HL Deb 05 June 1997 vol 580 cc714-32

3.39 p.m.

The Minister of State, Department of Trade and Industry (Lord Clinton-Davis)

My Lords, I beg to move that this Bill be now read a second time.

The importance of this short Bill (though not necessarily short speech) is belied by its modest length. The Bill deals with the management of the radio spectrum. That may sound a rather arid, arcane, technical matter with which to concern your Lordships. However, as I shall explain, it is of crucial importance to growth, competition, innovation and jobs, and to maintaining our position at the leading edge of the information revolution.

Radio is one of the defining technologies of the 20th century. It has its roots in the work of Marconi and others around the end of the last century and indeed this year marked the centenary of the establishment of the first stations in this country for wireless telegraphy, as it was then described. The first legislation regulating the new technology was the Wireless Telegraphy Act 1904. That was updated in 1949 but the legal framework essentially remained unchanged.

It is remarkable to ponder for a moment the advance of radio over the last 100 years. Today we enjoy the benefits of radio, digital mobile communications, broadcasting and information technology. New services and applications are continually arising, especially in the field of information technology. It is no exaggeration to say that radio has become a key component of the communications infrastructure on which a modern economy depends and supports a flourishing industrial sector.

As society increasingly demands, and depends upon, mobile communications, the importance of radio has increased, and the mobile telephone is just one manifestation of that trend. Sometimes it is extraordinarily informative, as one overhears conversations without even trying in all sorts of public places; sometimes it is exceptionally irritating; sometimes it is used as a somewhat deficient status symbol and sometimes simply to show off. However, it does have real value and in future we can certainly expect the boundaries between radio, telephony and computing to become increasingly blurred as an ever wider range of services becomes available—as it becomes possible, for example, for portable computers to communicate without the need to be plugged into a physical network.

There can be no doubt that, as society sets an even higher premium on mobility, the demand for these services will continue to increase. Radio will be the indispensable means of providing it as it is the only communications medium capable of delivering true mobility. The radio spectrum is the raw material of the information revolution.

It may help to illustrate the importance of radio to the economy if I quote a few figures. A wide range of businesses throughout the economy uses and relies on radio. In 1995–96 this use of radio contributed £13 billion to the GDP and over 400,000 jobs. That is quite extraordinary. These figures are growing at a rate of £1 billion a year, over three times as fast as the economy overall, and jobs are being created at the rate of up to 1,000 a week. Radio also provides £12 billion to £15 billion a year of efficiency gains and other user benefits—for example, from more efficient communications. It can be seen from those statistics that radio is a dynamic and successful sector and every sign indicates that its future will continue to burgeon.

Noble Lords may ask why, since radio is so dramatically successful, we need to change the legislation which governs access to the radio spectrum. The problem is that radio is in danger of becoming a victim of its own success. The radio spectrum is by definition a finite resource. Radio services can only operate if unused frequencies can be found for them, and there are only so many radio users who can be fitted into the radio spectrum without serious problems of interference and congestion.

Certainly technological advances steadily increase the amount of the available radio spectrum by ensuring that ever-higher frequencies can be used. Services are now being provided at frequencies which would have been considered unusable only a few years ago. Technological advances, such as the development of narrow-band equipment, mean that it is now possible to convey the same amount of information while using less spectrum.

Nonetheless, demand for radio spectrum is increasing at such a rate that it is outstripping availability. This is particularly true in the major conurbations and in the corridors between them, where use of radio is naturally most concentrated. Consequently this resource must be managed as effectively as possible, otherwise it is certain that we shall encounter spectrum shortages and congestion, with the result that businesses would have to be denied access to radio services and new technologies would have to be delayed. That would mean that we should forgo considerable economic benefits and the cost to the economy could be measured in billions of pounds a year and indeed in thousands of jobs. We should also lose our world-leading position in the use of radio, with inevitable consequences for our international competitiveness.

The legislative framework for managing the radio spectrum is essentially unchanged, despite this revolution, since the original Act of 1904. It has served us remarkably well but the industry has now outgrown that legislation and we must adapt it if we are to be able to provide the raw material which this dynamic and successful sector needs in order to flourish on a sustainable basis and to deliver the substantial economic gains of which it is capable. That is the purpose of the Bill before your Lordships' House today. It will update the spectrum management framework of the last century to meet the challenges of the next.

Let me now turn to the provisions of the Bill. Under current legislation the radio spectrum is managed exclusively by regulation. Licence fees have to be based on the administrative costs of spectrum management and not on the economic value of the spectrum. That aggravates the shortages and congestion of which I have spoken. Because the spectrum is not priced according to value, demand becomes distorted. Users have little incentive to invest in measures to use the spectrum more efficiently or to return an under-utilised spectrum for reassignment, thus adding to the growing pressure on the available spectrum and exacerbating shortages and congestion.

In the absence of statutory provision to the contrary, licence fees have to be tied to the costs of managing the spectrum. One of the main purposes of the Bill is to break that link so that fees can reflect more closely the economic value of Wireless Telegraphy Act licences and users will have incentives to relinquish under-utilised frequencies and to invest in more spectrally efficient technologies. In consequence, it will be possible to accommodate more users and to introduce new services much more rapidly. By relating charges to the value of the spectrum and the amount used, we shall encourage businesses to use the finite spectrum resource more effectively.

