'.—The Secretary of State may reallocate any part of the electro-magnetic spectrum which he considers is not being used efficiently.'—[Mr. Boswell.]
§ Brought up, and read the First time.
§ Mr. Deputy Speaker (Mr. Michael J. Martin)
With this, it will be convenient to discuss the following: New clause 3—Substitution of parts of the electro-magnetic spectrum—'.—The Secretary of State may allocate a new part of the spectrum to a licence holder in return for that licence holder relinquishing that part of the spectrum that they have previously been allocated.'.674 New clause 4—Secretary of State's power to purchase electro-magnetic spectrum—'.—The Secretary of State may purchase electro-magnetic spectrum from a licence holder.'.New clause 5—Selling or trading of electro-magnetic spectrum——A licence holder may sell or otherwise trade all or part of the electro-magnetic spectrum which they have been allocated.'.New clause 6—Reallocation of electro-magnetic spectrum from broadcasters—'.—The Secretary of State may reallocate any part of the electro-magnetic spectrum from television or radio broadcasting licence holders to other users if he considers it expedient to do so, or if he considers it will promote the change-over to new technologies, or both.'.New clause 9—Requirement on broadcasters to use electro-magnetic spectrum efficiently—'.—The Secretary of State shall require holders of broadcasting licences to use the electro-magnetic spectrum efficiently, and may reallocate any part of the spectrum made available as a consequence of such efficient use for other purposes.'.New clause 11—Promotion of free market in the use of the electro-magnetic spectrum—'. Having regard to the desirability of promoting a free market in the use of the electro-magnetic spectrum, the Secretary of State may re-allocate spectrum from existing licence holders to new entrants to the market.'.New clause 12—Reallocation of spectrum within particular wavelengths—'. The Secretary of State may re-allocate electro-magnetic spectrum within particular wavelengths to ensure competition in services which require a specific electro-magnetic wavelength.'.New clause 15—Low power transmitters—'. The Secretary of State may by regulations provide that low power transmitting devices which do not cause interference to other users do not require a licence.'.New clause 19—Unauthorised use of spectrum or breach of licence conditions'.—The Secretary of State may by regulations prescribe the actions to be taken against those who use the electro-magnetic spectrum without authorisation, or who operate in breach of licence conditions.'.New clause 20—Transfer of services from electro-magnetic spectrum—'.—The Secretary of State may, by regulations, make provision to encourage the transfer of certain services from the electro-magnetic spectrum to other delivery systems.'.
§ Mr. Boswell
I suppose that it would be possible for somebody looking at this rather long list of new clauses to conclude that, in the words of a popular newspaper's motto, all human life is there. The group is comprehensive. It has a lot to say, but then it concerns some of the Bill's central objectives and issues. Basically, we are addressing the power to reallocate parts of the spectrum. We are seeking to put a bit of zip and life into the issue of reallocation by proposing alternative approaches.
I come to these matters comparatively freshly. There has been so little going on recently that I am only too happy to participate. After the National Minimum Wage Bill and those small considerations, I have been most struck by the relative conservatism—I hope that I will not put off Ministers when I say that they have been guilty of that—of the Government's rather static attitude to existing 675 users of the spectrum. They find themselves in the position of somebody drawing up a structure plan for a county, where land is either subject to development or it is not. If it is not, it stays as it is. Indeed, it is proposed that only the additional parts of the spectrum will be reallocated.
In the new clauses, we are giving the Government a series of alternative perspectives and options. I hope that they will consider them seriously. It is certainly within the experience and comment of many persons in the field, as well as business users and those who are technical or academic, that some options should become available for reallocation of the spectrum.
I shall pick out three comments. First, as has been discussed, there is congestion in certain areas of the spectrum. There is, therefore, a need to do something about that, although not universally to the same extent. Secondly, there is a growing technical efficiency in compression of signal use; one can do things that would not physically have been possible a few years ago. Thirdly, there will be a changing pattern of use. It is not for us to debate—certainly not in public session—whether the Ministry of Defence requires all its spectrum, and whether it makes best use of it. I certainly would not claim to be a practitioner or be able to speak with authority on that. Those who are—I do not think that they are shooting a line—express some concern.
§ Mr. Ian Taylor
I am listening carefully to my hon. Friend. He might find that there is a fourth point: where technology enables new use of existing spectrum, which therefore requires reconsideration of the allocation.
§ Mr. Boswell
I suspect that my hon. Friend has in mind—although I may be wrong—the transition from analogue to digital signals. I notice him nodding. He has added a valuable point.
It is all very well to validate existing licences. There were some exchanges in Committee on this matter, and I understand the Government's argument that they do not want to destabilise people who have to invest quite a lot without giving them some assurance of reasonable security of tenure. It does not seem right that a licence should constitute what might be termed a life tenancy of a bit of the spectrum, regardless of how well it has been used or of whether it can be used more efficiently or moved elsewhere.
That is a difficult balance to strike. Given that there is congestion in some areas, we have come across a very valuable resource that is available naturally through the operation of the spectrum and the electromagnetic waves. We must use the whole of it to best effect. It may not be such a good idea to rely simply on incremental changes when additional parts of the spectrum become due.
I shall rehearse the new clauses in this group—although, as they are clear, they speak for themselves. New clause 2 gives the Secretary of State the power to reallocate any part of the electromagnetic spectrum that he considers is not used efficiently. That is a rather generous power—as the Minister knows, we are extremely generous with our offers to Ministers when we think that is appropriate. In this case, we are offering Ministers a significant power of reallocation.
676 11.30 pm
The House will not be surprised to learn that the other new clauses are slightly more qualifying. They are designed to stimulate debate and discover which bits tickle the Government's fancy—metaphorically speaking—and about which they might be disposed to provide some assurances. New clause 3 states:The Secretary of State may allocate a new part of the spectrum to a licence holder"—which is consistent with the broad approach of the Bill—in return for that licence holder relinquishing that part of the spectrum that they have previously been allocated.That is an attempt to produce a better grouping or a more efficient use of the total spectrum. It offers a power to swap between one user and another.
New clause 4 gives the Secretary of State the power to buy back spectrum from a licence holder. At this point, I remind the House—because I failed to mention it a moment ago—that all licences are not absolute and as of right, in the sense that they could be revoked tomorrow. I think that that would be an unreasonable act—to use the lawyers' term—in the present circumstances. However, it would certainly be much more reasonable if the Secretary of State were given the power to say, "We really want you out of this bit of the spectrum, and we are prepared to pay for you to move"—in the same way that a landlord may reach an agreement with a tenant to move.
§ Dr. Palmer
I am puzzled by the fact that the new clauses give considerable power to the Secretary of State to act pretty arbitrarily—although the hon. Gentleman said that he thought that that would be unreasonable. There is no reference to any need to provide adequate notice, in contrast with the provisions of an amendment that we shall discuss later. It appears that new clause 6, in particular, would allow the Secretary of State to reallocate the spectrum for quite subjective reasons without compensation or notice. I wonder whether that is what the Opposition intend. If so, it seems to be a rather Marxist policy from the new Conservative party.
§ Mr. Boswell
I will not say that the hon. Gentleman is beavering away like a terrier, because that would be a mixed metaphor. However, he is working like a terrier in an attempt to create distinctions without difference and difficulties where none exists. The fact is, as will be fairly familiar to the House—I am now at least modestly familiar with Committee work, although I would not like to make too great a claim—Oppositions propose many things to tickle a Government's fancy. It is the groundbait rather than the single fly that is being cast over the Government. The hon. Member for Broxtowe (Dr. Palmer), who served on the Standing Committee, has technical expertise and a real interest in this subject. I hope that he will feel able to contribute to the debate and will respond appropriately to particular points.
§ Mr. Boswell
I shall give way to my hon. Friend in a moment, but I was concluding my remarks on the intervention of the hon. Member for Broxtowe. The hon. Gentleman does not have to follow every last word that we have put in our new clauses. If he is producing a corrective measure in the interests of civil liberties or 677 natural justice—not that I would expect Ministers by definition to behave unreasonably—he would have my support in amending our new clauses.
§ Mr. Bruce
The argument of the hon. Member for Broxtowe (Dr. Palmer) is valid and I put my hand up to being the person who did the sketchy drafting. I was congratulated on its clear language and the fact that it was not beset by regulation and all the rest. If I had thought for a moment that we could get the Government to do something about that, I would have taken much more care with the new clause. I assure my hon. Friend that I would certainly support the Government if they said that they wanted a little more time, in order to adjourn the House and produce better clauses, to make an even better Bill than the one that we suggest.
§ Mr. Boswell
I congratulate my hon. Friend on his intervention, because he has killed two birds with one stone. He has managed to provide an explanation for the hon. Member for Broxtowe and to support my argument—that is welcome because of the consensus about the way in which we approach this matter.
