In the past, as new technologies and services developed, legal and regulatory frameworks often evolved in a piecemeal fashion, with regulators often charging different fees, using different assignment mechanisms, and imposing different conditions on the various types of spectrum authorizations or licenses. However, these practices do not facilitate converged service offerings or maximize the value and use of spectrum, since new technologies enable multiple services and applications to be provided over one network, allow multiple services to be provided using the same spectrum, and enable the spectrum to be used more efficiently and intensively.

As a result, policy makers and regulators are looking to replace narrowly defined technical and service rules with more flexible assignments that allow providers to match their network and service. In today’s broadband environment, access to spectrum is particularly relevant, given the anticipated likelihood that for many countries, particularly developing ones, wireless will be the primary vehicle for deploying broadband networks. For example, in Morocco, third-generation (3G) mobile broadband connections surpassed asymmetric DSL (ADSL) wireline connections in September 2009 and represented over 76 percent of the total Internet connections in the country as of March 2011 (Morocco, ANRT 2011). As a result of this trend, regulatory authorities and policy makers in many countries are looking at legal and regulatory reforms as necessary to facilitate the supply of wireless broadband services and the build-out of networks. Such policies include spectrum allocation and licensing, license terms and conditions (for example, coverage obligations), license renewals, and procedures to reclaim and reuse spectrum (for example, the transition from analog to digital television).

3.3.1 Spectrum Licensing Regimes

The process for licensing spectrum use typically depends on a country’s general licensing regime for electronic communications services. The traditional approach that developed in many countries was to issue a service-specific license to cover both the network or service and the spectrum in a single document. For instance, prior to adoption of the unified access service license in India, the cellular license was one of 12 service-specific licenses under the traditional framework (TRAI 2003, 8). As is typical under a traditional licensing framework, tying the network, service, and spectrum license together may limit or eliminate the ability of licensees and consumers to capture the benefits of convergence.

More recently, converged licensing frameworks have developed that generally involve two authorizations: one covering the networks and services to be provided and another covering the spectrum.* infoDev and ITU, “ICT Regulation Toolkit, Module 3: Authorization of Telecommunication/ICT Services,” sec. 6.6, Spectrum Authorizations, http://www.ictregulationtoolkit.org/en/Section.1200.html. Additionally, the network or service and spectrum licenses may be issued separately. If issued separately, the licenses to provide networks and services should be granted or registered simultaneously with the spectrum licenses to ensure regulatory certainty.

Regardless of the initial procedures for issuing spectrum licenses, spectrum licensing regimes for commercial services should be as flexible as possible, since limiting the flexibility of spectrum licenses can diminish the value of the broadband service and ultimately undermine the service provider’s investment incentives (Kim, Kelly, and Raja 2010, 47). Regulators can introduce flexibility through rules that are technology and service neutral, allocating certain frequency bands for unlicensed or license-exempt use and using market-based assignment mechanisms, including spectrum trading.

3.3.2 Flexible-Use Technical and Service Rules

A key tool for promoting wireless broadband development is for governments to allow flexible use of spectrum, particularly through technical and service rules that enable wireless providers to offer any type of broadband service or application, including voice, video, and data. Flexible-use rules may be applied to both current and future commercial assignments to maximize the benefits of technological evolution and development of advanced services. For example, the EU’s 1987 Global System for Mobile Communications (GSM) Directive reserved the 900 megahertz (MHz) band (890–915 MHz/935–960 MHz) for GSM networks and services only; however, this was revised in 2009 to permit greater flexibility in choice of technology and encourage the growth of mobile broadband in this band (European Union 2009c).

When considering adopting flexible-use rules for existing licenses, however, regulators should evaluate the potential competitive implications of such liberalization and the possible safeguards that would need to be put in place to address them. This includes determining whether this policy would place certain providers at a competitive advantage vis-à-vis their rivals or whether operators should be allowed to retain all or part of the liberalized spectrum. In case existing providers are allowed to retain the spectrum, the regulator should consider the possible mechanisms to control for potential windfalls (for example, regulatory obligations and fees). If some spectrum is to be released back into the market, the regulator should also consider the manner and timetable in which the assignment of such spectrum will take place. Regulators will also need to address the impact that flexible-use rules for broadband spectrum licensing will have on processes in their pipeline, including the assignment of various spectrum bands in a single process or the adoption of caps to facilitate new entry or make it possible for an operator to obtain an even blend of spectrum across different bands.

Cognitive radio technologies (CRTs) are also expected to lead to a significant increase in the flexible use of spectrum. A cognitive radio is able to sense and understand its local radio environment and to identify temporarily vacant spectrum in which to operate. At present, most attention relating to CRT is placed on opportunistic or unlicensed use (that is, identifying “unused” portions of spectrum using CRT and sharing the spectrum dynamically with existing users), but it is expected that in the future licensed operators may use CRTs to improve the management of their spectrum assignments. This represents significant opportunities to optimize the use of spectrum for the provision of bandwidth-intensive wireless broadband services and applications.

