Regulatory Review: Satellite Service Fees–All In The Name Of Efficiency
by Gerry Oberst
The U.K. government is considering ways to charge additional fees and taxes to satellite receive-only services, even though it recognizes that the notable success of U.K. digital television rests on satellite broadcasting. This looks like a case of killing the goose that laid the golden eggs, by posing new risks for the satellite industry.
The United Kingdom, like all other member states of the European Union (EU), is reviewing changes in national legislation to implement the package of electronic communications directives adopted by the EU. Now the member states have until late July 2003 to write the new requirements into law.
The U.K. is one of the first EU member states to set out explicit proposals on how to reform its communications regulatory system and comply with the EU package. In May, the U.K. government released a complete rewrite of its communications laws, in the form of a Communications Bill that would create a single regulator, called “OFCOM,” and make wholesale changes to both telecomms and broadcast rules.
Parts of the bill rely on an independent review that the government initiated on spectrum pricing and allocation issues. This “Cave review,” named for professor Martin Cave who led the project, was released earlier in 2002 after rounds of industry comment.
There is a lot of good sense and efficiency arising from both the proposed new legislation and the Cave review. What concerns the satellite industry, however, is that these also include proposals to apply a new and higher level of fees to satellite services, all in the name of efficiency.
Thus, the bill would create a new mechanism called “recognized spectrum access” (RSA), which the government says is “complementary” to licensing and would allow it to charge for satellite downlinks that are not subject to licensing. The RSA approach is based on the premise that satellite operators “do not face the opportunity cost of spectrum they use and have little incentive to use spectrum more efficiently.” Moreover, the lack of charges places terrestrial operators at a competitive disadvantage, according to the background report on the Communications Bill.
An informed observer recognizes that the satellite industry has been a consistent first-mover for many efficient applications, including the digital television service that the United Kingdom seeks to foster. The satellite industry continuously re-uses the same frequencies by transmitting to and from different orbital locations, thus delivering content to a large number of countries without the need for very large spectrum allocations. Likewise, it developed increasingly more sophisticated technical measures for ensuring efficient use of radio spectrum, such as using spectrum exactly on demand and through spotbeams. One comment to the Cave review said “higher charges would not discourage inefficiency of spectrum use; instead they would discourage new services and put the United Kingdom, and possibly Europe, into the minor leagues of new technologies.”
A chance to charge the maximum fees possible to all and sundry operators may be one opportunity that some U.K regulators are seeking to gain.
Placing terrestrial operators at a disadvantage, however, is a shallow argument. Terrestrial operators for most competing services can pick and choose where they will initiate service, building up in high density areas, while satellite infrastructure is an all or nothing venture, with the high upfront costs of satellite platforms to finance.
Questions will certainly be raised whether this RSA approach is consistent with EU law, which prevents licensing of downlink terminals and strictly defines conditions for rights of using spectrum. The RSA looks suspiciously like another name for a license, and certainly another way to charge the max.
“Charging the opportunity cost of spectrum use does not lead to higher prices to consumers, or slow the deployment of new services,” according to the Cave review. This assertion seems dubious. Adding new costs of doing business based on national charges to an already risky industry sector can only lead to higher consumer prices.
Satellite representatives warn that if the United Kingdom adopts the RSA approach, other countries may follow, as a kind of “virus effect.” No other EU member state charges fees for receive-only dishes, and the European Justice Court last November ruled against taxes on satellite dishes in Belgium that impeded the right to provide service across national boundaries, which parallels the proposed RSA.
The U.K. government predicts that approval of the new bill could materialize by year’s end. That assertion also seems dubious. Some key issues, such as how RSA fees would work, are not completely defined. The U.K. spectrum regulator will have to conduct another consultation on how the RSA could be included in the bill.
Gerry Oberst is a partner in the Brussels office of the Hogan & Hartson law firm. His email address is email@example.com.