The Bill will also enable fees to be set on a more equitable basis. At present, as a consequence of the cost-recovery principle, the fee structure discriminates heavily against small businesses. While the large telecommunications operators pay higher fees than small businesses in absolute terms, those fees are nevertheless proportionately much lower in terms of the amount of radio spectrum provided. At present small businesses, such as taxi firms or couriers, pay on average 30 times more for the same amount of spectrum than one of the large telecommunication operators. I cannot conceive how that is fair.

Special considerations apply to the application of these principles to broadcasters. These arise from the legislative framework established by the Broadcasting Acts 1990 and 1996 and the charter and agreement of the BBC. The spectrum pricing proposals will not affect the licensing of broadcasters under the Broadcasting Acts, which is the responsibility of the Independent Television Commission and the Radio Authority. Due account will be taken in applying spectrum pricing to broadcasting of the significant amounts being paid to the Exchequer by broadcasters who bid for the licences under the Broadcasting Acts and who already pay an amount that includes an imputed value of the spectrum and of the public service obligations of the public broadcasting corporations.

The Broadcasting Act 1996 establishes that a review of the progress towards digital terrestrial television will take place no later than five years after the first multiplex is licensed, but it is open to the Government to review the position at any time. Consequently the Government will closely watch the take-up of digital broadcasting across all delivery platforms.

In examining the prospects for switching off analogue transmitters in due course, the Government will look at the potential for tools, such as spectrum pricing, to aid progress towards analogue switch-off and to determine the use of the spectrum that would be released. We are committed to ensuring the continued availability of spectrum to essential public sector users: the Armed Forces, emergency services, police, fire, ambulance and so on; and we shall continue the current concessionary licence fees for safety-of-life charities such as the RNLI. That is important to underline.

There are four main elements of the Bill. Before going into them in more detail, I should explain that the Bill contains enabling powers. The details of fee levels or auction procedures are intended to be set out in regulations. That flexibility is essential to be able to respond to the rapid changes occurring in the sector. But your Lordships will naturally expect some indication of how we expect the powers to be used. In Clause 1, as at present, they will be set by regulation. The clause largely re-enacts the regulation-making power which already exists under Section 1 of the 1949 Act.

But I suggest that the heart of the Bill is contained in Clause 2(1) which will break the link between the Wireless Telegraphy Act fees and the Radiocommunications Agency's administrative costs. The Secretary of State will, therefore, be able to set fees, taking account of the criteria set out in Clause 2(2) of the Bill. That is to say, in setting fees the Secretary of State may take account of the extent to which the required fee level will promote the efficient use and management of the electro-magnetic spectrum, the economic benefits arising from the use of radio and the development of innovative services and competition in the provision of radio services.

Where charges are increased, it will be because such higher charges are necessary to balance supply and demand in support of the objectives set out in Clause 2 of the Bill, which might be summed up as optimising the use of the radio spectrum. I want to underline that fees will only be increased where there is a spectrum management need. Indeed, far from being a mobile telephone tax, as some newspapers suggested, the Bill will lead—as I shall try to explain in a moment—to lower charges for the majority of radio users.

Subject to the enactment of the legislation, new fees would be introduced next year. But we want to be as open as possible now about the proposals so that we can have a fully informed debate in Parliament, and indeed more widely. That is why the Radiocommunications Agency issued on the 29th of last month a consultation document on administrative pricing called Implementing Spectrum Pricing, which sets out in some detail how it is proposed to implement that new approach. The proposals in the document represent the culmination of a good deal of discussion with the industry and the results of major consultations which took place in 1994 and 1996, which showed widespread support in principle for pricing reforms but also concerns about some aspects of implementation.

I do not believe that there is time today, especially as I have already spoken for 14 minutes, to go into detail about the provisions of that document. It is available in your Lordships' Library. However, noble Lords may welcome a short summary of its key provisions.

In brief, it is proposed that higher charges will apply initially only to point-to-point fixed links: private business radio—that is, the self-provided systems used by businesses such as taxi firms, couriers and others—and public mobile communications. For those services charges above current levels will be focused on those parts of the country in which there is a spectrum management need. We are talking here about the major conurbations, such as London, Birmingham and Manchester, and the corridors between them.

I want to stress that the new powers will provide flexibility to tailor charges to spectrum management needs. That will open the door to fee reductions where spectrum is not congested. We estimate that around 80 per cent. of radio users will pay no more than at present and indeed may well pay up to 50 per cent. less. Even where charges will be increased, we believe that the increased fees will be demonstrably affordable, including by small businesses. For example, the proposals in the consultation document would require a small taxi firm in a major city to pay less than 20p per week per taxi more than at present after three years—hardly an undue burden. So the Bill is good news for the great majority of radio users and not least for small businesses.

I also want to underline that we shall continue to take into account the views of users. The proposals in the consultation document are put forward as a basis for further discussion. Comments are invited by 5th September. Our final proposals, which I expect to form the basis for regulations next year, will take account of industry's views. I expect that during the summer the fruitful dialogue with the industry which has been established over quite a long period will go on and will extend to consultation on the provisions of the draft regulations in due course. So consultation is to be the order of the day.

