HC Deb 11 March 1998 vol 308 cc713-23 '. The Secretary of State may impose higher fees for those technologies which make inefficient use of the electro-magnetic spectrum than those which use the spectrum efficiently.'.—[Mr. Boswell.]

Brought up, and read the First time.

Mr. Boswell

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Michael J. Martin)

With this, it will be convenient to discuss the following: New clause 16—Allocation of licences other than under section 3— '.—When allocating licences other than by the procedures set out in section 3 (Bidding for licences), the Secretary of State shall have regard to the level of bids received in any similar circumstances when setting the fee to be charged.'. New clause 17—Administrative pricing— '.—When setting the level of administrative pricing for a particular section of the electro-magnetic spectrum, the Secretary of State shall have regard to the fee that might be levied if that section of the spectrum was used for a different purpose.'. New clause 18—Pricing for different parts of the electro-magnetic spectrum— '.—When setting prices for the use of different parts of the electro-magnetic spectrum for the same purpose, the Secretary of State shall take into account the variations in cost to the operators of using different parts of the electro-magnetic spectrum.'. Amendment No. 2, in clause 1, page 1, line 15, at end insert— '(2A) The sums prescribed or determined under subsection (2) shall not in total exceed by more than twenty-five per cent. the sums charged for licences in the financial year in which this Act is passed.'. Amendment No. 12, in clause 2, page 2, line 38, at end insert— '(d) the relative investment required to provide a service utilising the respective parts of the electro-magnetic spectrum.'. Amendment No. 14, in clause 3, page 2, line 45, after 'regard', insert 'both'.

Amendment No. 15, in page 2, line 46, after 'spectrum', insert 'and the securing of investment in development of telecommunication services.'. Amendment No. 16, in page 3, line 18, leave out 'as a cash sum'. Amendment No. 17, in page 3, line 22, leave out 'as the amount of a single payment or'. Amendment No. 18, in page 3, line 23, at end insert 'subject to a limitation that the payment which may be bid shall not exceed 5 per cent. of the income wholly or partly attributable to the holding of that licence'. Amendment No. 7, in page 4, line 10, at end insert— '(9) The sums payable to the Secretary of State under this section shall not exceed £1,000 million.'. Amendment No. 10, in clause 10, page 6, line 3, at end insert 'except as provided in subsection (3) below. (3) Section 3 of this Act shall not come into effect until Community legislation is passed setting for all Member States rules for bidding for wireless telegraphy licences.'.

2.15 am
Mr. Boswell

Although the new clauses are set out at the beginning of the group, those in my name and the names of my hon. Friends essentially rehearse matters to which the Minister has already replied concerning the flexibility of pricing. I do not intend to reopen those issues at this hour. The group contains a number of amendments tabled by my hon. Friends, and it is for them, rather than me, to comment on any matters that they want to raise.

Briefly, I shall return to the points of substance that stand in my name. These are matters of great import and I am not sure that I would necessarily and realistically expect the Minister to accept them as they stand, but they send out an important signal about the costs of the operation. The hon. Lady will recall from debates on Second Reading and in Committee that there is a real doubt—perhaps I should say a suspicion—on the Conservative Benches that the mechanism offers the potential for a significant revenue-raising operation. We tabled the amendments in that spirit and to give some flesh to the assurances that the hon. Lady has already floated in Committee.

To deal with them briefly, amendment No. 2 prescribes that the total uplift in income should not exceed by more than twenty-five per cent. the sums charged for licences in the financial year in which this Act is passed. That might be a reasonable extra accrual of revenue. Indeed, at an earlier hour my hon. Friend the Member for South Dorset (Mr. Bruce) was metaphorically licking his lips at the almost boundless revenue-raising possibilities that he envisaged from that source. We will not hold that against him, but we want a practical limit. An alternative way would be found through amendment No. 7, which imposes a limit on the total return to the process of £1 billion. I invite the Minister to comment on those amendments.

Equally, amendment No. 18, on the bidding process, would restrict the cash sum payment to 5 per cent. of the estimated income from the issue of the licence. That would curtail any attempt to buy licences regardless of cost, perhaps to close them down or put competitors out.