3.3.3 Spectrum Allocation and Assignment

As the deployment and adoption of wireless broadband increases, additional spectrum is widely expected to be needed to accommodate the demand of bandwidth-hungry broadband services, including video and data. For example, the average smartphone user generated 10 times the amount of traffic as the average non–smartphone user between 2009 and 2010. And the number of smartphone users is expected to grow substantially—it is anticipated that most people in the world will use mobile devices as their primary connection to the Internet by 2020 (GSA 2010).

Beyond introducing converged, flexible licensing frameworks, countries are also looking at the way (a) spectrum bands are planned and harmonized and (b) spectrum blocks are configured, assigned, and transferred. Wherever possible, a key initial step in promoting commercial wireless broadband networks and services is for regulatory authorities to adopt internationally harmonized band plans when considering the allocation and assignment of spectrum. This approach facilitates the commercial launch of broadband services by allowing providers to take advantage of scale economies in network equipment and devices, thus reducing the costs of deployment and, ultimately, the prices for consumers. International harmonization also facilitates the ability to offer roaming services.

Wireless broadband also requires additional bandwidth to be made available to keep pace with the high data rates needed to support bandwidth-hungry services and applications, such as video. The specific amount of spectrum will vary by country, depending on the current assignments and the expected growth in the demand for data services and traffic. Nevertheless, to deliver new data-intensive services and applications in a technically efficient and cost-effective manner and at the desired level of quality, providers will need to obtain additional spectrum. This is especially the case in large, densely populated urban areas in both developed and developing countries. For example, the U.S. National Broadband Plan seeks to make 500 MHz of spectrum available for broadband use by 2020, of which 300 MHz between 225 MHz and 3.7 gigahertz (GHz) should be made available by 2015.

In addition, the size of the spectrum blocks awarded to licensees may need to be revisited. For example, scalable, new International Mobile Telecommunications-Advanced (IMT-Advanced) technologies are best suited for wider blocks of contiguous spectrum, ranging from 2x15 or 2x20 MHz for paired spectrum and a minimum of 20 MHz for unpaired spectrum. Therefore, regulators are increasingly designating larger spectrum blocks for the provision of wireless broadband services. Recent assignments for IMT in countries such as Brazil, Chile, Costa Rica, Colombia, Denmark, the Netherlands, Norway, and Mexico highlight this approach.

Also relevant is the method of awarding spectrum. Increasingly, countries are using market mechanisms to assign spectrum use rights, particularly through auctions. Competitive award methods are generally viewed as more open, nondiscriminatory, and transparent than other assignment processes, such as administrative proceedings, and they provide an opportunity for new entrants. Auctions are also more economically efficient, since those willing to pay the highest price place the most value on spectrum, while the winning bids provide additional revenues to governments. For example, India’s 2010 auction of 3G spectrum garnered over US$14.5 billion for the government (Kinetz 2010).

Spectrum trading (also known as “secondary markets”) is another method that facilitates aggregation of spectrum to meet future data traffic demand requirements by permitting existing licensees to transfer all or a part of their spectrum assignments to third parties with little or no government involvement in the process. Implemented in Australia, New Zealand, and the United States, spectrum trading has allowed late entrants to the mobile market to obtain spectrum rights, which can reduce constraints on new entrants with regard to the timing of their market entry. In the absence of spectrum trading, potential entrants and existing operators seeking to build out their networks further must wait for the government to award new spectrum assignments. Ultimately, spectrum trading provides the opportunity for secondary markets to emerge that can improve the rollout of new services, increase the potential for competitive service provision, and encourage investments in the sector (for an in-depth study of spectrum management and reform in developing countries, see Wellenius and Neto 2008).

Although placing greater emphasis on market forces and spectrum trading offers many advantages over the traditional models of spectrum management, ineffective regulatory environments may allow incumbent or dominant operators to control key, high-value spectrum bands. This could result in spectrum hoarding and concentration of the wireless broadband market. As such, there is a trade-off between operators having sufficient spectrum and monopolizing the available spectrum. Many countries seek to mitigate this through build-out obligations, while others impose spectrum caps or set aside spectrum blocks for new entrants. However, at least one study argues that spectrum caps in Latin America may hinder the development of mobile broadband.* GSM World, “GSMA Urges Latin American Regulators to Relax Spectrum Caps to Foster Broadband Development,” Press Release, January 19, 2009, http://www.gsmworld.com/newsroom/press-releases/2009/2437.htm. Overall, making as much spectrum available as possible through transparent and nondiscriminatory procedures is a key step toward ensuring that operators are able to meet future wireless broadband demands.