I am anxious to get on and not to interrupt the flow of the argument. We are rehearsing the various possibilities that the Minister will have been considering in papers put to her, or on which she might commission papers. It would always be possible to do a number of things—if not in this legislation, then subsequently. It would be difficult to do so in the Bill, because it has already been considered by another place.
New clause 3 would give the power to reallocate by exchange or buying in, and new clause 4 would provide the buying-in power. New clause 5—I am going through the new clauses seriatim for convenience—is radically different because it does not involve the intervention of the Secretary of State, although I suspect that some legislative facility would have to be provided. The new clause provides for a secondary market in the spectrum; that is an attractive and interesting concept. One does not necessarily need to get into the agonising issues of auction which we discussed earlier. However, if one wants to use the market modestly to move spectrum about between a willing buyer and a willing seller, the Secretary of State should not frustrate that.
§ Mr. Ian Taylor
This new clause is important. It takes us back to the principle of the Bill, which is to promote greater efficiency of use of a scarce resource. One matter that needs further consideration is how that can best be achieved. As long as there are rules against hoarding, the secondary market could be a useful way to promote the very efficiency gain for which we are looking in the sector.
§ Mr. Boswell
I am grateful for my hon. Friend's support. The Government should think about this matter with the caveat that he rightly introduced, because we do not want people to hoard capacity. Indeed, a straight buying-in or confiscatory power might be necessary in cases of hoarding.
To continue my tour through the new clauses selected—of course, I shall not advert to the others, Mr. Deputy Speaker—I come to new clause 9, which is the more authoritarian version of the reallocation point. 678 New clause 11 concerns the promotion of the free market and is based on the Bill's principle, as my hon. Friend the Member for Esher and Walton (Mr. Taylor) rightly said. It proposes an administrative, rather than a market solution—reallocation by the Secretary of State.
New clause 12 raises an interesting consideration, as it relates to whether particular wavelengths are appropriate for particular services. I am advised that some wavelengths require a specific electromagnetic wavelength, whereas others are much more flexible, so to speak. As we want the spectrum to be used to best effect, it would be sensible to be able to reallocate. We do not specify how that should be done, but we do specify that the aim should beto ensure competition in services which require a specific…wavelength".I have a feeling that my hon. Friends who have expertise in this matter will want to speak further on that matter.
New clause 15 represents an interesting deregulatory concept—or, to use the Government's current terminology, a better regulatory concept. If low-power transmitters are not likely, or in any way disposed, to upset other users, why are they required to have a licence at all? I do not know whether specific exceptions exist, but the Government should consider whether some would be appropriate.
New clause 19—I have almost reached the end of my list—would provide for a power to police those who pinch a bit of spectrum without authorisation, or those who have a bit of spectrum but operate in breach of the licence conditions for that spectrum. That may be rather authoritarian, in that it could lead to punishments, one of which could be the withdrawal of the spectrum that was abused—of course, if access had not been authorised, it could not be withdrawn, in which case other punishments would be appropriate.
The new clause begins to address how we should deal with people who intrude on other people's frequencies. It does not provide for an absolute power, because, even under our rather restrictive drafting, it prescribes the need for regulations, which would be debatable in the House. That would be a safeguard.
New clause 19 is also designed to probe the Government's intentions if there is some market perspective, rather than only an allocation of licences. We want to know whether the Government believe that, where money and value are at stake and people have paid for their piece of the spectrum, there could be better safeguards to ensure that the market worked properly.
New clause 20, the final one in the group, is again somewhat different. It would provide the Secretary of State with a regulatory power tomake provision to encourage the transfer of certain services from the electro-magnetic spectrum to other delivery systems".We could hardly be less specific or prescriptive about what those delivery systems might be—they could be anything from optical fibres to carrier pigeons. There might be cases in which people could be prevented from using the spectrum, if access is scarce, because they could communicate in other perfectly sensible ways. That would be flexible, rather than prescriptive.
This is a rather extended group of new clauses, but they are different from one another. I readily concede to the hon. Member for Broxtowe that they are not perfectly 679 drafted; they are designed to raise a series of issues relating to the broad objective which we all share—better use of the spectrum—and to elicit a Government response.
Our concern is that this exercise cannot operate only by the allocation of additional portions of the spectrum, however lucrative or attractive that may be to Government. The Government must consider whether the spectrum is used to best effect—indeed, the advisory group must encourage them to do so. That may be achieved through a more controlled use of market mechanisms, supported, where appropriate, by Government intervention either to take in bits of spectrum that are not properly used or to move the spectrum about. If I were to identify the new clause of the greatest salience, new clause 5, which establishes the principle of a secondary market is perhaps the most productive for the future. Given what is now a welcome acceptance of the market economy by the Labour party—we need to see how that works in practice—I hope that the Minister will think long and hard about ways in which she can assure us of her interest. Perhaps we can move towards future legislation that will establish that principle.
§ Mr. Ian Taylor
This is an important group of new clauses. They go some way towards the probing of the Government that the Opposition should be doing. Increasing the efficiency of use of the radio spectrum has taken a great deal of thought, certainly while the Conservatives were in government. People in industry who advised the previous Government were also exercised about it. How at any given moment does one find the right spectrum for an activity such as mobile telephony, which needs to group around 18 GHz, I believe—I can never remember whether it is MHz or GHz. It was difficult to accommodate all the spectrum that the industry wanted around that level.
Even when I was a Minister, there was a good deal of difficulty in accommodating the four main mobile telephone operators. There had been considerations about how, if one of them was not using the spectrum properly, one might reasonably claw spectrum back, and under what terms. I am glad to say that, to some extent, reasonable negotiation was possible.
The Ministry of Defence is probably now a good deal more reasonable—the Minister will confirm this—about its spectrum and how it might be used for commercial purposes when it is not fully in use by the military. Certainly, that was the case in my day as Minister, but there are some arguments as to what overarching interest the Government have in making sure that the Ministry of Defence uses spectrum with the greatest efficiency, in the interest of the economy as a whole. The MOD's age-old argument that spectrum must have national clear coverage is not necessarily viable, given improved technology and the better focusing of spectrum.
I had a lively discussion with Channel 5 before it went on air. This is confusing terminology, but there is a national area of clear spectrum called channel 35. I believe that it could be one of the first clear national channels available for auction. That is not the subject of this group of new clauses, but it shows that there is potential for moving to auctions when there could be a lot 680 of users of a particular part of the spectrum. When Channel 5 was going live, in certain parts of the country it wanted to use a digital spectrum suitable for analogue transmission in the early days. It said that up to 4 million households would benefit.
There was a trade-off, which we handled by means of a gentleman's agreement, if the Minister will forgive my using that expression, between Channel 5 and the Government. I urge the Minister to keep a close eye on it. It was agreed that Channel 5 would have the right to use part of the spectrum in certain regions for five years, when it would have to hand it back to the Government, at no cost to the Government. When it connected people to Channel 5, it had to tell those who benefited from that analogue use of channel 35 spectrum that they would have to migrate to another delivery system in five years.
Channel 5 accepted that happily, because it knew that in five years it would have better delivery systems and would probably be moving to a clearer digital signal. The negotiations were complex, because my overarching aim on behalf of the Government was not to lose the advantage of a clear national digital channel, which may be used ultimately for, say, genuinely mobile television. That may not be the most exciting use of it, but it is an interesting use and there are tremendous advantages in having genuinely mobile national television which, because it is a clear signal, would be available across the country, even if one was moving around from area to area.
§ Mr. Boswell
The prospect of genuinely mobile television is exciting. Does my hon. Friend agree that for our present consideration, one of the great—if not the unique—selling propositions of radio is its extreme mobility, which is why it is so attractive and why its spectrum allocation is so important?
§ Mr. Taylor
I entirely agree. My hon. Friend and I agree on the principle of the Bill, and he is right to table the new clauses, because there are ways of improving the Bill before it is too late. The management of the spectrum will have to develop fairly quickly, and the more powers that are taken at this moment in the Bill, the better it will be. I urge the Minister to consider seriously the new clauses that my hon. Friend has wisely tabled.
As I mentioned in an intervention, there will be cases where, because of the technology, the Government and the Radiocommunications Agency will want to move users off a particular spectrum that is not indispensable to them and which could be used more efficiently by another company and for another purpose. I am sure that the Minister is aware of such cases, and the new clauses would give powers that she would find valuable.
With regard to the move to digital television, I was disappointed that the DTI did not continue to take the lead on the important matters related to digital television, as the Department had done under the previous Government. There seems to be too much interference by the Department for Culture, Media and Sport. I never criticise other Government Departments, of course, but when complicated matters are at stake involving technology and commercial interests, it is important not to let the Department for Culture, Media and Sport have too much say.
In the context of digital television, it should be the DTI's overriding ambition to achieve progress towards switch-off of analogue transmission at the earliest possible 681 date. I am not being silly and suggesting that that means denying many people the ability to receive television. We all understand that. A similar problem emerged with the move from black and white to colour television.