Finally, to make the point, amendment No. 10 suggests that commencement of the Act might be deferred until the Community rules on spectrum allocation are clear. That echoes a point that the Minister made earlier, which is that we clearly cannot conduct our operations purely in a vacuum and it is important that we are sensitive to that, that we have some awareness of what is going on in other countries, learn from their experience and share it.

There is also a practical point. I think that I reversed my anecdote. It should have been that the car radios set off all the garage doors in Kent—I cannot remember which way it went, but it does not really matter. The point is that, if two radio systems adjoin each other, they will inevitably impact. Therefore, I am convinced that it is important for the Government to take serious account of what is going on in the near continent.

Ministers should have regard to the fears that have been expressed that this is a major fund-raising exercise. Next week, the Chancellor will open his Budget. I doubt whether he will be talking explicitly about this, but we would deprecate any attempt to raise incalculably large sums through the back door in a way that had not been covenanted, has not been flagged by Ministers and would amount to a substantial breach of faith. I hope that the Minister will give us assurances, which we can then test against the way in which these measures and the pricing formula pan out in practice.

Mr. Letwin

I intend to be enormously brief. I want to amplify the point made by my hon. Friend the Member for Daventry (Mr. Boswell) on new clause 16, with a slight nod towards new clause 17. I hope that, not only in her closing remarks this morning, but, more important, in her subsequent considerations in the Department, the Minister will take account of the intention behind the new clauses.

It is extraordinarily important that no future holders of her office should disjoin the administrative prices that are set for some parts of the spectrum and the bid prices that are established in the open market. That is not to say—my hon. Friends have been careful in phrasing new clause 16—that there may be no difference, but we tabled the new clause to ensure that any Minister responsible for administrative pricing refers back to the relevant information from the bid prices.

Any decision that is made about a particular part of the spectrum without regard to the bid prices could distort the entire market. I am sure that the Minister will assure us that it would be her usual practice to refer to the bid prices—the main intention behind new clause 16 is to ensure that she puts that on the record, so that we have a clear understanding of how Ministers will deal with administrative pricing.

Mr. Lansley

I welcome what the hon. Member for Ilford, North (Ms Perham) said about radio taxis, which reminded me—this may amuse the hon. Member for Cambridge (Mrs. Campbell), who has been very patient during our proceedings—that Camtax, which operates in both her constituency and mine, has radio licence No. 1 for these purposes. I do not know whether she knew that, but it is another distinction which falls on our constituencies.

New clause 18 would enjoin the Secretary of State to take into account the variations in cost to the operators when setting administrative pricing. An example of what I hope the Minister would take into account is the difference in the infrastructure costs of delivering services between operators at 900 MHz and those at 1.8 GHz. The propagation characteristics of the two affect the costs incurred in providing a service. It would be wrong for administrative pricing not to reflect the infrastructure costs of providing a service at that higher frequency, which would necessitate the construction of more telecommunications masts.

Amendments Nos. 14 and 15 are linked. They would enjoin the Secretary of State to take into account the securing of investment in development of telecommunications services". I hope that the value of that is self-evident, but I shall relate the amendments to a specific issue on which I would welcome the Minister's reassurance.

In our previous debates, Ministers said that they had no intention of applying spectrum pricing to the fixed-link radio operators operating at 10 GHz. The issue is an important one for them. Such operators have an onerous roll-out obligation, which involves the acquisition of additional spectrum in order to meet the obligations that they have taken on. Having done that under one regime, operators have a sense of jeopardy about moving to a different regime.

To pursue the issue of Ministers' present and future intentions, will the Minister confirm either that the Government will not impose spectrum pricing while the 10 GHz operating companies meet their current roll-out obligations, which means not before 2003, or that, in the event that the Government impose spectrum pricing before 2003, Ministers will accept that that will cancel or, perhaps by agreement, mitigate companies' roll-out obligations?

Mr. Ian Bruce

There has been quite a long time between the Committee and Report stages of the Bill. I emphasise my hon. Friend's point about commitments from the Government Front Bench about funding. Although we are only a few days away from the Budget, I wonder whether we can have a better steer from the Minister about exactly how much she is now expecting. Has there been any change in her expectation?

