72. A key resource issue to be addressed in the transition to digital television broadcasting is the allocation of suitable spectrum. The underlying aim of the spectrum management framework encompassed in the Radiocommunications Act is to ensure that spectrum is allocated to uses which society values the most. The Act does not specify, however, what spectrum should be allocated, or when and how this should be done. The Government retains the flexibility to decide these questions in light of underlying policy objectives.

73. As noted earlier, digital television can be provided via four transmission technologies: satellite, cable, and two types of terrestrial transmission. Suitable spectrum is a prerequisite for transmission via satellite and terrestrial technologies, which involve the transmission of electromagnetic radiation through the air to a receiver in the home. By contrast, cable transmission does not require radio spectrum because the signals are transmitted via a cable linking the transmitter to subscribers.

74. With the move to digital television, existing broadcasters may, generally speaking, require spectrum for two distinct reasons:
    • to allow for the roll out of new programmes or services, such as interactive television, which digital technology makes possible;
    • to enable simulcasting of existing analogue free to air services in digital format, until such time as digital television receivers and/or set top boxes become the norm.

    Spectrum for Satellite Television

75. Satellite transmissions are managed through an international framework that requires co-ordination of the location, frequency, and coverage areas of existing and planned satellites. The Radiocommunications Act does not apply to satellite transmissions which occur from outside New Zealand territory.

76. New Zealand, there is an ability to control the down-link through licensing of the up-link. To date, spectrum used for satellite services has been managed through administrative licences. Where up-links are licensed, appropriate protection to the down-link frequencies is given by excluding other services as necessary.

77. New Zealand is required under the International Radio Regulations to enter into co-ordination procedures when proposed satellite services might affect New Zealand terrestrial usage. These procedures may ultimately lead to a requirement to modify existing terrestrial licences. Radio licences provide the flexibility to facilitate this type of modification, but there are not clear criteria to determine whether a planned satellite or an existing terrestrial service should be afforded priority. The current use of radio licences does not permit a competitive allocation to ensure that spectrum is held by those who value it the most.

78. Where competing terrestrial services are operated both under commercially acquired spectrum rights and under administrative licences, there will be differences in the costs incurred to access the spectrum.

79. The main existing satellite suitable for digital television coverage of New Zealand is the Optus B1 satellite (160 deg east) which has a down-link in the 12.2-12.75 GHz band (eight transponders) and corresponding up-links at 14 GHz. Both Sky and Television New Zealand-TelstraSaturn have leases of transponder capacity (five transponders) on the Optus satellite. The remaining three transponders are suitable for either broadcasting satellite or fixed satellite uses. At present a mix of fixed satellite and terrestrial uses are licensed in this bandwidth. These are co-ordinated individually based on their geographic locations. It is difficult to determine if the present licences present an optimal allocation of this spectrum.

80. A number of terrestrial licences have been granted for digital data network service in the 12 GHz bands, but most of these have been unused for a number of years. This innovative service involves the use of satellite transmission technologies and receiving equipment, but from terrestrial locations. The use of satellite derived technology effectively requires operation in the same bands as used for actual satellite transmissions. It is therefore necessary to determine whether terrestrial, satellite or a mixture of uses should be permitted in these bands. There are four potential uses in the 12 GHz band for essentially the same spectrum, viz:
    • fixed satellite service;
    • broadcasting satellite service;
    • digital data network;
    • fixed service.

    link tpo appenmd 2

81. Appendix 2 to this paper shows, in diagrammatic form, the current uses of the 12 GHz bands in New Zealand.

82. Depending upon antenna size, satellite location and other technical parameters, it is possible to utilise two or more satellites at different orbital locations within the same frequency band. It is also noted that from a technical perspective, a satellite transponder may be used for either fixed satellite or broadcasting satellite uses with very little difference in the actual transmission. From a licensing perspective there is an obvious difference in the receiving area required.