I turn to the other main plank of the Bill, which is the provision in Clause 3 for Wireless Telegraphy Act licences to be auctioned. That is a new approach to licensing. I believe that the power to hold auctions will give the Government a valuable new tool in that area. If properly used in appropriate circumstances, auctions have very real attractions. They can offer speed, transparency and, above all, fairness. In a situation in which there are more competing service providers than can be given licences, an auction represents a fairer means of licensing than the alternative of a "beauty contest", which can involve the Secretary of State or some other person choosing between competing potential service providers on the basis of criteria that inevitably involve some elements of subjective judgment, and not necessarily selecting those who can derive the greatest economic benefit from the spectrum.

Figures have already appeared in the press in relation to possible auction proceeds for some future services, such as third generation mobile services. While income maximisation is not the reason for holding an auction, I am happy with the principle that it is right that the taxpayer should benefit from the provision to industry of that valuable resource. As with administrative pricing, the Bill provides an enabling power to be exercised by regulation. Given the speed of technological change and the possible emergence of future services which are, by definition, unforeseeable, clearly it is not possible to specify in the primary legislation the services which will be auctioned and when the auction will take place.

The Bill provides for that to be set out by regulation together with other key matters relating to the auction, such as the requirements to be met by applicants, possible payments of deposit and so on. Procedural matters, such as the timing of the submission of bids and so on will be set out by the Secretary of State in a notice. Again, as with administrative pricing, Parliament and the industry may welcome some indication of how those powers are to be used.

In consultations carried out last year by the agency, although there was general support for the principle of administrative pricing, some concerns were expressed about the use of auctions and there was considerable opposition to their widespread use for all kinds of service. I should like to reassure your Lordships that it is our intention to use the auction power selectively. It may therefore be helpful for me to explain where it is not proposed to use auctions.

First, I wish to stress that we do not propose to require existing licensees to enter an auction for the right to continue to provide their current services within their existing spectrum allocation. I also want to emphasise—it is a matter about which concern has also been expressed—that there is no intention of requiring broadcasters who have already entered into an auction for the right to provide their service under the provisions of the Broadcasting Act 1990 to enter into yet another auction under the provisions of the Bill, in order to have continued access to the radio spectrum which they need. We accept that to do that would be akin to double jeopardy.

At the other end of the business spectrum we have no intention of requiring the generality of small and medium-sized businesses who have used radio to compete in auctions. Given the number of businesses involved and the modest amounts of spectrum which each requires, that would be utterly unrealistic. I hope, with that explanation, that we reassure those in the industry who have expressed anxieties about this specific provision.

How do we intend to use the power to hold auctions? I have already said that it is not possible to anticipate what may happen in the medium to long-term. But I can say that we envisage that auctions will be used for new services which have either a national or regional dimension and where there are likely to be more competing players than can realistically be accommodated in the spectrum. There has been much speculation about the possibility of an auction for the so-called third generation mobile telephony, also known as the universal mobile telephone system—UMTS. If I had simply referred to UMTS, I am sure that all noble Lords would have known what it was.

UMTS is an exciting new service for the future. It will combine many of the aspects of mobile telephony systems which we know and use now, with novel and flexible features such as the possibility of direct communication with computers. It will make use of both terrestrial and satellite telephone links. The first UMTS services are unlikely to come on stream until after the year 2000, but we accept that. In view of the scale of investment needed by service providers, licences will need to be issued much sooner than that, probably in the course of next year. No decisions have yet been taken as to how UMTS licences will be assigned. They are an obvious potential candidate for the use of auctions. My department will be issuing later this year a consultation document about licensing of UMTS. That will set out more detailed proposals about how the auction tool might be used and will invite views from interested parties.

Administrative pricing at auctions is a key provision of the Bill. However, I should like to touch briefly on two other main provisions. Clause 4 deals with revocation or variation of licences. It enables the Secretary of State to include in a licence terms restricting her power to revoke or vary the licence. At present, under the Wireless Telegraphy Act 1949, a licence may be revoked or varied at any time by the Secretary of State. In practice, it is rare for the Secretary of State to revoke or vary a licence other than at the request of the licensee, and that would only be done where the licensee had conspicuously failed to respect the terms of the licence; for example, transmitting on frequencies other than those assigned or using unlicensed equipment.

Where there is a need to move licensees to a different frequency—for example, to make way for a service which would make better use of the spectrum—that is generally done over a period of time in consultation with licensees. But we are now moving into a different era. Under administrative pricing and auctions a minority of licensees will be paying significantly more for their licences than at present. Where new services are involved there may also be a need for investment on a large scale by the licensee. In such circumstances, licensees will want a firmer guarantee that they will have security of tenure for a longer period and that the licence would not be unexpectedly revoked by the Secretary of State. This power therefore will enable the Secretary of State to include conditions in a licence which will give licensees the security that their licences will not be revoked other than in the interests of national security or to enable the United Kingdom to comply with their European Union obligations, international treaties or agreements.