Mr. Lansley

I am grateful to my hon. Friend, not least because he takes me directly to the third set of points that I want to make, which relate specifically to amendments Nos. 16, 17 and 18. To save time, I shall not explain why those three amendments are linked. There are two questions. The first is slightly tangential. We have not really found out anything much, even since the Committee proceedings four months ago, about what Ministers expect to be the broad quantum of increases in charges to operators by way of administrative pricing.

Many of us would be hard put to know the orders of magnitude. Will the cost of licences increase by perhaps 20 or 30 per cent? One might say that that is a significant increase. Are we talking about much greater increases? It would be helpful if the Minister would say what orders of magnitude of increases—

Mr. Ian Bruce

Or decreases.

Mr. Lansley

Of course. The purpose of administrative pricing is not necessarily to raise money but more efficiently to utilise the spectrum, which, in certain circumstances, may mean reducing fees to promote active use of the spectrum.

Mr. Bruce

I do not want to delay the proceedings, and I know that I do not really need to remind the Minister of this, but I recollect that, in Committee, we talked about fishermen's and other licences. The new regulations will give the Minister the opportunity to make adjustments. Pleasure craft pay far less than fishermen, and fishermen get very upset about that, especially as their radios are a safety mechanism.

Mr. Lansley

I agree with my hon. Friend. He will forgive me if, being quite so landlocked as we are in Cambridgeshire, I do not know as much about the fishing industry as he does. It would be helpful if the Minister would tell us both the quantum of the increases that are contemplated under administrative pricing and why Ministers feel that relatively large increases in some cases might be justified by reference to the benefits in the utilisation of spectrum. Some operators, including some of the mobile phone operators, have considerable commercial pressures to utilise spectrum as efficiently as they can. It does not necessarily follow that paying much larger fees will change their behaviour. One wonders whether the increases in fees that they might have to pay are objectively justified by reference to the economic utilisation of spectrum allocated to them.

2.30 am

The benefits of amendment No. 18 may not be immediately obvious to hon. Members. An auction where people can bid whatever they like, which maximises income, might seem the most obvious course. By extension, to stipulate no more than 5 per cent. of the income attributable to the holding of the licence might simply restrict the Government's revenue and might therefore seem undesirable. However, Ministers should actively contemplate the amendment, as it has specific benefits.

The first benefit, which is related to amendments Nos. 16 and 17 as well, is that instead of a cash sum being payable up front, periodic payments are implied. The income to Government is specifically related to the roll-out of investment and the undertaking of the economic activity in question. The Government become, in that sense, a risk sharer. That reminds me of the time when, in the Department of Trade and Industry, we were engaged in launch aid for aerospace activity. If the Government are to be involved in commercial decision taking, it is good that they should be a risk participant.

The second benefit is that people who are making bids to the Secretary of State will have to specify not just what they are willing to pay, but how that is to be raised by economic use of the spectrum. That means that one will see, from those who are making bids, how the utilisation of the spectrum will generate income. The heart of the purpose of the Bill will be disclosed in the bidding process, whereas, otherwise, many of those who are making bids may meet the stated requirements that the Secretary of State may stipulate by regulation, but rest the burden of their case simply on the amount that is to be raised. That may lead us into a situation where the less valuable economic utilisation is the highest bidder, but comes to grief.

Ministers may not warm to the third benefit of amendment No. 18. It sets a limit on the amount that is to be raised in the tax, in relation to the income stream to which it is to be applied. Conservative Members, and perhaps Labour Members to a lesser extent, hold the view that, if we must have taxes, as we do, the taxes applied at a relatively low percentage rate in relation to the income stream to which they are applied will have less damaging economic effects than those that rise to a relatively high percentage level.

The sum of £1.5 billion, which is the maximum figure referred to in the explanatory and financial memorandum to the Bill to be raised through auctions, may be 5 per cent. of the income stream attributable to those licences, or it may be 10, 15 or 20 per cent. I have no way of knowing. All I know is that about £2.7 billion of turnover is attributable to the mobile phone operators. If that is any guide, £1.5 billion by way of revenue on the auction seems to be an extremely high sum, and therefore potentially a very high percentage sum in relation to the income stream to which it is to be applied.