83. Typically, where demand exceeds supply, or the highest value use is unclear, spectrum rights are allocated through a competitive process (auction). The use of a competitive process may be difficult in bands allocated to satellite services, due to the international co-ordination framework and the fact that the satellite is outside New Zealand's jurisdiction. In addition, mere access to the spectrum by a party within New Zealand may not ensure that transponder leases can be acquired by that party. At present, a planning process is used to effectively segment the band according to the demand foreseen at the time of planning. This approach currently relies on consensus between interested parties, but if necessary could be reinforced through Government policy decisions and directions under the

    Radiocommunications Act.

84. In future, other frequency bands or orbital locations may be utilised for satellite services. In particular the lower adjacent band 11.7-12.2 GHz may be considered. This band is planned internationally for broadcasting satellite services but, depending upon successful international co-ordination, may also be used for additional satellite services.

85. The overall band 11.7-12.75 GHz is also suitable for terrestrial use for both fixed links and digital television (digital data network) services. A number of licences suitable for a digital data network have been granted within the lower part of this band. The Ministry has no conclusive information regarding whether to permit either satellite or terrestrial uses in these bands. One section of this band is under a Ministerial direction which limits licensing of that part of the band.

    Spectrum for Terrestrial Use (Digital Terrestrial Television and Digital Data Network)

86. A previous Ministry of Commerce discussion paper entitled "Digital Terrestrial Television: Spectrum Allocation Options" (DP13) identified two parts of the spectrum as suitable for digital terrestrial television:
    • "interleaved" channels located between 518-582 MHz, and 646-806 MHz within the UHF band. New digital transmissions would be inserted into the gaps between adjacent channels 27-34 and 43-62 used for analogue television transmissions;
    • two unused channels at 502-518 MHz (channels 25 and 26).

87. The main points from that paper are repeated below. The paper was not concerned with spectrum reserved for either Maori television or non-commercial (regional) television, as these services have existing reservations which are generally suitable to support both analogue services and digital services in any given area.

88. The paper noted that heavy usage of VHF channels by analogue terrestrial television meant that there was unlikely to be sufficient capacity within that part of the spectrum to accommodate the insertion of additional digital services without creating interference.

89. Since the paper was published in 1998, further work has identified a number of technical issues in the UHF bands. In particular, the levels of protection afforded existing analogue licences (termed MPIS levels) would constrain, and in some areas severely limit, the creation of digital licences giving optimum coverage. It appears that the MPIS levels could be altered without any practical effect on the analogue services, but this would need to be negotiated individually with the existing rightholders.

90. The potential for digital data network type services providing digital television have been noted earlier in this paper.

    How Should Spectrum be Allocated?

91. The Government's primary objective in managing radio spectrum is to maximise the value of spectrum to New Zealand society as a whole. In order to achieve this, spectrum management policy has aimed to:
    • ensure that spectrum is allocated to highest value uses;
    • provide sufficient exclusivity of use to enhance the value of particular parts of the spectrum;
    • provide security of tenure to encourage spectrum-related investment;
    • provide a reliable means to resolve interference problems with minimal transaction costs;
    • ensure that concentration of control of the spectrum does not unnecessarily inhibit competition.

92. As noted above, the Radiocommunications Act establishes a scheme of long term tradable rights in relation to spectrum, as well as providing for the continuation of traditional administrative licensing. Rights in relation to spectrum exist at two levels:
    • management rights in relation to certain designated ranges of frequencies throughout New Zealand;
    • spectrum licences, which may only be granted by management right holders, and which permit the use of certain frequencies at specified locations or areas.

    Management Rights

93. Management rights give the manager an exclusive right to determine the use of the band concerned and to create and allocate licences within it. This option relies most heavily on the market to resolve the future use to which spectrum is put. It offers the advantage of being the most economically efficient and flexible solution (by ensuring that spectrum is used for the highest value purpose). It also frees the Government from having to determine spectrum use and licensing frequencies for digital terrestrial television and analogue terrestrial television to ensure technical compatibility. This is a particular issue in relation to digital terrestrial television where there is little prior experience in managing spectrum for digital services. It is noted that initial digital services overseas have required adjustments to both digital and analogue licences to improve their compatibility with each other.

