Second Consultation on Arrangements for the Frequency Spectrum in the 900 MHz and 1800 MHz Bands upon Expiry of the Existing Assignments and the Spectrum Utilisation Fee


The Communications Authority (“CA”) and the Secretary for Commerce and Economic Development (“SCED”) today (14 February 2017) launched the second round of public consultation on the proposed arrangements for the re-assignment of 200 MHz of frequency spectrum in the 900 MHz and 1800 MHz bands (“900/1800 MHz Spectrum”) upon expiry of the existing assignments and the proposed method for setting the related spectrum utilisation fee (“SUF”) with the issue of a consultation paper (“Second Consultation Paper”).

The 900/1800 MHz Spectrum consists of 50 MHz of spectrum in the 900 MHz band and 150 MHz of spectrum in the 1800 MHz band.

The 900/1800 MHz Spectrum, accounting for 36% of the 552 MHz of spectrum already assigned to the industry, is currently deployed for the provision of the second, third and fourth generation (“2G”, “3G” and “4G”) mobile services. The existing assignments of the 900/1800 MHz Spectrum to the four mobile network operators (“MNOs”) are due to expire between November 2020 and September 2021.

In the first round of public consultation conducted between 3 February and 18 May 2016, the CA put forth three spectrum re-assignment options for views and comments. They are the full-fledged administratively-assigned approach, full-fledged market-based approach and the hybrid approach. The CA has made it clear in the first public consultation that it will choose the option that would best meet the four objectives in spectrum management viz. (a) ensuring customer service continuity; (b) efficient spectrum utilisation; (c) promotion of effective competition; and (d) encouragement of investment and promotion of innovative services.

Having considered the 325 submissions received and the findings of a consultancy study on service quality (“Consultancy Study”) it had commissioned, and having evaluated, in accordance with the relevant statutory provisions and the Radio Spectrum Policy Framework (“SPF”) promulgated by Government, the options against the four objectives in spectrum management, the CA proposes, for the purpose of the second round of public consultation, that a hybrid administratively-assigned cum market-based approach (“Hybrid Approach”), comprising the following elements, should be adopted for the re-assignment of the 900/1800 MHz Spectrum, viz. –

  (a) 2 x 10 MHz of spectrum in the 1800 MHz band to be re-assigned to each of the four incumbent spectrum assignees through the offer of right of first refusal (“RFR Spectrum”). That is to say, a total of 2 x 40 MHz, i.e. 80 MHz, or 40% of the 900/1800 MHz Spectrum, to be offered as the RFR Spectrum;
  (b) the remaining 70 MHz of spectrum in the 1800 MHz band and all the 50 MHz of spectrum in the 900 MHz band to be assigned by way of auction. That is to say, at least a total of 2 x 60 MHz, viz. 120 MHz, or 60% of the 900/1800 MHz Spectrum to be auctioned; and
  (c) any spectrum which may become available arising from the decision of any incumbent spectrum assignee to not take up the RFR Spectrum under (a) above will be pooled together with the 120 MHz of spectrum mentioned in (b) above to form the “Auctioned Spectrum”.

“The need to safeguard the provision of 4G service at certain MTR premises and to ensure no adverse impact upon 2G service subscribers post spectrum re-assignment from 2021 onwards constitute the overriding public policy reasons for deviating partially from the full-fledged market-based approach for spectrum re-assignment as stipulated under the SPF. The Hybrid Approach for the re-assignment of the 900/1800 MHz Spectrum is chosen as the basis for further consultation as it best meets the multiple objectives in spectrum re-assignment,” a spokesperson for the CA said.

In putting forward the above Hybrid Approach, the CA has given due regard to the submissions received, including those from the industry and has accordingly made the following adjustments to the original proposal so as to address the issues raised –

  (a) adjusting upward the quantum of the RFR Spectrum to 2 x 10 MHz to each of the incumbent spectrum assignees, in response to MNOs’ concern over maintaining 4G service continuity at such MTR stations and adjoining tunnel areas where the integrated radio systems (“IRS”) equipment is not yet upgraded with frequency agile functionality to cater efficiently for spectrum reshuffling among MNOs and where the 4G traffic is primarily carried by spectrum in the 1800 MHz band (“MTR Premises”);
  (b) assigning, as per their request, the same slots in the 1800 MHz band the incumbent spectrum assignees currently occupy as the RFR Spectrum, in order to minimise or obviate the need for reconfiguring the points of interconnection in the IRS which might affect the 4G service continuity at MTR Premises post spectrum re-assignment from 2021 onwards; and
  (c) dispensing with, as per the views of the incumbent spectrum assignees, the fixed three-year timeline in 2G service provision post spectrum re-assignment as proposed in the first consultation paper; and introducing instead a new requirement for MNOs to seek the prior consent of the CA and make satisfactory arrangements for the affected customers before the phasing out of 2G services.

As for the method for determining the relevant SUF, the SCED considers that as a matter of policy and as in accordance with the SPF, a market-based approach in spectrum management will be used wherever the CA considers that there are likely to be competing demands from providers of non-Government services for the spectrum. A SUF that reflects the full market value of the spectrum, as determined by the market through a competitive bidding process, seeks to ensure that spectrum, being a scarce public resource, is put into the hands of those who value it the most and who will consequently put it to the most efficient use.

Having regard to the above principle, the views received in the first public consultation, and the CA’s proposal to adopt the Hybrid Approach, the SCED proposes that –

  (a) for the Auctioned Spectrum in the 900 MHz and 1800 MHz bands, the SUF should be determined by auction, subject to an auction reserve price;
  (b) for the RFR Spectrum in the 1800 MHz band, the SUF should be set at the average SUF of the Auctioned Spectrum in the 1800 MHz band, subject to a minimum price and a cap.

The Second Consultation Paper sets out the proposed methodology for setting the auction reserve price for the Auctioned Spectrum in the 900 MHz and 1800 MHz bands by benchmarking against the auction reserve prices of the two most recent spectrum auctions conducted in 2013 and 2014. The Paper also proposes the methodology for setting the minimum price and cap for the RFR Spectrum by making reference to the levels of SUF determined in the two most recent spectrum assignments conducted in 2013 and 2014.

The Second Consultation Paper can be downloaded from the websites of the CA and the Commerce and Economic Development Bureau at the links below:

http://www.coms-auth.hk/filemanager/en/content_711/cp20170213_e.pdf
http://www.cedb.gov.hk/ccib/eng/paper/pdf/900_1800MHz_Spectrum_second_consultation.pdf

The report of the Consultancy Study entitled “Technical Study in relation to the Re-assignment of Spectrum in the 900 MHz and 1800 MHz Bands upon Expiry of the Existing Assignments” is also published today and is available at:

http://www.ofca.gov.hk/filemanager/ofca/common/reports/consultancy/cr_201702_01_en.pdf

The CA and the SCED invite further views from the telecommunications industry and other affected persons on the arrangements for spectrum re-assignment and the related SUF proposed in the Second Consultation Paper on or before 24 April 2017.

After completion of the consultation, in order to give sufficient advance notice to the incumbent spectrum assignees on possible variation to their existing assignments of the 900/1800 MHz Spectrum, the CA and the SCED will endeavour to announce their respective decisions on the arrangements for spectrum re-assignment and the related SUF around the end of 2017.

Communications Authority
Commerce and Economic Development Bureau
(Communications and Creative Industries Branch)

14 February 2017

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