I endorse all that was said by my hon. Friends, especially by my hon. Friend the Member for Esher and Walton (Mr. Taylor), who had responsibility for these matters, about the fact that the first-mover advantages of telecommunications liberalisation, mobile telephony and so on in British industry have been tremendously important in wider economic terms. The last thing we should do by way of auctions of spectrum is to leave that important section of British industry in a position where it is effectively taxed to a relatively higher proportionate level on its income stream, and therefore on its investment and its opportunity to exploit economically the spectrum it has bought.

If the Minister can assure us that the £1 billion or £1.5 billion about which she is speaking will be less than 5 per cent. of the income stream—a figure which I picked because it was a modest percentage—I would be happy not to press my amendment. However, we need some sign from the Minister of what tax level she is contemplating by way of the auction pricing mechanism.

Mrs. Roche

The amendments and new clauses in this group concern the operation of spectrum pricing in the form of administrative pricing or auctions. New clause 10 would allow higher fees to be set for less spectrum-efficient technologies. I understand the underlying thought behind it, but clause 2(2)(c)(i) already obliges the Secretary of State, in setting fees, to have regard in particular to the desirability of promoting the efficient use of the radio spectrum.

I am grateful to hon. Members for explaining the purpose of new clause 16. I do not believe that it would serve a useful purpose. I would point out, however, that among the matters the Secretary of State is required to take into account, are the demand and likely future demand for the use of the part of the electro-magnetic spectrum to be used under licences of that description". To the limited extent that the experience of auctions is likely to be relevant to decisions on administrative pricing, the Secretary of State will take into account the lessons to be learnt. In the light of this assurance, I hope that the hon. Member for Daventry (Mr. Boswell) will be willing to withdraw the amendment.

I do not believe that new clause 17 would improve the operation of administrative pricing under clause 2, which requires the Secretary of State to have regard to factors such as spectrum efficiency, economic benefits, innovation and competition. The new clause refers to the fee that might be levied if the section of the spectrum was used for a different purpose, but it leaves completely undefined the nature of the different purpose. Much spectrum may have more than one alternative use. How the fee would be assessed is left open. Moreover, the new clause could lead to some substantial increases in fees, especially for fixed links occupying spectrum around 2 GHz that could be used for mobile communications.

New clause 18 also concerns the setting of administrative prices. I have sympathy with the underlying proposition that spectrum pricing should take into account differences in the intrinsic value of different parts of the spectrum and should not distort competition, but it is not necessary to amend the Bill to achieve this.

It is axiomatic in spectrum pricing that fees should reflect the value of the spectrum. Clause 2(2)(c) already requires the Secretary of State to have regard to the desirability of promoting the efficient use of the spectrum, any economic benefits arising from the use of wireless telegraphy and, most important in this context, competition in telecommunications. I hope that I have convinced the hon. Member for Daventry that it is not necessary.

Amendment No. 2 would undermine the effective operation of spectrum pricing. We have given repeated assurances during the passage of the Bill that spectrum pricing will be used for the purposes of spectrum management, not revenue raising.

As the hon. Member for Daventry knows, we have continued to work closely with the industry since the consultation document was published. One of the most significant issues that we addressed was the fees to be paid by cellular and personal communications network operators whose fees under the present cost-based regime are much less than those of other mobile communications users.

I am pleased to tell the House that my officials have held a series of meetings with each of the four main mobile telecommunications operators to consider how the new fee arrangements might best be introduced. There has been an open and transparent consultation process with the operators and I am grateful for the contributions that they have made and their helpful and constructive participation.

We agreed with the operators that the increase in the forthcoming regulations would be the first step in phasing in the higher fees over a period of at least three years. As a first step towards the new fees, we agreed with the four operators to apply a single percentage increase of 120 per cent. to the fees that cellular and PCN operators would have paid under the current regulations. The new fees will take account of changes in the spectrum assigned to them and the original escalator applied to PCN operators' fees.

The other change that we propose to make in the first regulations is to introduce reduced fees for users of on-site private business radio systems. These are typically used in industrial applications or in high street stores. There are some 22,000 on-site services that currently pay on the same basis as systems that cover a wide area. At present the minimum fee is £140, increasing progressively with the number of mobiles used, irrespective of the number of sites, so that, for example, a licensee with 26 to 60 mobiles would currently pay £500.