94. Broadcasters have suggested that management rights can potentially give rise to a conflict of interest situation, where the band manager is also a user of parts of the spectrum. The concern is that in such circumstances the band manager may not be prepared to deal impartially with competitors licensed within the band, for example in defining acceptable technical parameters for licences, or permitting technical variations to licences once issued. Broadcasters have argued that the Government should retain management rights, as it is perceived as a neutral band manager.

95. A further generic issue in relation to management rights is the role of the Crown as band manager. In the event that private management rights were more generally employed as the means of allocating spectrum (as opposed to spectrum licences), the position of the Crown as a band manager could be perceived as anomalous.

    Spectrum Licences

96. Spectrum licences would address these immediate concerns in relation to digital terrestrial television, as the Government would continue to retain management rights for digital terrestrial television spectrum and would simply allocate licences within the bands concerned. Spectrum licences also provide greater certainty over the use to which spectrum is put, as they are issued within more tightly defined technical parameters, being location and technology-specific. They do, however, rely on the Government to make decisions on the most effective use of the band, and to ensure technical compatibility of licences. They would also mean ongoing administrative costs for the Government.

97. Primarily because of the greater flexibility which management rights provide to users of the spectrum, the Ministry has in the past favoured the use of management rights for spectrum suitable for digital television, rather than spectrum licences.

    Market-Based Allocation Options

98. The 1998 discussion paper set out four allocation options for digital terrestrial television:

1. Grouping UHF channels into nine management rights to be auctioned as follows:

LOT	FREQUENCY RANGE	UHF CHANNELS	INCUMBENT USE
1	502-510 MHz	25	Nil
2	510-518 MHz	26	Nil
3	518-550 MHz	27-30	Analogue Terrestrial Television licences
4	550-582 MHz	31-34	Analogue Terrestrial Television licences
5	646-678 MHz	43-46	Analogue Terrestrial Television licences
6	678-710 MHz	47-50	Analogue Terrestrial Television licences
7	710-742 MHz	51-54	Analogue Terrestrial Television licences
8	742-774 MHz	55-58	Analogue Terrestrial Television licences
9	774-806 MHz	59-62	Analogue Terrestrial Television licences

This option carried with it the possibility of limiting the number of management rights that one person could acquire at auction. It should be noted that the spectrum between blocks 4 and 5 above has been reserved for Maori and non-commercial broadcasting.

2. Auction of two management rights representing channels 25 and 26

   Under this option, the Crown would retain the management rights to channels 27-34 and 43-62. This would preserve the option to release long-term digital terrestrial television spectrum licences through auctions as the technical basis for analogue terrestrial television and digital terrestrial television interleave became more clearly established. Again, this option carried with it the possibility of disallowing any one person from acquiring both management rights.

3. Auction of spectrum licences

   Under this option, the Crown would retain the management rights to channels 27-34 and 43-62, and auction spectrum licences technically defined for digital terrestrial television transmissions interleaved with existing analogue services. The auction could also include digital terrestrial television licences in channels 25 and 26. Again, limiting the number of licences any one person could acquire was raised as a possibility, particularly where those licences serve main centres.

4. Auction of management rights and spectrum licences

   Essentially this was a combination of options I and II. Again, limiting the number of management rights or licences any one person could acquire was raised as a possibility.

99. Most submissions on the discussion paper supported the Crown retaining management rights and auctioning only spectrum licences, i.e. option III. The Ministry's preference following the 1998 discussion document was option I or option II.

100. An important consideration impacting on both the nature and the timing of allocation is the Government's policy on how existing management rights and spectrum licences are to be treated on their expiry. Licenses for UHF spectrum are due to expire in early 2010. It is expected that the Government will decide and announce its policy on the treatment of such rights early in 2002.

101. Licences that have been engineered for the present analogue television service would need adjustments in order to be suitable for a digital service. The Government has not yet developed policies in relation to this process. The parameters of replacement licences could be considered after expiry of rights, but may need to be considered at an earlier date.