The point is extremely serious. There would be huge commercial advantages for the United Kingdom to be in the lead. If we want to stimulate the move to digital television, a series of timetables must be set. We had set five years or 50 per cent. coverage of digital, whichever was the lesser. Those aims seem to have been fudged in recent Government statements. That will give the wrong impression to industry, which will have to make huge investments if the digital revolution is to occur.
§ Mr. Boswell
I am grateful to my hon. Friend for giving way, and I am anxious not to interrupt his flow. Does he agree that the experience of radio shows that one critical element is the cost of the receiver? That bears on the acceptability of the switch from analogue systems to digital. Does my hon. Friend further agree that one approach that can fruitfully be adopted, and has been adopted by the Radio Authority, is to allocate licences over a longer period, to give operators a greater inducement to make the shift?
§ Mr. Taylor
Yes, I accept that. We shall need a series of innovative methods to encourage investment, and longer licences is one. The prize of getting digital transmission for television is not just the fact that we may well become the world's largest set manufacturer—we do not do too badly at the moment, surprisingly.
There are 42 million television sets in this country, if my recollection of DTI figures is right. The Minister is up to date, and the figure might be slightly higher now. If there are 42 million television sets, that is an awful lot to replace. My hon. Friend the Member for Daventry (Mr. Boswell) raised the cost of not only the set, but the set-top box which, at the moment, would be separate but ultimately would be integrated into the new set as the market developed. As the market starts to expand, there will be a downward pressure on prices.
An innovative idea was discussed under the previous Administration. I would not say that it was Government policy; that would be arrogance on my part, and others would point out that I had not achieved any consensus. However, there was a clear possibility that moneys raised from administrative pricing—or, more particularly, from auctions—could have been put to use to stimulate the market for manufacture, distribution and installation of set-top boxes, so that the price to the consumer in the early days would not be as high as it otherwise might have been.
That could have been done in two ways. The first—this is not the way I favoured—was a straight subsidy in conjunction with the television companies that would be players in the digital age, so that the burden was shared between the Government and the private sector, in recognition that there were Government advantages. The second was that the freeing up of the spectrum when the digital signal was able to pass cleanly—rather than with the distortions that occur when an analogue signal passes from transmitter to transmitter—would make the spectrum valuable. A high price could be put on the spectrum, so that an incomer—knowing that spectrum was available—would pay a certain price. That money could be deployed 682 to stimulate the freeing up of the spectrum that the incoming investor wished to take advantage of. A pool of money could be put to good use, to stimulate the market and to get it to a critical mass.
Both sides of the House agree that, invisible though it is, the spectrum is one of our most valuable resources, and the ability to make proper use of it is one of the determining factors as to whether the economy is capable of competing efficiently in the future. We need the ability not only to make use of the given current range of spectrum, but to make better use of the very high frequencies which at the moment have not attracted a great deal of investment. The range of 40 GHz would possibly open up the prospect of interactive television channels, and some experiments are going on. Frequencies at the higher end are not at present in great demand, but I suspect that that will change. That means that the Bill will be important, in how we manage and price the system. There are no such powers, but the Bill starts to provide them. In providing those powers, would it not be better to have the extra resources that would be available because of the new clauses?
There are more negative aspects. What powers can we have to take spectrum away from companies—or public authorities—that are hoarding? How do we insist that a company that is not absolutely dependent on a narrow part of the spectrum—and is therefore making inefficient use of that spectrum, looked at in the widest context—is moved to a different spectrum? We may need certain powers because of interference across borders. Obviously, in our case we mostly have a sea border, but that does not stop radio waves and we get interference from northern France and Holland, and vice versa. There may well be occasions—perhaps if we were moving to a new agreement in the European Union on spectrum resource management—when we would need to move companies around. We would need the powers to do that, and we need to find the right pricing mechanism.
§ Mr. Boswell
I shall share an anecdote with my hon. Friend. I am sure that he is aware of the situation in which somebody's garage door opener in Canterbury might, allegedly, close down all the taxi radios in Calais.
§ 12 midnight
§ Mr. Taylor
I am sure that The Sun would approve of that anecdote, but I am not sure that it is sensible in any other way. I must not get confused into worrying about European issues, or I shall be thought to be speaking in a different debate.
These powers will be important. There will be many other incidents that I have not mentioned, or which we have not even thought of, because the changes in technology have not yet occurred. I urge the Minister to look carefully at our rather generous offer. It is rare for a Conservative Opposition, fiercely keen as we are to look at the details of Bills, to come forward suddenly, in a fit of generosity at midnight, with new clauses that offer the Government more power. It would be churlish of her not to look at these offers seriously.
§ Mr. Ian Bruce
My hon. Friend has left out a most important point: the Minister, who is reasonably new to 683 her job, has the advantage of my hon. Friend's experience. He did the same job for some time. I am sure that she will agree how valuable his experience is.
§ Mr. Deputy Speaker
Order. That may be the case, but it has nothing to do with the new clause before us.
§ Mr. Taylor
I heard my hon. Friend's intervention, but I shall not comment on it.
I hope that the Minister will say what her attitude is, as Britain has a tremendous opportunity to show leadership in the effective management of a resource where not only has British industry been successful, but Britain has been successful in attracting inward investment. The proof of that is in the list of members of the advisory committee, which includes Motorola.
Motorola is an interesting company. Not only does it employ thousands of people in this country, but, as an American company, it is an inward investor. I hope that David Brown, Motorola's chairman in the UK, has the appreciation of the main board of Motorola in the United States, as Motorola in the UK is a leading player in developing digital mobile telephony—GSM—and did it almost under the noses, but without the attention, of the American company.
The one country in the world where GSM is not the universal standard is the United States. The American directors of Motorola often look quite uncomfortable when I remind them of the fact that it is thanks to Motorola in the United Kingdom that we lead the world in the spread of GSM. The United States, which is a fairly backward technological market, is looking to catch up one day.
§ Mr. Oliver Letwin (West Dorset)
I should declare an interest, although, having discussed it with Sir Gordon Downey's office, I am not clear whether it really is an interest. However, for the avoidance of doubt, I declare that I am a director of the bank that has been appointed by the Department of Trade and Industry to advise on spectrum bids.
It is important to understand the background against which the new clauses are set, which has become more evident in many ways in other countries. Over the past 10 years or so, I have spent a large proportion of my time setting up the regulatory regimes for telecommunications in other countries. It is important to understand that even if the Government do not accept the intention behind the Opposition new clauses in the precise form in which we have put it forward, they will have to revisit the idea at a reasonably early date—unless they wish to generate some bizarre results.
The first piece of background that is critical—the Minister and her colleagues and advisers, including the impressive list of members of the advisory board that she read out, will already be aware of it—is the fact that compression, which my hon. Friend the Member for Daventry (Mr. Boswell) mentioned, is not a matter of slow progress in a mature industry, analogous with the gradual expansion in the size of aeroplanes, which enables the slots at Heathrow to be used more efficiently over time. Perhaps incrementally over 10 or 15 years we might see a doubling in the size of aeroplanes.
684 We are talking of an industry in which huge shifts have occurred, not least the effective demolition of satellite as the major means of international voice telephony.
§ Mr. Deputy Speaker
Order. I have heard the hon. Gentleman talk before about the history of why amendments were tabled. Let us simply say that the amendments and new clauses have been accepted for debate. We do not need a history or a background to them. We need only speak to the business before us; perhaps the hon. Gentleman will do that. I do not want to hear the history of why the amendments are before us. They are relevant, and they are now up for debate.
§ Mr. Letwin
Of course I take your guidance, Mr. Deputy Speaker, but I am offering not an explanation of why the amendments arose but an argument about why they should be accepted, which I believe is directly germane to the new clauses.
We are dealing with an industry in which compression moves extraordinarily speedily. As a result, what is imagined today—even, perhaps, by the greatest experts—about the amount of frequency, the band width, that will be used may be wholly fallacious two or three years, let alone 10 or 15 years, hence.
Indeed, there is a long history of false prediction about the crowding of use of spectrum, comparable to the long history of false predictions about population growth. The experts turn out to be no better than the rest of us at guessing about such things. The intent behind the new clauses is precisely to allow for the possibility of a huge mismatch between current occupation of the spectrum and what will turn out, perhaps even during the Minister's occupation of her post, to be efficient occupation of the spectrum.
Of course, we all hope that the hon. Lady will progress to the dizzy heights of the Cabinet, but if she remains in the DTI and retains responsibility for the sector, she may find that, even during the lifetime of the present Government, current predictions, including those made by experts in the Department, will have been falsified by technological advance.
The new clauses seek to establish an arrangement under which that would not give rise to either of two developments, both of which must be wholly antipathetic to the Minister's desires. One, which has already been much discussed tonight, is inefficient use of spectrum.