3.3.4 Spectrum License Renewal

As spectrum licenses granted in the 1990s and early 2000s reach the end of their initial terms, license renewal policies will become an increasingly relevant regulatory issue to fostering investment in wireless broadband. In establishing renewal policies, policy makers and regulators should strive to promote investors’ confidence and provide incentives for long-term investment, while preserving the flexibility of the regulatory process to accommodate market and policy developments (Guermazi and Neto 2005, 2). Legal certainty is of utmost importance to create an environment conducive to investment and the technological upgrades required to deploy wireless broadband services.

3.3.4.1 Principle and Procedure for Renewal

While legal regimes vary, most frameworks have adopted a system based on the “presumption of renewal” or “renewal expectancy.” Under a presumption of renewal, the licensing authority must renew a license as long as the licensee has fulfilled its obligations and has not violated the law or the terms of its license. In general, renewal expectancy provisions seek to provide regulators with the flexibility to review and adjust license conditions in response to technological developments and market conditions, while providing the regulatory certainty necessary for licensees to continue investments. In Canada, for example, the licensing framework provides a high expectation of renewal unless a breach of license condition has occurred, a fundamental reallocation of spectrum to a new service is required, or an overriding policy need arises.* In March 2011, following a public consultation opened in 2009, Industry Canada determined that where all conditions for the personal communications services or cellular license had been met, licensees would be eligible to receive a new license for a subsequent term. See Industry Canada (2011). Similarly, in Antigua and Barbuda, there are both a renewal expectancy for the same period as the original license and a requirement for the regulator to provide 180 days written notice of its intention not to renew. An appeals process to the regulator is also established.

Other countries rely on automatic renewals. For example, Portugal’s Decree-Law no. 151-A/2000, regarding the use of radio communications, automatically renews licenses every five years unless the regulator provides at least 60 days written notice to the licensee stating the reasons for nonrenewal.* Decree-Law no. 151-A/2000 (July 20, 2000), http://www.anacom.pt/render.jsp?contentId=17094. In the Dominican Republic, automatic renewal is warranted in the absence of a negative finding from the regulator. Some countries, such as Australia, provide less long-term certainty to incumbents, opting instead for a legal presumption that, when a spectrum license expires, the license will be reassigned via a price-based method (for example, auction), unless it is in the public interest to do otherwise.* On March 3, 2010, the minister for broadband, communications, and the digital economy announced that spectrum license reissue would be considered for those existing 15-year spectrum licensees that were already using their spectrum licenses to provide services to significant numbers of Australian consumers or who had in place networks capable of providing services to significant numbers of consumers. As part of an eventual decision, consideration will be given to the five public interest criteria, which were supported by industry, stemming from the 2009 consultation process. The criteria are (a) promoting the highest-value use for spectrum, (b) investment and innovation, (c) competition, (d) consumer convenience, and (e) determining an appropriate rate of return to the community. See Australia, Parliament of the Commonwealth, House of Representatives (2010).

3.3.4.2 Change in License Conditions and Review of License Fees

Renewal expectation, however, does not necessarily imply that licenses will be renewed under the same terms as the original license. In setting the terms and conditions of license renewal, regulators must strike the right balance between giving certainty to operators and investors and ensuring that license conditions reflect current policy objectives, respond to technological and market developments, and consider the consumers’ needs. If an appropriate balance is not struck, proposed changes to licenses and the review of associated fees in particular can become highly controversial.

For example, France’s regulator, ARCEP (Autorité de Régulation des Communications Électronique et des Postes), initiated a public consultation in 2003 on the renewal of GSM licenses, which were set to expire in 2006 and 2009 (France, ARCEP 2003). ARCEP originally announced that it would charge a 5 percent progressive tax on annual turnover, but licensees protested that this amount would harm investment and the development of services. The regulator issued its decision in March 2004 after comments from licensees demonstrated that the high annual fees would negatively affect investment and the market generally (France, ARCEP 2004b). Although the government set out new licensing fees, as well as higher coverage obligations and quality of service levels, the annual fees were substantially less onerous (France, ARCEP 2004a). The new fees required GSM licensees to pay €25 million annually and 1 percent of annual turnover (France, Ministry of the Economy, Finance, and Industry 2004). A similar controversy surrounded the renewal process for mobile licenses in Bangladesh, where a proposal to extract large renewal fees from existing licensees and the imposition of additional obligations created significant opposition from service providers, apparently causing the government to abandon the idea.* Financial Express, “Mobile Operators’ Plea for ‘Reasonable’ Renewal Fees,” February 9, 2011, http://www.thefinancialexpress-bd.com/more.php?news_id=125552&date=2011-02-09; TeleGeography, “Bangladesh: Government Agrees to Revise Mobile Licence Renewal Terms,” April 13, 2011, http://www.telegeography.com/products/commsupdate/articles/2011/04/13/government-agrees-to-revise-mobile-licence-renewal-terms/.