Finally—this is my first and last "finally"—I wish to speak briefly about Clause 5 of the Bill. As I emphasised, though the main purpose of the Bill is to provide economic tools for the more efficient management of the spectrum, administrative pricing will produce increased revenues for the Government. If the proposals in the consultation document, or something like them, were to be enacted, the annual additional revenue would be around £75 million at the end of the three-year phasing-in period. It is possible that auctions may produce significantly greater sums than that from time to time. How much would depend on the value which those bidding attached to the licences. Clause 5 will allow the Secretary of State to undertake expenditure in support of the objective of efficient spectrum management. There can be no question of direct hypothecation of spectrum pricing revenues. My right honourable friend the Chancellor of the Exchequer would no doubt want to express one or two views about that if it were to be otherwise.

There may be ways in which the Secretary of State may, from time to time, wish to undertake expenditure in support of the objective of better spectrum management. For example, it may take the form of research into more spectrally efficient technologies. Subsection (2) of Clause 5 provides a power for the Secretary of State to make grants to persons where, in his opinion, the grant is likely to promote efficient use or management of the spectrum. There are many ways in which that power could be used. Any programmes of expenditure proposed by the power would need to be agreed with the Treasury. For example, it is possible that the agency may wish to support courses provided by universities for the training of radio engineers in spectrally efficient techniques. That would help to underpin the objective of a more efficient use of the valuable spectrum resource which is at the heart of what this Bill is about.

I should stress that the power does not imply an automatic entitlement to financial assistance. Each case will be looked at on its merits and would have to be justified on strict value-for-money criteria. Clauses 6 and 10 in the schedules deal with technical matters; for example, the power to make regulations, minor amendments, repeals, interpretation and commencement.

This important measure will provide a balanced package of spectrum management tools enabling the full benefits of the radio spectrum to be realised. It will benefit radio service providers, radio users and the taxpayer. Without the new powers we risk constraining the growth of some of the fastest growing sectors of our economy. To sum up: since the time of Marconi the United Kingdom has been a world leader in radio-based services. Our reforms will ensure that that leadership continues and thus this country can reap the full economic benefits which are to be derived from the radio spectrum. I commend the Bill to the House.

Moved, That the Bill be now read a second time.—(Lord Clinton-Davis.)

4.7 p.m.

Lord Derwent

My Lords, I must declare an interest as a director of Orange plc, one of the four mobile phone networks all of which will be directly affected by the provisions of the Bill. I am able to say that my views on the Bill are shared by the other three mobile phone operators and also by the Federation of Communication Services which is the trade body representing the mobile phone industry in this country.

While the Bill is a modest one, as the Minister explained, the industry is of growing importance. I shall not weary your Lordships by repeating some of the figures given by the Minister, but I thank him for the tribute he paid to the industry. It is remarkable to reflect on how much has been achieved in so short a time.

The first operating licences for a mobile telephone service were issued as recently as 1985. The networks now provide coverage across virtually the whole of the country. Consumers are benefiting from strong competition between the operators; prices are coming down; and new services are continually being introduced. Around 8 million people currently use a mobile phone and it is estimated that the figure will rise to 12 million—one in five of the population—by the year 2000.

Recent surveys have shown that the use of mobile phones increases business productivity by 20 per cent. on average. As a result, mobile phones are becoming an increasingly important tool not just to individuals, but also for small and large businesses. They are also a critical tool for the emergency services and provide a lifeline for many disabled people.

The encouragement by government and officials of competition and innovation in the mobile telephone sector has attracted substantial inward investment into this country. I cannot speak for the whole industry, but in the case of my company whose major shareholder is based in Hong Kong the inward investment into the United Kingdom is now valued at nearly £1.5 billion. The United Kingdom is therefore now positioned, as the Minister recognised, as a world leader in mobile communications. We are far ahead of most of Europe and we must stay that way. So the Government, in legislating, need to be sure that no artificial barriers are created to discourage the further huge investments needed in order to enter into the new technological fields now being opened, on which the Minister rightly laid stress.

The industry can wholeheartedly support the declared aim of the Bill, which is to ensure that spectrum is managed as efficiently as possible. Spectrum is indeed our raw material. Supply is limited and we can develop the industry only if the spectrum is not wasted. As a matter of fact, the mobile phone industry in the UK is recognised by the Government's own studies as a highly efficient user of radio spectrum and as a world leader in the introduction of new techniques to maximise the efficient use of spectrum. In order to maintain this leading position, however, substantial new long-term investment continues to be required by the industry. It is therefore imperative that the conditions are in place to encourage this investment, including, critically, the maintenance of a stable regulatory and commercial environment. I am much encouraged by the Minister's recognition of the need for this stability in the long term if these very large sums of money are to be made available.

I wish to comment individually on the two parts of the Bill which affect the stability question: first, the proposed new administrative pricing regime and then the proposals to introduce spectrum auctions. First, I refer to the administrative pricing regime. A number of matters are set out in Clause 2 of the Bill which the Secretary of State may take into account before setting prices; in particular, the need to ensure the efficient use of spectrum. However, on the face of the Bill there is no actual obligation for the Secretary of State to consider such matters. Precedent in some countries abroad has suggested that, however good the intention of the department interested in developing the industry, ministers of finance in other countries have been known to ignore such matters and simply regard them as a milch cow for revenue. Given the real importance of certainty, will the Minister consider at a later stage of the Bill changes to provide that the Secretary of State shall be obliged to consider the various matters set out in Clause 2 of the Bill rather than merely being able to do so if he sees fit? That would give enormous reassurance to the industry.