I shall illustrate how extreme such inefficiency can become. Only about 10 years ago, the Government of a not very advanced country, Fiji, thought that it would be appropriate to allocate the entire 900 MHz band—that is, the entire part of the spectrum currently occupied by GSM in the United Kingdom—to one company serving Fiji, whose population is far smaller than that of a small British city. That happened because, on the best advice then available, that Government misunderstood what would be necessary.
That could well occur in a different form in this country. It is a grossly inefficient use of a scarce resource, because other companies could use that but cannot. Secondly—a point that I think will matter to the Minister, as it does to Conservative Members—the deficiencies to which the Labour party has frequently alluded in recent weeks—that rail and water privatisation have generated 685 some unanticipated profits—could be brought home to roost on a scale that even the Minister might not yet have contemplated.
To be the owner, when compression has moved faster than anticipated—we must remember that we are talking about a geometric progression; it might be two, four, eight, 16 or 32 times faster than anticipated—of a large array of frequencies, which can at that time be used, but only by someone else who does not have possession of them, when a given company which has bid for them has possession of them, is an immense resource.
§ Mr. Boswell
Is it my hon. Friend's judgment that, despite the compression that he so eloquently describes and its rapid progress, the demand for these frequencies is probably rising faster still? In other words, in the race between the potential demand for frequencies and the technical compression which effectively makes more frequencies available, unless we use the spectrum to best effect we shall be losing, not gaining, ground.
§ Mr. Letwin
My hon. Friend makes a fundamental point, and it may be right. It is likely to be right. The difficulty is that none of us has the slightest idea whether it will be right. However, the new clauses establish a regime under which, if it proves to be right, as my hon. Friend and I suspect it will, the surplus profit, which would otherwise accrue to the monopolist, who would be able to exact a ludicrous monopoly rate, out of all proportion to the bid that he might have made or the administrative charge that he might be paying, would instead find himself in circumstances where there would be the possibility of that surplus profit being recouped.
I draw the Minister's attention to the kinds of quantity about which we might, in certain scenarios, be talking. Even public switched voice telephony occupies broadly 2.5 to 3 per cent. of gross domestic profit in the UK today. It is perfectly imaginable that, under certain hypotheses about convergence, about which my hon. Friend the Member for Esher and Walton (Mr. Taylor) spoke a moment ago, and under certain hypotheses about compression and demand, which my hon. Friend the Member for Daventry mentioned, we might be talking about surplus profits equivalent to about 1 per cent. of GDP—about £74 billion a year.
That would knock into a cocked hat the entirety of the surplus profits apparently generated, if one listens to Labour Members, by all the nationalised industries following their privatisations. It would still knock them into a cocked hat if one multiplied them by 10. We are talking about great quantities, a great unknown, and, accordingly, a great need for flexibility.
New clause 5 is the minimum response to that range of possible eventualities. It simply argues for a secondary market; a tradeability. That in no sense eliminates the surplus profit. It allows those who possess frequencies today later to trade out of some of them, presumably at the then market value, and, hence, to realise profit. But at least it solves the first problem of inefficient use. It means that if the proud possessor cannot immediately realise—because, for example, he cannot find the financing—capital expenditure sufficient to make use of the spectrum or the frequencies that he holds, somebody else will be able to do so by buying them.
§ Mr. Boswell
My hon. Friend will be familiar with the situation in relation to certain agricultural quotas. Does 686 he agree that it would be possible to include within the mechanism a siphon whereby a proportion of the value, or a proportion of the spectrum itself, was taken off as a necessary part of, and concomitant to, the Secretary of State agreeing to such a transaction?
§ Mr. Letwin
My hon. Friend's mind is so speedy in its operation that he anticipates not merely the next part of my remarks, but the part after that. The solution he envisages is one which the Minister, on mature reflection, may wish to adopt. As I said, new clause 5 represents the minimum position.
By contrast, new clause 11 represents the opposite extreme. It allows reallocation, effectively by arbitrary fiat. The hon. Member for Broxtowe (Dr. Palmer) made the valid observation that serious issues arise from such reallocation—for example, property rights and the rights of individuals and companies that have invested. Nevertheless, the new clause would resolve the monopoly rental surplus profit problem.
The new clause would allow reallocation without compensation. That could be defended on the ground that in order to exercise that power reasonably, so that it would not be challenged in the courts through judicial review, the Minister would have to allow the retention of such parts of frequencies that were originally allocated as was necessary to continue those same actions which were originally the subject of the bid or the administrative charge.
Even then, dangers are attached to that option. However, it would represent a conscious policy by the state to recoup unused frequencies for the public good and to restore profitability—a normal return—to the level that the bidder had anticipated it would be, post the technological changes that had enabled the bidder, hypothetically, to be able to conduct exactly the business he had intended with a much smaller range of frequencies.
There are two poles. At the one pole, there is the entirely voluntary market mechanism, posing no problems of civil or property rights and solving the problem of the efficient use of the spectrum—but leaving intact what might be enormous surplus profits under certain scenarios; a vastly over-adequate reward for the original risk.
At the other pole, there is a more draconian possibility. If exercised in the true traditions of British administration, and subject to the strictures of the British legal system, it would probably result in the preservation of property rights, although it runs some risk of going too far in that respect. However, it would deprive the original holder of what might otherwise be a very excessive profit.
Between those two poles lies exactly the suggestion on which my hon. Friend the Member for Daventry, with his lightning wit, alighted. On mature reflection, we may feel that we are suffering from a lack of completeness in our range of amendments and new clauses. As my hon. Friend said, what we are putting forward tonight is a menu for ministerial consideration, but I fear that it contains only the first and last courses, and may be missing the main course.
We might have tabled a new clause that would have allowed for tradeability, but tradeability with some form of levy—which could be adjusted not necessarily merely 687 for a normal return, but for a super-normal return to allow for original risk. That might also recoup vast sums for the Exchequer at a time when technology had moved in a way that was not anticipated.
On the issue of immediate practice, we have to consider what will be the effect of the Bill if it is passed as it stands, which I fear may well be the case. In a perfect world, it would not matter if the new clauses were not accepted, because the Government could introduce a new Bill next week with an equivalent set of provisions; but we are all aware that that is not the reality of public administration. No doubt the Minister fought long and hard to find legislative space for the Bill. The dizzying speed with which her colleagues are introducing legislation—much of which I regret—suggests that the legislative timetable may be chock-a-block for many years.
I fear that, although the House is at the disposal of the Government—I sometimes feel that it is utterly so—technology, reality and commerce are not. The speed with which the developments that I mentioned have occurred may mean that the Government cannot catch up in their legislative timetable with the pace of technological development.
§ Mr. Ian Taylor
I would go even further. Because of the speed of change—my hon. Friend rightly mentioned the advances in compression technology—it is impossible for Governments to anticipate developments in the very near future. All legislation should be technology neutral, and it should facilitate, rather than regulating a closely defined area of activity at any given moment, because that is always likely to block investment or to be simply irrelevant, because the technology has superseded it.
The new clauses are designed to make the Bill technology neutral, creating powers to deal with the technology however it develops. I am interested in the lucid and erudite way in which my hon. Friend is explaining the problem.
§ Mr. Letwin
It is precisely because of our collective ignorance—and, alas, the ignorance of any Government—that technological neutrality, and flexibility in the face of changing technology, are of the essence. If the new clauses are not accepted, it may be too long before the Minister gets the chance to introduce equivalent provisions.
If the worst happened, and the problems that I mentioned arose, it would be at the cost of some years of efficiency, perhaps to the considerable disadvantage of the economy and with long-term effects on British manufacturing and design, and the problems that the hon. Member for Broxtowe referred to might become acute.
If a company purchased a wide range of frequencies and found that it did not need them all because of advances in technology, but then began to exploit some others in an unanticipated way, it would of course have established a valuable property right in those parts that it had not originally anticipated using for that purpose, and it would be extraordinarily difficult, at least at the far end of the spectrum, for the state ever to recapture the gain.
The Minister may find herself in the bizarre position of having the Conservative Opposition accusing her at a later date of having failed to recapture for the state, in a 688 virtually unattended House at 12.23 am, an amount vastly greater than the entire surplus profits to which Labour Members allude in relation to privatisation.
§ Mr. Lansley
I always hesitate to intervene on my hon. Friend, because the completeness with which he forms his argument leads me to suspect that I will simply anticipate a point to which he was about to come.
Does my hon. Friend recall a point made by the hon. Member for Broxtowe (Dr. Palmer) on Second Reading, that if administrative pricing gets the fee wrong, either it will be too high, and act as a disincentive to investment, or it will be too low, and not affect economic behaviour at all? Does my hon. Friend agree that new clause 5—to which, inter alia, he is speaking—would assist, even where administrative pricing applies, in getting the fee right at the earliest possible moment?