I am pleased to announce that we propose to introduce in July a flat fee of £125 for each on-site system, irrespective of the number of mobiles used. The majority of users will therefore benefit from a significant reduction, although a few users with multiple sites and only a few mobiles may pay slightly more than under the current regulations. We intend most users to benefit from a further reduction in 1999, although those in areas of heavy congestion, and users with multiple frequency assignments at a single location, may face an increase.

We intend to undertake further consultation on the proposals for the new regulations prior to the statutory consultation under clause 6. Subject to the passage of the Bill, the new regulations will represent an important step forward in levelling the playing field between the various categories of radio users. It is important that we continue that process.

The hon. Member for South Dorset (Mr. Bruce) mentioned the important issue of fisheries. I have considerable sympathy with the view and have concluded that we do not need to wait for the introduction of new powers to rectify the situation. Therefore, last week, I laid before Parliament amending regulations to introduce a number of helpful changes to the current regime. As a result, from 1 April, up to 10,000 commercial vessel owners will benefit from a reduction of 45 per cent. in the ships radio licence fees that they now pay.

I am grateful to the hon. Gentleman for his approval; I was slightly disappointed that his hon. Friends prayed against the order. I am rather confused about that, as the hon. Gentleman raised the issue, which found favour with me.

Mr. Ian Bruce

I thank the Minister for announcing the reduction. I am sure that my fishermen will be pleased. My hon. Friends may have prayed against the order so that it would come to the Floor of the House, or at least into a Committee, so that we could congratulate her and, perhaps, press her a bit further.

Mrs. Roche

I congratulate the hon. Gentleman on his ingenuity and look forward to the congratulations. I hope that I have succeeded in my attempt to persuade hon. Members of our good faith, as shown by our actions, and I remind them that the Bill contains vital safeguards against excessive fees.

Amendment No. 12 is similar to new clause 18. For exactly the reasons that I have already outlined, I advise the House not to proceed with it.

Amendments Nos. 14 and 15 concern auctions. I ask the House not to proceed with them as they would not serve a useful purpose. Hon. Members have explained them by saying that the requirement for substantial cash payments for licences would weaken licensees' financial position and ability to roll out services. I cannot accept that idea. Businesses must be the best judges of what they can afford to pay for a licence. In deciding whether to bid in an auction and determining the level of their bids, they will naturally undertake their own financial projections. They will need to balance the capital cost of setting up and rolling out a service against the expected revenue from the provision of that service. Such calculations are an essential part of the business world, and will be well understood.

2.45 am

I must also ask the House to reject amendments Nos. 16, 17 and 18 which, as Opposition Members may intend, would emasculate the auction provisions. Perhaps I shall give hon. Members the benefit of the doubt and trust that they did not intend their amendments to have that effect, but that is what would happen. The amendments would eliminate the possibility of the most common kind of auction, in which bids are expressed as a simple cash sum, but leave open the possibility of the so-called royalty auction in which a bidder undertakes to pay a proportion of anticipated revenue.

I can see no merit in the amendments. The straightforward cash auction has been favoured in the great majority of wireless telegraphy auctions throughout the world. I accept that in some circumstances the royalty auction may have value, but the precise level of payment appropriate under a royalty auction depends on the circumstances of each individual case and to seek to specify a maximum level of payment in the Bill, as amendment No. 18 proposes, is pointless and would deprive the Secretary of State of the flexibility that will be crucial in considering which auction designs might be appropriate for the wide range of potential auction candidates.

Amendment No. 7 suffers from similar defects, and I find it hard to see the logic behind it. It would serve no useful purpose. A properly designed auction will achieve a price that balances supply and demand and, as I hope Opposition Members will agree, it would be wrong to put an artificial ceiling on that process.

It must also be borne in mind that amendment No. 7 would apply to all future auctions held on the basis of the power in clause 3. The financial ceiling would be reached sooner or later and the amendment would then rule out any further auction in the absence of amending legislation. The amendment is both unnecessary and unworkable, and I invite the House to reject it.

As for amendment No. 10, the arguments in favour of auctions as a method of assigning licences should be well understood by Opposition Members. After all, it was their own party's White Paper that proclaimed the importance of using the method.

Legislating at Community level on such a detailed technical matter as auction procedures would be unwise and inconsistent with the principles of subsidiarity. The licensing directive already provides a sufficient Community framework for auctions, and I urge the House not to proceed with the amendment.