A further point concerns the need for consultation prior to the setting of new spectrum prices. I welcome wholeheartedly the Minister's undertakings on consultation. Indeed, we are all delighted to be taking part in the consultation going on at present. But each time new prices are set, new regulations will have to be drafted. It is very important to the industry that those further regulations, however often they may be necessary—perhaps annually—should be prepared only after additional consultation at that time. Will the Minister be prepared to give an assurance or possibly make provision in the Bill that each time there are new regulations under the powers given by the Bill such consultation will take place?

I should like to make a few remarks about the question of spectrum auctions which the Minister explained clearly. I welcome, as your Lordships would expect, the undertaking he gave that auctions will not be applied to existing operators during the lifetime of their existing operational licences. I merely put it forward for consideration that that might go on to the face of the Bill. Perhaps we can discuss that question at a later stage.

I should also like to just dwell for a minute on why some operators are concerned about the whole principle of auctions even for future allocations of spectrum. We have already had a very stark warning in the United States of what can go wrong with the auction process. The trouble is that auctions favour the person with the deepest pockets. People are carried away, as happens in all kinds of auctions, by the need at all costs to win the auction. They then bid prices which are unsustainable. We have seen in the United States examples where licences have been awarded under auction but where the companies winning the auction have then found themselves financially unable, having paid the enormous licence fee, actually to undertake work on the network.

In fact even the US Treasury has not benefited because in some cases the companies have been unable even to pay the licence fee for which they have just bid and have had to be given a moratorium to pay even that. Therefore, there is always a danger that licences awarded under auction are given to people who are not necessarily those who will maximise efficient use of spectrum, which—there is nothing between the Minister and the industry—we all agree is the objective. I welcome the Minister's assurance that there will be consultation on the whole principle of auctions but I thought it worthwhile spelling out why and from where we are coming when we express anxieties about the auction process as such.

Having made those points, which I think we may be able to develop in Committee, on behalf of the industry I welcome not only the general approach of the Bill but above all the categoric assurances on various points given by the Minister today.

4.17 p.m.

Lord McNally

My Lords, I love old war films. One of my favourites—I cannot remember the name of it now—starts off with a ship in a great storm. Because of the storm some of the more prudent members of the crew take to the lifeboat. In the next scene the storm has passed and the ship, which the crew had left thinking it was sinking, is still afloat. Somehow that seems to be not unlike my career with the Labour Party.

I make those remarks in my first speech since the change of government. I wish the new Administration a long and safe voyage, not least because they seem to be using SDP compass and charts and because it gives me the opportunity to welcome again my old friend the Minister of State who I remember occupying that position in another place. Our paths have crossed many times since and I know that these matters are in safe hands.

The noble Lord must feel a little like one of the lottery winners or a company I knew which bought another company and then found that the purchased company had on its books property valued at £2 million which was in fact worth £20 million. Although the noble Lord was too coy to admit it, the Bill was waiting for the Government when they came to office. It was based on a White Paper and had a large number of the goodies laid out. It really must be welcome for the Minister to have a Bill which will undoubtedly raise large amounts for the Government, which provides no ideological problems in that it promises the nation a fair return for the commercial use of a national asset and which is broadly welcomed by the industry as dealing effectively with the problem of spectrum efficiency, as we have just heard from the noble Lord, Lord Derwent. That is good fortune indeed.

The Government have had a good run since they came to office. We won the Eurovision Song Contest, beat Italy at football and Australia have been bowled out for 118 runs. Perhaps the Minister can tell us what he is going to back in the Derby when he comes to reply.

The intent of bringing great efficiency to the use of the radio spectrum still leaves the need for further clarification. The Minister clearly gave assurances about charities such as the British Red Cross Society, St. John Ambulance and the lifeboat service. That is very welcome. He also gave assurances that the spectrum would be protected for the emergency services. However, in that little group of assurances he also included the Armed Forces. In giving such assurances I hope that he will also look at the question of the hoarding of spectrum by the Armed Forces. When the peace dividend was promised some years ago, one aspect was that the Armed Forces might not need quite so much of the radio spectrum. I have little experience of the Armed Forces, but I know that they occupy land and that they are reluctant to give up anything at any time. I have a suspicion of a little bit of hoarding of spectrum that may merit being looked at.

The radio and television industry was also given assurances by the Minister. I am asked by the Commercial Radio Companies Association to inquire, if those exclusions are guaranteed, why they are not on the face of the Bill. While on the subject of the impact of the Bill on radio, I notice that when setting the price the Government propose that the Secretary of State should have regard to the availability of alternative delivery systems such as cable or optical fibre. While I understand the principle of encouraging migration of mature services from the radio waves, radio cannot be transferred without losing the portability, instant access and universal coverage that differentiate radio stations from other users of the spectrum. I hope that the Minister keeps that on board.

The Federation of Communications Services, to which the noble Lord, Lord Derwent, referred, makes the point: We wanted to take this opportunity to say, as we consistently have over the past years, that we believe that the Radio Interference Service broadcasting enforcement costs should not be charged against legal broadcasters [and] should not come out of the legal broadcasters' pockets but out of the general running costs of the Agency". Again, I pass on that observation to the Minister.