§ Mr. Letwin
My hon. Friend makes an important point. The combination of new clause 5 with new clause 16, which we shall discuss in due course, will have that effect. I must not intrude on your good will by talking about new clause 16 now, Mr. Deputy Speaker, but perhaps we should return to my hon. Friend's point—which is very just—when we debate that new clause. The problem is not merely one of inefficiency or surplus profit. There is another dimension, which makes the flexibility that would be conferred by the new clauses—or, at least, by similar provisions—all the more necessary.
If, on her return to the Department, the Minister consults widely, not just with those concerned with frequency allocation but with those with experience of the entire range of the telecommunications business and, indeed, the media business, she will hear an echo of what I am saying. We may be on the verge of a revolution in the cost structure of the telecommunications industry, to which the new clauses are directly relevant.
There is beginning to be some indication—in Italy, for example—that the fundamental cost of mobile telephony is between a quarter and a fifth of the cost of fixed telephony. That applies even under the fairly efficient arrangements currently operating in the United Kingdom. If the comparison proves to be bona fide—many of us are currently studying the matter in some detail—the entire fixed-line network, not just that of BT but those of its competitors, may well disappear within the lifetime of this Government. That is not because the network's functions will disappear, but because they will be replaced by fixed-radio access.
It is possible that, if the new clauses were accepted, the process could occur smoothly, and that as much as 1 per cent. of gross domestic product could be added to consumer surplus in the economy. As I have said, voice telephony accounts for between 2.5 and 3 per cent. of GDP. If we reduce its resource cost by more than 50 per cent., there may be a consumer surplus of roughly 1 per cent. of GDP. The new clauses would allow the transfer to take place smoothly. Without them, such a transfer might not be possible. The economic loss that might be entailed—I say "might", but I think there is a pretty strong probability—if the Minister fails to adopt similar measures could be very great.
I hope that on all these grounds—sheer efficiency, preventing abnormal profit through an unintended monopoly rent, and, most important of all, the generation 689 of a huge economic opportunity gain for all of us—the Minister will seriously consider whether, after all, she should opt for flexibility arrangements of this kind.
§ Mr. Colin Breed (South-East Cornwall)
I should like to express the Liberal Democrats' views on the Bill. We are concerned primarily with spectrum reallocation, which is a matter in which we should perhaps be more involved. As the spectrum is a scarce resource, I have some sympathy for the Bill's clauses dealing with reallocation.
Three aspects of spectrum use should be controlled, the first of which is its inefficient use, or non-use. I certainly do not wish spectrum to be acquired for purely investment purposes.
Secondly, spectrum use for new purposes in new technology should be controlled. I imagine that, while this debate is going on, new technologies are not only being invented but are being introduced. Indeed, by the time debate on the Bill eventually finishes, I should not be surprised if those new technologies have become obsolete.
Finally, the way in which spectrum is used by spectrum holders should be controlled, to enable some of it to be released. Such controls might make spectrum reallocation possible, which would help in ensuring good spectrum use. Controls may also make it possible to use spectrum for the policing, safeguarding and security of spectrum holders—who may have paid exceedingly large sums for use of that spectrum. Surely there must be some safeguards for spectrum users. Spectrum reallocation to ensure its proper use would ensure also that the system is secure and is being used most efficiently. However, I do not know how successful the Minister will be in persuading the Ministry of Defence to reallocate spectrum.
I am absolutely opposed to new clause 5, which deals with the secondary spectrum market, because secondary markets are an entirely inappropriate way in which to consider spectrum. Milk and fishing quotas—the spectre of quota hoppers—show how secondary markets develop contrary to all expectations. Moreover, the practice of holding spectrum for investment purposes, and even the auction process itself, may encourage undesirable practices and are not the most efficient way in which to use spectrum. I certainly would not like there to be differentiation between spectrum owners and spectrum users.
We have created a system in which spectrum is acquired in auctions—not so that it will be used properly but so that it might be held for competitive advantage, or even to establish a dominant or monopoly market position, thereby preventing others from using it properly.
Secondary markets in spectrum would be a dangerous development in a very immature market, particularly because we have no real understanding of what will happen in the spectrum market. We have had all sorts of problems with milk and fishing quotas which are attributable essentially to secondary markets. Similar problems may be visited upon us in a secondary spectrum market.
The hon. Member for Esher and Walton (Mr. Taylor) briefly mentioned set-top boxes for televisions, which undoubtedly will soon be introduced. The boxes provide 690 a good example of the need for care in that market, to ensure that domination is not established by one provider and that proper competition is maintained.
§ Mr. Ian Taylor
I do not wish to go back over old ground, but the hon. Gentleman mentioned the process of conditional access, which was put in the hands of Oftel to regulate. I think that those rules will provide fair and non-discriminatory access, although the market is currently taking its positions and deciding on one set-top box and compatibility. I believe that Oftel, as the regulator, is the right organisation to consider these very detailed arrangements, and I think that, on balance, we made the right judgment.
§ Mr. Breed
I bow to the hon. Gentleman's superior knowledge of that. The way in which the dominant operators in that marketplace operate in other fields causes me to fear that the so-called level playing field will not materialise. I hope that Oftel will indeed be able to control and manage that situation, which will have enormous repercussions for us all.
Although I am prepared to support some of the amendments in respect of reallocation, because I believe that they give us some power to ensure that such a scarce resource is used efficiently, I am signalling our complete opposition to new clause 5, as I firmly believe that the creation of a secondary market in such an immature sector is likely to have dire consequences for the Government and for the country.
§ Mr. Ian Bruce
Although I was the author of most of the amendments in the group that we are debating, I am not the original author. Let me tell the House why we are discussing them, why the Speaker has selected for debate 18 of the 19 that I wrote, and why we did not debate those amendments in Committee, which seems almost an age ago.
During the Bill's passage, we heard from the Minister that she had received advice from the Office of Telecommunications. There was a hint that Oftel was not quite as enthusiastic—or, at least, whole-heartedly enthusiastic—about the Bill as the Government were, and that it felt that the Bill should have gone much further on several issues.
I shall not speak about the whole gamut of utilities, because I did not produce any amendments on that subject. In tabling the amendments, I tried to ask where we had gone wrong in the pricing and efficiency of use of spectrum.
The Government came up with a Bill that was primarily a Conservative Bill—a Bill that was in the hands of the Department of Trade and Industry when the Minister and the Labour party came to power in May. The Bill deals with how the existing spare spectrum will be allocated. It also deals with the reallocation of spectrum that we assume will become available and which we assume will be reallocated, given the current licence criteria. It will become available, and the Government know that it will become available and, in time, by what method it is to be reallocated.
After the Committee, I attended a presentation organised by Pitcom—the Parliamentary Information Technology Committee—of which I have the honour of 691 being vice-chairman. It seemed to me, from the frank comments made to me by Oftel at what is generally an off-the-record briefing, that there was more to be said about the Bill. The amendments that we have tabled generally reflect what Oftel said about what it wanted to happen.
I shall take advice from my hon. Friend the Member for Esher and Walton (Mr. Taylor), who was Minister for Science and Technology in the previous Government. He has told me that he well acknowledges that other things were wanted when he was Minister, but that, in the time leading up to the general election, for manifesto purposes, the Government felt that they could make only limited recommendations. My hon. Friend has told me that any limitation of agreed Government policy just before the general election, for manifesto purposes, should not be a limitation on the present Minister.
I wrote the amendments in less than an hour, reading Oftel's clear advice to the Radiocommunications Agency and the Government. That is where the amendments spring from. I do not want to attribute any words to Oftel. After our meeting, I asked Oftel to tell me what it felt should happen, and I should like to read from the letter that I received.
§ Mr. Lansley
My hon. Friend raises an interesting point. Some of the issues raised by Oftel were referred to in Committee, whereas others have come up since. The Standing Committee sat about two weeks after Second Reading, but four months have elapsed since then. The Government have had an opportunity to respond, but have failed to do so. They have not tabled their own new clauses.
§ Mr. Bruce
That is true. I pay tribute to the Minister. I often complain about not receiving replies to letters, but the Minister is very quick to respond to them. When I received a letter from Oftel, I wrote to tell her about the additional information that was available to us—which was already available to her. She rapidly wrote back, telling me that she had read the information, and that the Government had made their decisions with that advice available and did not intend to move any further forward.
I understand that the Department of Trade and Industry has been very busy with legislation. This week has shown how the Department has become clogged up, not having parliamentary time to bring its Bills back on Report. That backlog of parliamentary business gave the Department time to deal with the issues that Oftel wanted the Government to move further on. If the Government reject the new clauses, they will have to find time in the remaining three or four years of this Parliament to do something about these important issues.
