2,500 MHZ band during the past year, which demonstrates that there is significant demand for that band which would possibly exceed supply.”

Radio spectrum pricing in the Bahamian context will become an increasingly important issue, given the continued liberalisation of the communications sector and intensifying competition this will drive.

Cable Bahamas, as the second mobile operator, has just offered $62.5 million for the spectrum that it will use to deliver services to the Bahamian people this year. And wireless spectrum will also become increasingly important to the delivery of wireless broadband Internet and other products.

The BISX-listed communications provider, meanwhile, had questioned both the new structure for, and increase in, URCA’s fees.

It claimed that the increases were “large and unjustified”, and decried the introduction of a 21 per cent charge for spectrum management fees. Cable Bahamas called for increases to be phased in, and said there was no analysis to support the rises.

“Cable Bahamas thought the increase in FM radio fees for New Providence was high,” the regulator said. “URCA notes that before 2010, under the legacy licensing regime, FM broadcasting licensees were required to pay the Government of the Bahamas a $10,000 broadcasting licence fee plus a $500 annual spectrum fee.

“URCA is of the view that those legacy fees more accurately reflected the opportunity costs of a spectrum licence in the FM Broadcasting band than the current interim fee charged per the URCA Fee Schedules of 2010-2015.

“Having regard to this valuation, in URCA’s estimation, when the cumulative five-year cost($12,500) is depreciated evenly over a period of five years, at $2,500 per annum, the proposed increase in FM radio fees for New Providence is comparatively modest.”

URCA also rejected Cable Bahamas’ argument that changing fees to a bandwidth basis in all non-mobile spectrum, and increasing them, could not be justified.

“URCA strongly disagrees with Cable Bahamas that there is no justification for changing the current fees,” the regulator responded.

“The current fees do not incentivise efficient spectrum use, and are counter to the policy objectives and express provisions of the Communications Act, which require spectrum fee structures to be transparent, objective and fair, and to reflect the need to ensure optimal use of the spectrum.

“URCA considers these objectives to be best achieved by relating fees paid to spectrum occupancy and the location of use. Furthermore, by putting the fees on a common basis linked to the bandwidth used, provides an incentive for efficient use and provides a fees structure that is future proof.”