I am sure that the ordinary citizen finds no problem in the argument that the use of what is a national asset by commercial concerns is something for which the Government, on behalf of the nation as a whole, can and should require a full commercial price from commercial users. As the Minister indicated, the sums involved are not to be sneezed at. There is the sum of £75 million for licences and between £500 million and £1.5 billion to be raised by auctions. These are some of the figures that have been given. Given those figures, it is almost beyond belief to say that the Treasury's mouth does not water at the prospect. The noble Lord, Lord Derwent, referred to that.

The Minister went out of his way throughout his speech to emphasise the high moral purpose of the Bill. So great was the emphasis that there kept running over in my mind the fact that the more he defended his honour the more I counted the spoons. I believe that it is quite possible that the Treasury will look at this humble piece of legislation as an opportunity to raise reasonable amounts from a series of industries which make quite considerable profits. Although the Minister said that he was not proposing any kind of backdoor taxation, there is no doubt that, as the Bill is set out, and leaving so much secondary power in the hands of Ministers, that opportunity is still there. Certainly, the proposals that he indicated of likely charges cannot in any way be described as pillaging the industry. An interesting debate will be pursued as to what fees the Secretary of State should set.

The noble Lord, Lord Derwent, spoke from his considerable experience, both through his company, Orange, and through the Federation of Communications Services. It has emphasised to me, as it did to the noble Lord, its desire for a strengthening of the Bill in terms of consultation. It also wants to see a strengthening of the Bill in terms of competition guarantees, particularly to assure the access of small and new entrants into the industry. These are matters that we have a duty to explore further with the Minister in Committee.

The Minister introduced the Bill with his usual lucidity. As I say, I have a feeling that this dull, dry and little-noticed piece of legislation may have many profound implications. The noble Lord, Lord Derwent, is right to warn us that this industry is a national success story. Therefore, whatever the temptation may be to take a just return for the taxpayer, it is important that we get the balance right and ensure its progress and success.

Having been an adviser to the television industry that has gone through the auction process, I share the doubts of the noble Lord, Lord Derwent, that it is in any way a perfect process in getting the right answer every time. The Minister mentioned secondary markets if people sell on licences and how he will handle that. He says that existing licensees will not be asked to auction their licences. But will those licences be brought into line with new charges? If not, surely that will lead to a distortion because of those who were in the field first. I am not clear as to what will happen to existing licensees if they are not going to be exposed to an auction.

In general, as the noble Lord, Lord Derwent, emphasised, we are dealing with a British success story which is a wealth and job creator. The thinking behind the White Paper and the Bill is that we are dealing with a scarce resource which is a national asset. As the Minister said and the noble Lord, Lord Derwent, confirmed, the approach has had the broad support of industry. As I say, the Bill had its origins in the previous administration. So we may be seeing an expression of the new politics here; namely, a comparatively rare situation where industry sees the merit and justice in paying more for the use of the spectrum and where the Opposition and Government see merit in the legislation put before them. It is a dry little Bill, the details of which may have some hidden implications. We shall return to those in Committee. Thus far, however, I assure the Minister of the support of these Benches for the Bill.

4.30 p.m.

Lord Inglewood

My Lords, I should begin by telling the House that we support the principle of this Bill. In June last year, we advocated the introduction of the same kind of system for the management of radio spectrum in our White Paper, Spectrum Management into the 21st Century. I must not let the opportunity pass of congratulating the Government on recognising the sense of our policy.

I suppose that the best result of a general election is to emerge victorious, but it is a second best result, albeit a very second second best result, for the victor to implement the policy that we would have introduced had we been the victors. It may not happen all that often, but as a generous man—I hope that the Minister recognises that I am a generous man—I commend the Government on that.

As the Minister pointed out, the astonishing expansion of the industry's use of the radio spectrum in recent years meant that it was timely to review the framework surrounding the use of that spectrum. That review has shown that it needs to be updated, which is, of course, what the Bill proposes. As the demand for radio spectrum increases all the time, it becomes ever more important that the allocation of what spectrum is available is carried out efficiently and in the widest public interest. Furthermore, in the interests of good administration, it is proper that those who use this valuable and scarce resource should pay a fair price for the privilege. However, it is not merely a matter of paying the right price; it is in the widest interests that the way in which that spectrum is used is not only inherently efficient, but is also an element in keeping our country at the forefront of the digital and technological revolution through which we are now going, in which we are being so successful, and which is so important for our nation's future prosperity.

It is one of the clearest lessons of the past two decades or so, not only in this country but also abroad, that the best means of nurturing a competitive, innovative, forward-looking industry, best able to serve the public, is to allow it to advance itself, stimulated by the dynamics of open, free and fair competition, the disciplines of the marketplace, and its own innovation. For this Bill to achieve the most for Britain, it must adhere to those principles.

I have been focusing on the general principles of the Bill, but would now like to turn to the Bill itself. A cursory glance shows that the system that the Bill will introduce will be spelt out and refined by secondary legislation, as the Minister fairly explained. This House is very conscious of the mischief inherent in the excessive and/or inappropriate use of secondary legislation, but at the same time recognises that it can on occasions be a proper means of dealing with the detailed and quasi-administrative procedures necessary in the interests of good governance. Whether this is one of those cases is a matter for your Lordships' Delegated Powers Scrutiny Committee. It is no part of my remarks this afternoon to prejudge its comments, but I accept that this is the kind of case where it may well be proper to leave much of the detail to secondary legislation. Having said that, as the Minister pointed out in his opening remarks, the actual system which Parliament will be asked to approve for the proper allocation and management of radio spectrum will only be sketched out in the Bill; the final picture will be worked up by the more detailed rules to be contained in the regulations.