I thought it proper not to interpret what Oftel told me, but to read the relevant paragraphs from Don Cruickshank's letter of 5 December. He says:When we met on Tuesday at OFTEL's presentation to PITCOM, you asked me to write to you setting out OFTEL's view of the Wireless Telegraphy Bill particularly how the consumer interest should be safeguarded.692 Under the heading, "The Bill", the letter says:OFTEL welcomes the Government's Wireless Telegraphy Bill as part of a process of reviewing the way spectrum is used. Radio makes a very significant and increasing contribution to national economic welfare".I shall not detain the House with the details of the £13 billion involved and the 410,000 jobs. He continues:It is vital that methods of spectrum management are updated to meet the increasing demands of new market requirements and to allow increasing competition and the development of innovative services. The RA—Radio Authority—review, the White Paper and the current Bill are steps in that process.That is very important—they are steps in the process.
The letter continues:In providing for administrative policy and auctions, the Bill paves the way to opening up access to radio spectrum and providing an additional management tool to that of regulation. OFTEL is very keen on the use of auctions as we consider they provide the best process for allocating spectrum to operators in the most economically efficient way. Where spectrum has already been allocated administrative pricing will allow a licence fee to be set which will reflect its economic value and encourage operators to use it efficiently.The letter goes on:I attach a copy of Oftel's response to the recent RA consultation on administrative pricing so you can see Oftel's views on these detailed issues.The Bill is only part of this process of overhauling the previous regime. The RA have indicated that they will go on to look at the possibility of secondary trading of spectrum".That is very important in the context of the new clauses.Oftel strongly supports the use of secondary trading"—which is not in the Bill but is in the new clauses—which will enable spectrum to be traded between users, encouraging them to use only what they need and to sell the remainder. This will ensure more efficient use and lead to competitive and lower prices for the consumers as the surplus holdings are used by other operators. As we discussed on Tuesday, this will become increasingly important as the fixed and mobile telephony markets merge and more operators want access to radio spectrum.The RA will, in addition, be seeking to ensure that spectrum is not hoarded by public and private holders to the detriment of others who are seeking to use it for new, innovative services.Again, that is not in the Bill, but it is in the new clauses.It is extremely important to keep up pressure here in order to provide spectrum for new operators and services.I will not read the last paragraph; suffice it to say that it mentions putting consumers first. It is not relevant to the new clauses and I would certainly be out of order to read it. I know that a copy of the letter was sent to the Minister, so she is aware of the point.
With the letter, I received two very important documents. One was the review of utility regulation, which is also not relevant to the new clauses. Our debate could well have lasted for several days if I had gone through that document and drafted amendments that would make the proposed changes to utility regulation, but I shall not stray from the new clauses.
§ Mr. Lansley
My hon. Friend referred, if I heard him correctly, to Oftel's view that the Radiocommunications Agency will ensure that hoarding does not occur. He rightly says that one of the new clauses specifically addresses that point. The implications of Oftel's letter is that it expects that the Radiocommunications Agency will be able to achieve that. I am not clear from looking at the Bill—unless it is somehow hidden in the enabling power on regulations—how the Radiocommunications Agency will achieve that without benefit of the new clause.
§ Mr. Bruce
In short, it will not. The point made by Oftel is that the Radiocommunications Agency understands that the issue is important, will do further work on it and will come forward with proposals. One suspects that those proposals will be for further legislation, which the new clauses would short circuit.
There are clever people at the Radiocommunications Agency and even cleverer people in the DTI. Some solution to enable secondary trading may be found and people may be allowed to release the spectrum early, as we seek, without the benefit of the new clauses or new legislation—but I do not see how. If I did, I would not even have spent an hour drafting the new clauses, which are directly derived from a document to which I shall refer. It is very important that the House understands where Oftel is coming from. I have simply used my own thought process to try to introduce points without being out of order. I was quite amazed that Madam Speaker acknowledged that the subject of the new clauses had not been dealt with and that the new clauses were, therefore, in order.
This document is Oftel' s response to the Radiocommunications Agency's proposals for implementing spectrum pricing—which the Minister had in her hands when she was considering how the Bill should be framed. She has now had many months in which to consider the new clauses and I hope that some of them might be accepted—although I spoke to her earlier this evening and she did not give me much hope. The document states:OFTEL supports the introduction of administrative pricing as a useful step towards more efficient, market based, spectrum management. However, consideration should also be given to increasing the supply of available spectrum".That is at the heart of what we are trying to do in our new clauses.
§ Mr. Lansley
My hon. Friend makes a useful point. Given that one does not want to imperil those who have investments in or grandfather rights on existing licences, there will, of necessity, be only a limited amount of spectrum available in the first instance—unless one is able to recover some additional spectrum from some of the users who are relatively over-provided, such as those within Government or broadcasters. Does my hon. Friend agree that there would be some advantage in trying to win a little extra spectrum for allocation into administrative pricing, particularly if it enabled the secondary market to set more accurately appropriate administrative pricing for those who have current fees but who should not be disturbed?
§ Mr. Bruce
In asking that question, my hon. Friend sets out the case extremely well. By chiming in with this document, we shall see how Oftel suggests that that 694 should happen. The Bill aims to improve spectrum management, but it deals with only that little bit that is currently available and another lump that is likely to become available—but we do not know for certain when. Analogue television might have to continue if digital television proves to be a complete failure. The two components must work side by side. We need the right tools. The Liberal Democrats and my hon. Friend the Member for West Dorset (Mr. Letwin) have remarked on the speed with which things change. However, I must move on, Mr. Deputy Speaker, and I shall try to limit the number of interventions—and perhaps give way only in order to wet my whistle.
§ Mr. Letwin
I am grateful to my hon. Friend for giving way. The interchange between him and my hon. Friend the Member for South Cambridgeshire (Mr. Lansley) prompts some very interesting reflections. Does my hon. Friend agree that there could come a time when it will be enormously important to use administrative pricing as a signal to the secondary market, and indeed to the primary bidding market, in order to ensure that optimisation occurs at a lower point on the price curve? For example, if we want to see a wider spread of the use of a particular technology, we might want to ensure that the bidding resulted in a low rather than a high price, with tough conditions on coverage. Administrative pricing might be used to that end.
§ Mr. Bruce
Indeed it might. Probably the most important issue—to which new clause 5 refers—is allowing people to trade spectrum that they already own. We have seen how that becomes very popular with owners of spectrum, who find that something they are not using terribly efficiently suddenly has enormous value. They can then put their share on the market and make a profit, while releasing the spectrum for other people. If we leave only a tiny amount of spectrum for the new services, the providers will have to pay enormously high prices. If a lot of spectrum were available, the consumer would benefit. I am only halfway through my first paragraph, so I must continue. The document then states:However, consideration should also be given to increasing the supply of available spectrum, not just curtailing demand by"—
§ Mr. Deputy Speaker (Mr. Michael Lord)
Order. I must remind the hon. Gentleman that although it is permissible to read from documents in the House, it should be done briefly and not at length.
§ Mr. Bruce
Indeed, Mr. Deputy Speaker. I think that the document is relevant, but I will take your guidance and skip through it. However, it is a pity that one cannot have a document fully put into Hansard, which would have been the most efficient way to do this. I am trying not to misquote Oftel, but I will paraphrase wherever I can to speed up the process. It is important to get the first paragraph down, as it concerns the principle that Oftel is dealing with.
The document continues:This means addressing the issue of spectrum allocation, to ensure that spectrum which is currently underutilised is made available to those who can use it most efficiently. In practice, this would mean adjusting fees to promote greater efficiency, not only in those areas and for those services where congestion already exists (even though efficiency may already be at a high level) but across all user groups in both public and private sectors.695 The next paragraph deals with the allocation of spectrum that had been given historically to both BT and Mercury, which is now known as Cable and Wireless Communications—it may even have changed the name again since the document was produced. A large amount of spectrum has been given to those two large companies and there is no incentive for them to use it efficiently or to migrate out of the spectrum allocated to digital broadcasting or fibre. Oftel certainly wants that facility to be made available.
On analogue broadcasting and related fixed-link services, the licences issued under the Broadcasting Act 1990 have already been subject to a market-based process through competitive bidding. Again, Oftel points out that there is no real incentive for someone buying spectrum for broadcasting to use it efficiently. Effectively, those companies have a licence to broadcast. There are ways in which to use the very same spectrum for other services, but there is nothing to encourage the BBC, Channel 5 or whoever to use it efficiently.
The document continues:Oftel believes there should be a greater loading of the fees for analogue TV fixed links to reflect the fact that these are susceptible to interference (and therefore sterilise a larger area)".Often an enormous amount of frequency is taken up by that.
§ Mr. Bruce
All the new clauses are relevant and in order. I do not believe that it is the job of the Whip on duty to advise the Deputy Speaker on what is or is not in order. We are speaking to the group of new clauses and I can assure the hon. Gentleman that they are very much in order. The way the system works gives people the tools. I could certainly talk at great length if the hon. Gentleman would like me to. I am attempting to get on and to be as brief as I can. Sedentary interventions from the Whip on duty, who thinks that he is speeding up the process, actually slow it down.