3.3.5 License-Exempt (Unlicensed) Spectrum

In an effort to provide maximum flexibility for innovation and lower entry costs for some types of ubiquitous wireless devices, policy makers and regulators in many countries have set aside certain bands exclusively for license-exempt (also known as unlicensed) uses. In other bands, license-exempt devices and licensed services share frequencies. Many commonly used wireless devices, such as cordless phones, garage door openers, and smart meters for water and gas metering, depend on unlicensed spectrum. In addition, municipal wireless networks also use unlicensed spectrum to create mesh networks that cover downtown areas or even entire cities.* Competitive concerns have been raised regarding municipally owned and operated wireless broadband networks, especially in cases where they may crowd out investment from private parties.

Wireless Fidelity (Wi-Fi) is perhaps the most well-known and widespread example of unlicensed use. Many countries have opened the 2.4 and 5.8 GHz spectrum bands for unlicensed use, allowing for the tremendous growth of Wi-Fi devices. According to ABI Research, consumer devices with Wi-Fi functionality surpassed 770 million units in 2010, an increase of nearly 33 percent compared to 2009.* ABI Research, “Wi-Fi IC Shipments Forecast to Surpass 770 Million Units in 2010,” November 2010, http://www.abiresearch.com/press/1664-Wi-Fi+IC+Shipments+Forecast+to+Surpass+770+Million+Units+in+2010. Over half of all Wi-Fi devices are mobile handsets and laptop computers; however, a wide and expanding range of equipment is equipped with Wi-Fi, including cameras, fax machines, and printers. Furthermore, in many countries there has been significant development of “Wi-Fi hotspots” in cafés, libraries, universities, and other public areas where users can access the Internet for free or at low cost.

An important emerging use for Wi-Fi is as a complement to commercial wireless networks. As wireless broadband services spread, the demand placed on mobile network capacity is increasing exponentially, putting significant strain on available resources. The combination of licensed and unlicensed spectrum usage—Wi-Fi in particular—is becoming a key complement of the wireless broadband experience, allowing users to offload their traffic from mobile operators’ networks in certain circumstances, reducing potential congestion, and enhancing broadband access.

Technical and service rules for unlicensed spectrum typically specify that unlicensed devices must operate at low power and may not cause harmful interference to a licensed user. In addition, unlicensed devices must generally accept interference from licensed users and other unlicensed devices. Although interference and economic issues may make it difficult or impossible to replace all spectrum licenses with unlicensed use, opening bands to unlicensed devices can support broadband development through the growth of new technologies, efficient use of spectrum, and the entry of new network, service, and applications providers.

3.3.6 Spectrum Refarming and the Digital Dividend

In order to maximize the ability to offer wireless broadband, particularly where spectrum is intensively used, many countries are engaging in spectrum refarming, whereby existing spectrum users are moved out of a band to allow for new broadband uses. The refarming process is often lengthy and costly, since it typically involves negotiations with existing private and public spectrum holders and potential licensees and may also include compensation for the existing licensees to change spectrum bands. As such, it is important to conduct a thorough spectrum inventory to identify unused or underutilized spectrum as well as heavily used bands before implementing a refarming process. In many developing countries, refarming may be less necessary in the near future since available spectrum may be sufficient and more easily allocated for wireless broadband services.

One of the most promising and active areas of spectrum refarming is the result of the transition from analog to digital television. As countries around the world prepare for or complete the transition to digital terrestrial television (DTT), they are examining procedures for reallocating the spectrum that becomes available as broadcasters vacate the 700 MHz or 800 MHz bands, depending on the region. This freed-up spectrum, which is widely known as the “digital dividend,” offers excellent propagation characteristics for mobile broadband services by providing an ideal balance between transmission capacity and distance coverage. This means that the digital dividend spectrum is well suited to providing mobile services to rural areas as well as to providing effective in-building performance in urban areas. For countries where rural coverage is an important policy goal, this is a notable advantage.

However, given the various timelines for the DTT transition—some countries have completed the transition, while others are planning for the analog switch-off (ASO) between 2011 and 2020)—many countries are only beginning to consider rules and timeframes for refarming digital dividend spectrum. Many countries are waiting to award digital dividend spectrum until after the ASO is completed and the spectrum is no longer encumbered by broadcasters. However, some countries, such as the United States, Colombia, and Peru, have awarded or are planning to award the digital dividend ahead of their ASO dates. Regardless of the approach, considerable international and regional harmonization is under way, including by the EU and the Asia-Pacific Telecommunity. Box 3.1 provides an overview of the DTT and digital dividend activities around the world.