As is so often the case, be it in trying to establish a European-wide single currency or in the recipe for baking a cake, the devil lies in the detail. I should like to thank the Minister for elaborating in simple terms on how he envisages the scheme functioning. He fairly described the general principles and referred to the Radio Spectrum Agency's recent document. I believe that that covered many of the detailed points which are not in themselves suitable for Second Reading, but would normally be considered during further stages of the Bill. What the Minister has done may well be helpful to your Lordships because many of those points demand serious consideration in private in advance of discussion at subsequent stages.

However, I dare say that a number of other important points of detail will need proper and wide consideration. I am thinking, for example, of those companies which have spectrum now and will have no need to rebid or to pay more for their spectrum and how that will affect possible newcomers to the industry in the context of fair competition between the haves and the have-nots. There may well be a risk that big rich companies, with very long pockets, will always be able to outbid small companies which will be squeezed out. How can such abuse, which is a de facto barrier to new entrants, be dealt with? How, and if so under what circumstances, will companies be able to dispose of spectrum? What happens when a company is taken over? As the noble Lord, Lord McNally, asked, will those to whom spectrum is allocated be able to hoard it or speculate with it? What will be the key test when setting administrative prices? Will it be efficiency? If not, what will it be?

I mention those points because I believe that they cover a number of important issues. At the same time, I was most grateful to hear what was said about the way in which broadcasters, government users of radio spectrum, the essential services and charities will be treated. I suspect that a number of other important issues will need to be further considered at a later stage.

The noble Lord, Lord Derwent, referred to spectrum auctions. The Minister may be aware of the recent experience of spectrum auctions in the United States where, as I understand it, despite the application of some extremely cunning techniques bedded in games theory, it appears that the bidders were able to collude in the auction process. Clearly, that kind of thing is unacceptable, and we should like to know a bit more about the way in which the Government envisage this aspect of what is being proposed working in practice. How do the Government intend to outflank such behaviour? I hasten to add that I am not asking the Minister to be so specific that he provides the key for every unscrupulous person in the wider world to abuse what will be put in place.

When the Government announced that they intended to proceed with this Bill, the point was quite properly put to them that this measure, which was not flagged up in the Labour Party's manifesto, was in substance an instrument of taxation and only incidentally an updating of the framework within which radio spectrum is to be used. In reply to that point, the President of the Board of Trade stated: There is no mobile phone tax … This measure is about the more efficient allocation of spectrum in the future". That was confirmed by the Minister this afternoon. To those remarks, I say "Good". There is, after all, all the difference in the world between the Government making this commercial asset available at its fair and proper price and squeezing a user's margin by exploiting their monopoly as the source of spectrum. The latter is a form of de facto taxation and, as such, is very different from the President's description of what is proposed.

Finally, it is, I think, of interest to your Lordships and to the public at large—and it is very relevant to our debates—that the Minister has given us an indication of the kind of sums involved here. After all, in looking at any particular rainbow, one needs to know whether the crock at the end of it is full of real gold or fool's gold—and even if one values the gold on the basis that the Bundesbank values its gold, this crock is clearly very valuable. One thing is certainly clear: the more that it is worth, the greater the contribution that it will be able to make to the Government's financial needs which, in turn, will obviate the need for raising that money in other ways.

These are, however, points for a future occasion. As for today's debate, I conclude by reiterating our support for the approach that the Government are adopting. Although we shall obviously be looking at the Bill with a critical eye, we shall be doing so with a view to being constructive, not destructive.

4.39 p.m.

Lord Clinton-Davis

My Lords, this has been an interesting short debate in contrast to my opening speech, which was rather long. I hope that I may be forgiven because, although this is a short Bill, it is quite complex.

I begin by thanking all noble Lords who have participated in the debate. I shall certainly consider carefully all the points that have been made, many of which, as the noble Lord, Lord Inglewood, said, are more appropriate for consideration at Committee and Report stages.

Like all noble Lords who have spoken, I approach this matter in a constructive way. Where it is appropriate to consider amendments I shall do so. I shall view the word "resist" with a degree of flexibility, as I did in the old days.

The noble Lord, Lord McNally, referred to our past. We were once comrades in arms and are old friends. I thank him for his felicitous remarks, although the copyright that he claimed for what I said is in dispute. Nonetheless, I appreciate the kindness with which he approached the matter. I do not know what it feels like to be a lottery winner. My wife is a lottery winner; she has won £70. Heaven knows what she had to spend to acquire that fortune!

The principle of the Bill has been supported by all your Lordships, for which I am grateful. It is particularly helpful that all of your Lordships have underlined the importance of the Bill. One is talking about the continued growth of one of the UK's most vigorous and dynamic industrial sectors that is vital to the efficiency of the economy.