Basically, such a move to digital would be in line with using digital instead of analogue signals wherever possible. Certainly, mobile telephones, instead of having an analogue basis, are now digital. That is a more efficient way in which to use the available spectrum.
The steps taken by the Radiocommunications Agency to recover spectrum allocations that are inconsistent with the market allocation are important. BT currently enjoys 30 per cent. of all the available telecommunications spectrum below 30 GHz—my hon. Friend the Member for West Dorset was right to say gigahertz, not megahertz—and 50 per cent. of the fixed-link spectrum below 38 GHz. The agency points out that a useful element of the spectrum has been allocated to BT. Cable and Wireless Communications was also given the most efficient part of the spectrum for utilisation.
§ Mr. Bruce
This is a complicated point, and I must finish it before I give way to either of my hon. Friends. 696 New smaller users cannot use that particular lump of the spectrum. The new clauses would allow the Government to say, "We'll take out some of that spectrum so that it can be reallocated to new entrants, but we can give other parts of the spectrum, perhaps in less efficient areas, to BT or Cable and Wireless, which could utilise them because they have a wide range of users."
§ 1 am
§ Mr. Boswell
I am most grateful to my hon. Friend for giving way. Does he have at the back of his mind the example of airline spots, which is not identical but closely cognate? For example, at Heathrow, British Airways has a preponderant allocation of the total available slots—some people argue that that system should be relaxed.
§ Mr. Bruce
Yes, it is historically the case that the person who arrives first bags the best area. We are all committed to encouraging competition, and Oftel is saying that competition will work better if the best areas—the Heathrows—are spread more evenly among the many operators rather than the few.
§ Mr. Lansley
I am grateful to my hon. Friend for giving way. I was hoping to intervene when he was rightly making his point about the switch from analogue to digital. Does he agree that the commercial imperatives that are pushing firms in the mobile telephone sector rapidly from analogue to digital are not reflected in the broadcasting sector? Is it not perverse, therefore, to implement an additional mechanism to push mobile telephones and their operators from analogue to digital when the Government do not seem to want to use the mechanism of pricing spectrum to push broadcasters from analogue to digital?
§ Mr. Bruce
I thank my hon. Friend—it is good to have a prompt available.
The idea behind making people bid for a broadcasting licence was to ensure that they acted efficiently, but broadcasters are given a massive allocation of the spectrum, which could be available for other uses. The public and the Department for Culture, Media and Sport say that we must ensure that people can continue to use their analogue television sets for 20-odd years. I understand that, as Members of Parliament, we shall all receive letters when pressure is put on broadcasters to give up their spectrum.
The new clauses would provide for a pricing mechanism that could make the broadcaster say, "If we can get rid of the analogue as quickly as possible, we can make millions by transferring it to another operator." They might then spend those millions of pounds on subsidising set-top boxes for their consumers, for example. We should allow the market to help them to do what they want, and the consumer—who is barely mentioned in the Bill—to afford the new technology.
§ Mr. Ian Taylor
My hon. Friend makes a point that I made earlier, but I intervene to say that I think—I am sure 697 that the Minister will leap to the Dispatch Box to confirm whether I am right—that the Government have announced the date on which the analogue spectrum for mobile telephony will be switched off; it will be some time after 2000. I wish that such a pugnacious approach had been applied to digital television as well.
§ Mr. Bruce
I see that the Minister does not want to intervene, but I am sure that, if she knows the date, she will want to tell us it when she winds up the debate.
In the previous Parliament, I introduced a private Member's Bill on telecommunications fraud. At the time, the Bill was intended to help combat fraud on analogue telephones. As promoter of that Bill, I thought it essential to switch from analogue to digital because people who wanted to hack into an analogue telephone would hack into mine as we might upset their nice little business.
I was talking about the exclusive and special arrangements that BT and Cable and Wireless, the two operators within the duopoly, had. No other operator has exclusive rights to that spectrum. Clearly, that is not compatible with the competitive multi-operator environment that now exists. Our new clauses allow the Minister to take that issue on board and to deal with it.
BT and Cable and Wireless also have access to spectrum for other services, especially fixed access and carrier markets. They have almost a monopoly there. They do not even want to switch their own services into those areas of the spectrum. Those services could be more efficiently run there. We are trying to say, "Look BT, you have got all of this." If it can sit on it and not worry, and is not even given an incentive to do anything about it, we shall not get the sort of spectrum management that the Minister has introduced in the Bill.
On the national channels for fixed links, the consultation document issued by the Radiocommunications Agency states:It is not possible to allocate national channels to new operators other than in the 38 GHz band, which is limited to short range links of up to 6 km. The reason for this is that most of the available spectrum is already allocated on a national exclusive basis to either BT or Cable and Wireless.That is the important issue. Spectrum should be available to other players. We should be able to open up this part of the market. Without our new clauses, there will be a continuing imbalance in a free market.
We hope that regulation will decrease in the future as the free market exists. The strange thing is that often, to get a free market, one has to introduce a lot regulations at the beginning to build up a framework within which people can compete.
Oftel talks about Government use of spectrum. It encourages the Government to free up their own spectrum and to use it to advantage. It is possible that the incentive for the Chancellor to get out and free up the spectrum—to go to the MOD and all sorts of people—could be in the Bill. Our new clauses provide more flexibility to allow that to happen.
Oftel certainly welcomed the suggested review of the licensing procedure and the increased transparency. We talked in the debate on an earlier set of amendments about helping that process on. Oftel questions whether those services for which simple pre-packaged licences were proposed should be licensed at all. I shall not go into that paragraph of Oftel's response to the consultation 698 document. It is very useful, but it is not directly germane to the new clauses. It is a good point to say that the less regulation that we have on things that do not require licences the better. That allows short-range spectrum not to be completely controlled. We can just let people get on with it.
On the pricing principles, Oftelsupports a competition based approach to diversity in the market. If prices are correctly set to reflect the supply of and demand for scarce spectrum, it may be that large differentials between different operators' charges result, depending upon the attractiveness of the spectrum concerned.We discussed in Committee how the Government would deal with those issues, but there is no mechanism within the Bill to ensure that the Government, Oftel and the Radiocommunications Agency can deal with those sort of pricing principles. That is what is contained in our new clauses.
In the absence of efficient prices determined by trading and auctions, it is important that administratively set prices approximate as closely as possible to those that would emerge from a freely operating market. The new clauses deal directly with that.
I shall not deal with paragraph 13 of the document, which I did not understand when I read it so it did not give rise to any new clauses.
In paragraph 14, Oftel states that the methodology for setting administrative prices should take account of alternative uses for the spectrum in question, rather than just the cost of a hypothetical alternative technology for a given use. That will not necessarily produce the most accurate and sensible way to use spectrum.
That approach might have an impact on prices for mobile and personal communications network use, and might allow prices to take account of the different propagation characteristics of different mobile frequency bands. A band of mobile telephony could be put up for auction, and that would create a particular price. The Minister may later allocate other spectrum for mobile telephony. If the previous band was worth £10 million, it might be assumed that the next band was worth the same amount. However, even if the two band widths were the same, they may not be equally efficient for delivering the service, and the pricing should reflect that. Our new clauses would help the Radiocommunications Agency with a more sensible and sensitive approach to pricing.
The next paragraph of Oftel's response deals with enforcement, which does not link directly to the new clauses. I simply mention it so that no one will think that I am trying to hide something that we should discuss.
I have gone through a complex set of amendments as speedily as I could. As we are modernising the procedures of the House, we should have a procedure that allows us to read the full document into the record. That would have saved time, and would have saved the Deputy Chief Whip from yet another visit to the Chamber. It is good to see him so cheerful at this time of night. I am sure that he is extremely interested in the subject, and that is why he is here.
I urge the Minister to accept some, all or at least one, of the new clauses, which would help the Government to manage the spectrum as they wish to do.
§ Mrs. Roche
I shall take the new clauses in the spirit in which I hope they were intended—as probing new clauses. I must disappoint the hon. Member for Daventry (Mr. Boswell) as I cannot accept any of them, but I shall try to explain why they are unnecessary.
First, the Secretary of State can already do all that the Opposition seek to empower her to do. Secondly, we believe that the powers in the Bill will bring about efficient spectrum use more effectively than regulatory intervention by the Radiocommunications Agency, which some of the new clauses seek, although of course the agency has an extremely important role to play.
With reference to new clause 2, the Secretary of State, acting through the Radiocommunications Agency, already has inherent power to allocate the various parts of the electromagnetic spectrum to a particular service, as she thinks fit. The power is subject only to certain constraints. The new clause is therefore unnecessary.
§ Mrs. Roche
No, I shall not. The hon. Gentleman took a considerable time and I want to develop my argument because there are common points about the new clauses that I should like to make.