Finally, I was asked about radio fixed access. Those services are relatively new entrants to the telecommunications market and we recognise their pioneering work in increasing competition and choice in telecommunications. To avoid disrupting their business plans, and in the interests of promoting competition, we do not at present intend to increase their spectrum fees.

I hope that I have now convinced Opposition Members not to press their new clauses and amendments.

Mr. Boswell

I do not accept every line of argument that the Minister has deployed, but in view of the helpful assurances that she has been able to offer us, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Order for Third Reading read.

2.50 am
Mrs. Roche

I beg to move, That the Bill be now read the Third time.

The House will be relieved to know that I do not intend to detain it for any great time. I feel the presence of the Deputy Chief Whip beside me and I know how anxious hon. Members are for this important Bill to complete its passage through the House.

It is impressive how far radiocommunications have come since the first wireless messages were sent around the world 100 years ago. We all know about the great contribution that radio makes to our economic and social life.

The radio spectrum is a finite resource and, unless we can continue to create spectrum headroom for future growth, we will not realise the full economic benefits and competitiveness gains from this dynamic and successful sector of the economy. The importance of the Bill is that it will provide new tools to manage the spectrum resource more effectively.

The Bill is important. It was introduced in the other place and I gladly acknowledge their Lordships' contribution and commitment to its development. The Bill is about Britain's economic well being and it will provide wealth, jobs and economic opportunities for the British people. I commend it to the House.

2.51 am
Mr. Boswell

I recall, as I was growing up, an elderly friend of our family—a Cornishman—who, as a very little boy, used to meet Mr. Marconi on the beach. As a result of that connection, he went to work for Marconi in Chelmsford for his whole life.

Despite the huge technical changes that have taken place in the radio industry, there is a certain stability in the legislative framework. We legislated in 1904 and in 1949. We are legislating again now, and it is important that we get it right.

Our debates have helped to test the Government's intentions, for which they are particularly welcome. To the Minister's thanks to all those who have participated—I add my thanks to the Minister for some of the explanations that she has been able to give us—I add my personal thanks to my colleagues, many of great expertise, who have participated in and adorned the discussions and helped to get assurances on the record.

I also single out, although she is not now with us, the contribution of my hon. Friend the Member for Chesham and Amersham (Mrs. Gillan), who has sat through almost all our deliberations this evening and has supported me in my first excursion into wireless telegraphy at the Dispatch Box.

Inevitably, there are areas of unfinished business in the Bill. One is the way in which, in practice, the pricing structure of the licences will develop and, related to that, how the management of the spectrum will develop. We have had assurances on those points tonight; we shall need to test them in the event.

Secondly, we heard the Minister's interesting forward look on the possibility of further legislation, possibly on secondary pricing, for example. We welcome that in principle and hope that she will bring it forward in this Parliament. We should like to be part of the process of taking that matter forward.

For tonight, the Minister has given assurances and, in the light of those and the earlier discussions that we have had, I shall not seek to divide the House on Third Reading.

2.54 am
Mr. Ian Bruce

Earlier, I was asked whether I had anything left in my carafe. It is half full or half empty, depending on whether one is an optimist or a pessimist.

I want to set hon. Members' minds at rest by saying that I rise only to congratulate the Minister on the way she has brought this Bill to its conclusion. It is interesting that a Minister can, despite being pressed in all sorts of different directions, keep her cool and continue to be charming at almost 3 o'clock in the morning. She has shown that despite the blandishments of the Whips around her, we were able to complete our business in sensible time.

I remind the House that the full Report stage and Third Reading of a major Bill which has major implications, have been completed in four and a half hours. That is four and a half hours at a very late hour not because of Back Benchers and not because of the Opposition, but because the Whips decided to put on a major Bill after other business. I am not, therefore, in any way apologetic. I never go to bed before 3 am anyway, so this is an ideal time for me.

I thank the Minister for her contribution to my fishermen. They will be very pleased at the reduction that is coming, even before the Bill reaches the statute book. I congratulate her on what I think is the first Bill that she has taken through all its stages to the statute book.

Question put and agreed to.

Bill accordingly read the Third time, and passed, with an amendment.