I have also known the noble Lord, Lord Inglewood, for some time. I welcome him to the Opposition Benches—on which I had to sit for far too long. I hope that he will be sitting there for an equally long time. He claimed some credit for his party for this measure. I do not wish to be churlish. I do not deny the importance of the preparatory work that was undertaken by the previous Administration. However, I cannot refrain from remarking that the first consultative document was published as long ago as March 1994. I believe that this Government can claim credit for acting rather more decisively to address this important issue; but enough of that. I do not want to stir up controversy where none really exists.

Anxiety has been expressed about the detailed implementation of the policy. Most of that concern has revolved around the problem of how to ensure that spectrum pricing continues to be driven by spectrum management considerations and does not become, as some newspapers quite wrongly conceive, a mobile communications tax. A company as authoritative as Vodafone has been quoted in the Financial Times as stating that there is no new tax on mobile phone users. I believe that that is right.

I turn to the remarks of the noble Lord, Lord Derwent, who speaks from experience of the telecommunications industry that is far greater than mine. He mentioned the enormous amount of inward investment and said that it was extremely important to underline the aims of the Bill and the need to encourage greater investment. He stressed that stability was a vital component to create the right climate for additional investment. I could not agree more. He expressed concern about the possible implications of auctions for existing telecommunications operators. Other noble Lords made similar remarks. I said earlier that the Government did not intend to require existing licensees to enter an auction for the right to continue to provide current services within their existing spectrum allocation. I am happy to reassure the noble Lord, if I can, that in line with that the Government have no plans to require the four existing mobile telecommunications providers to enter an auction in order to continue to provide their current services.

The noble Lord also expressed concern that spectrum pricing might be used primarily to raise revenue and hence become a tax on operators. I tried to make clear when I opened the debate—I reiterate it—that it was the intention of the Government that spectrum pricing should be used as a spectrum management tool, not simply to raise revenue. I believe that in the consultations in which we engaged that was accepted by the industry. The proposals in the recently published consultation document setting out our detailed administrative pricing proposals also make that very clear. In many areas we propose to apply lower charges than those envisaged in the previous Government's White Paper. I believe that anyone who studies these carefully focused proposals will agree that they are motivated by a concern to achieve optimal use of the radio spectrum. Of course, it is right that the way in which these matters are being dealt with should be questioned at later stages of the Bill. I shall welcome the discussion that takes place in that connection.

There appeared to be concern in the mind of the noble Lord, Lord Derwent, as to how these powers could be used in the longer term and not just by the present Government. That is often said by those in Opposition, and rightly so. The noble Lord said that it would be desirable to ensure that administrative pricing should be tied more closely to spectrum management objectives. He suggested that if the wording of Clause 2(1) were amended so that the Secretary of State was under a mandatory requirement to have regard rather than that he might have regard to the matters set out in subsection (2), that could be a way of going about it. I do not believe that it is appropriate for me to go into what are essentially drafting points at this stage. But we have tried to balance the need for flexibility in applying spectrum pricing in a diverse and dynamic market with concern that the powers may be used by a future Secretary of State for revenue raising rather than spectrum management. This is a complex issue, not least legally. I shall reflect on what the noble Lord has said. Undoubtedly, at the noble Lord's behest, we shall return to this matter at a later stage.

As far as concerns consultation, we are committed to an on-going process, not just the one-off consultation that we have had before. That was emphasised by the publication last week of the consultation document. We do not believe that consultation will end there. When we come to the new fees regulations and the proposals for the use of auctions I believe that further consultation will be required.

As to the question of whether there should be a duty to consult, in principle I am sympathetic to it. However, I should like to give it further consideration as the Bill approaches Committee stage. I shall listen carefully to what your Lordships say on that point before I come to a conclusion. My mind is open, not vacant, as to that matter. I hope that we shall be able to return to that subject, too. What I have said today will be the subject of further discussion in the industry. I am sure that before we reach Committee stage my officials will have the advantage of listening to further views. I hope that what I have said has reassured those of your Lordships who have raised anxieties today. I do not have a great deal more to add.

The noble Lord, Lord McNally, asked about spectrum property rights and tradability. There could be attractions in setting up a system of fully tradable spectrum rights in secondary trading. It has been done in Australia and New Zealand, but if we were to go down that route it would involve a substantial, even fundamental, restructuring of the current regulatory system. We would have a Bill many times longer than the current one. To move directly from the current cost-based licensing system to fully tradable spectrum rights could easily lead to windfall gains and a disorderly market. There are those risks. I invite the noble Lord to consider that position when he discusses the matter in Committee. We want to help establish a market value for spectrum. That could serve as a stepping stone to a system of tradable spectrum rights in due course.

The noble Lord raised another point in connection with the Armed Forces. He was concerned that they were hoarding spectrum. Our intention is that government departments, including the MoD, should pay for spectrum on a comparable basis to the private sector. I accept the argument that they should have the same incentives for improving the efficient use of spectrum as anyone else. If he has a scintilla of evidence—I am a little sceptical about that—to support that charge, I shall be most interested to have it.

Lord McNally

They have form!

Lord Clinton-Davis

My Lords, just like some of my former clients. I believe that I have covered most of the ground. If I have not, I apologise, but we shall have the opportunity to return to it in due course. I thank noble Lords once again for having participated in this debate and given me more food for thought.

On Question, Bill read a second time, and committed to a Committee of the Whole House.