The Secretary of State possesses all the legal means necessary to reallocate the spectrum between services and to assign licences to individual licensees. There is confusion among Opposition Members. On a close reading of the new clauses, one sees confusion between assignment and the allocation of spectrum.
I fully share the concern of the hon. Members who have tabled new clauses that the spectrum should be used efficiently, but as I explained in Committee and on Second Reading, that is precisely what the Bill is all about. The powers in the Bill enable the Secretary of State to charge for licences on the basis of the economic value of the spectrum. That will permit the Radiocommunications Agency to reassign spectrum to other users.
§ Mrs. Roche
While I am not unsympathetic to the spirit of the new clause, I believe that it is unnecessary. I therefore invite the hon. Member for Daventry to withdraw it.
§ Mr. Ian Bruce
On a point of order, Mr. Deputy Speaker. The whole House knows that this business has been put on by the business managers—the Whips in charge of the Bill—and it seems extraordinary to my hon. Friends that the Minister, who always responds fully and takes interventions, should not be doing that on orders from the Whips.
§ Mr. Deputy Speaker
That is not a point of order. It is for hon. Members to decide whether they take interventions.
§ Mrs. Roche
Thank you, Mr. Deputy Speaker.
700 I accept that there may be circumstances in which it would be desirable, for spectrum management reasons, for a particular service to be moved to a different part of the spectrum. There has been a great deal of discussion about this. For example, existing users of part of the spectrum may need to be moved to provide spectrum for a new scheme. Users may also need to be moved to comply with an international agreement allocating spectrum for a new service. That is well known. However, section 1(4) of the Wireless Telegraphy Act 1949 provides the necessary power to revoke or vary a licence if this cannot be achieved through agreement. There is therefore no need for an express statutory power to permit this kind of exercise.
§ Mr. Lansley
I am grateful to the Minister, who allows me to make a point I fear I may not otherwise get a chance to make. I take her point about hoarding, which we have discussed previously. The industry has clearly not been satisfied by what was said in Committee. I note from The Guardian of 5 February that the managing director of One2One said that he was concerned that some investors would buy spectrum purely to sell it on to other telecommunications companies when they were hit by capacity constraints. The Minister has not assuaged industry concerns entirely. Will that weigh in the balance in terms of adopting at least one of the new clauses on offer?
§ Mrs. Roche
The hon. Gentleman knows that we have consulted industry all the way through the Bill. From the consultation, we know that, broadly speaking, industry is supportive of what is proposed.
New clauses 4 and 5 raise important issues of the secondary trading of spectrum rights. I shall go as far as to say—at nearly 1.20 am—that I see attractions in what hon. Members have said about new clauses 4 and 5. I certainly agree that secondary trading has the potential to offer considerable advantages in terms of making spectrum management more flexible and allowing market forces a greater role in the process. However, at the moment, I cannot advise the House to accept the new clauses, for five main reasons.
First, despite the advantages of secondary trading, the free market in this area cannot be left to work completely unregulated. Indeed, on Second Reading, and again tonight, the hon. Member for South-East Cornwall (Mr. Breed) made that very point.
Secondly, a compulsory registration system is necessary so that if radio interference is caused, the Radiocommunications Agency will know who is responsible for using a particular assignment. Conditions must be imposed on the use to which the spectrum is put, to comply with international obligations.
§ Mrs. Roche
The hon. Member for Daventry is nodding.
The new clauses fail to address these issues, so they are fatally flawed.
Thirdly—this is probably one of the most important areas—at present, no legal property right subsists in the radio spectrum. Licences issued under the Wireless Telegraphy Act 1949 are permissions to use radio 701 equipment. They do not confer a legal property right. I understand the serious issues that Opposition Members have raised on that point and realise that this sounds a bit harsh but, as drafted, the new clauses are legally meaningless.
Fourthly, if secondary trading were introduced at the same time as we started to phase in spectrum pricing, there would be a grave risk of windfall gains and a disorderly market. The hon. Member for South Dorset (Mr. Bruce) alluded to that on Second Reading.
§ Mr. Bruce
I appreciate that the new clauses that I have drafted are thin on technical detail. We all understand that windfalls would occur, but surely if the hon. Lady believes in secondary trading she should table new clauses that claw back the windfall or redistribute the money to the benefit of consumers.
§ Mrs. Roche
As the hon. Gentleman will know, we are breaking new ground in this area, and we are anxious to get it right.
There was much discussion—rightly—in Committee on examples throughout the world, particularly where auctions had been used. We are anxious to learn, but it is important that we do not to rush into this. The hon. Gentleman might be interested in a couple of things that I have to say.
There are considerable legal doubts about whether the proposed system of secondary trading would be consistent with the licensing directive. Overall, it would take much more extensive legislation than the two new clauses to introduce tradeable spectrum property rights.
The hon. Member for South Dorset invited me to respond with some new clauses. I shall give him an example of what that would mean. In New Zealand, it took about 100 clauses, which gives some idea of the complexity of the issues and the problem that the Government have with these new clauses.
§ Mrs. Roche
No, I shall make some progress.
In case all this seems too negative, I repeat that I see considerable attractions in secondary trading that is properly instituted and introduced at the appropriate time. However, the new clauses do not meet the criteria that I have mentioned.
I shall deal with new clauses 6 and 9 together, because they both deal with broadcasting and are closely linked. I have every sympathy with the objective of securing the efficient use of all parts of the spectrum, but I do not believe that the new clauses would do anything to improve spectrum management. As I have already explained, the Radiocommunications Agency, on behalf of the Secretary of State, has the power to allocate spectrum between services, so the provision already exists.
702 New clause 11 is also unnecessary, as the Secretary of State already has unfettered powers under section 1 of the Wireless Telegraphy Act 1949 to revoke or vary licences and reassign spectrum. The powers are clearly defined in that Act.
In so far as the stated objective of promoting a free market in spectrum is meaningful, it could already be pursued under the 1949 Act without any amendment to that Act. The new clause is unclear and unnecessary.
I have no quarrel with the intention behind new clause 12, but it is unnecessary as it does no more than restate the current position. The Secretary of State, acting through the Radiocommunications Agency, already has inherent powers to allocate spectrum to specific services—again, subject to international agreements—and has power under section 1 of the Wireless Telegraphy Act 1949 to assign spectrum to individual licensees.
As the hon. Member for Daventry said, new clause 15 deals with exemptions from licensing for low-power devices. I understand the intention behind it, but it is not necessary because the appropriate power is already specified in section 1(1) of the 1949 Act. The Government of that day had great foresight in the areas that we are discussing. The power in that Act is to make regulations exempting specific radio equipment from licensing—a power that has been used extensively. I hope that that gives the hon. Gentleman some reassurance.
New clause 19 deals with the Radiocommunications Agency's enforcement powers. Section 1 of the 1949 Act requires the use of the radio spectrum to be licensed unless an exemption has been made. That Act already gives the Secretary of State enforcement powers and stipulates the penalties that the courts may impose. Enforcement is carried out by the authorised officers of the agency, who are subject to the Criminal Procedure and Investigations Act 1996.
The powers already exist and hon. Members will know that the Radiocommunications Agency pursues a vigorous and effective enforcement policy. There is no need to provide a power for the Secretary of State to make regulations to prescribe enforcement actions against those who use the spectrum without authorisation or operate in breach of licence conditions as the 1949 Act already makes adequate provision to that effect. The new clause is therefore unnecessary, although I understand why the hon. Gentleman raised the issue.
As for new clause 20, I fully agree that priority should be given to using the radio spectrum for services that are not technically feasible by any other means, such as those for which mobility is required. However, it is difficult to see what effect the new clause would have, as the idea of encouraging the transfer of services by regulation—again, I use the word used in the new clause—is rather vague.
In any event, the new clause is unnecessary. The whole purpose of clause 2 is to allow the Secretary of State to set fees which take into account a wide range of economic and other factors, and which will therefore reflect the economic value of the spectrum to users. Administrative pricing should ensure that economic pressure is brought to bear on operators to consider whether they are using spectrum in the most effective way.
703 We have had a full and effective debate. I hope that I have persuaded Opposition Members to withdraw the new clause, but if not, I urge my right hon. and hon. Friends to vote against it.
§ Mr. Boswell
As the Minister says, we have had a constructive debate on some extremely important issues. We are disappointed that the Minister is disinclined to accept any of our new clauses, but she has made some noises that give us some comfort. In particular, we were interested to hear her support for the principle of a secondary market. If such a great trading Bill were to be initiated—one hopes that it would be less complex than that introduced in New Zealand—Conservative Members, if not Liberal Democrats, now absent, would wish to give it a fair wind.
Having listened carefully to the Minister's assurances, I beg to ask leave to withdraw the motion.
§ Motion and clause, by leave, withdrawn.