The Communications Authority (CA) announced today (December 19) its decision to adopt a hybrid administratively assigned cum market-based approach (hybrid approach) to re-assign the 200 MHz of spectrum in the 900 MHz and 1800 MHz bands (900/1800 MHz Spectrum) upon the expiry of their existing assignments. The Secretary for Commerce and Economic Development (SCED) also announced today his decision on the method for determining the related spectrum utilisation fee (SUF).

     The 900/1800 MHz Spectrum, comprising 50 MHz in the 900 MHz band and 150 MHz in the 1800 MHz band, is currently deployed by the four mobile network operators (MNOs) to provide the second, third and fourth generation (2G, 3G and 4G) mobile services, accounting for 36 per cent of the 552 MHz of spectrum that has been assigned for the provision of mobile services in Hong Kong. The existing terms of assignment of the 900/1800 MHz Spectrum will expire between November 2020 and September 2021.

     "Under the hybrid approach, each of the four MNOs will be offered a right of first refusal to be re-assigned 20 MHz of spectrum in the 1800 MHz band, amounting to a total of 80 MHz of right-of-first-refusal spectrum (RFR Spectrum). This will leave at least 70 MHz of spectrum in the 1800 MHz band which, together with the 50 MHz of spectrum in the 900 MHz band, to be re-assigned by way of auction (Auctioned Spectrum)," a spokesman for the CA said.

     In arriving at the above spectrum re-assignment decision, the CA has considered thoroughly views and comments received in two rounds of public consultation conducted during 2016 and 2017, the analysis and recommendation of the consultant it commissioned to assess possible impact on service quality arising from different spectrum re-assignment scenarios, and the guiding principles for spectrum management as stipulated in the Radio Spectrum Policy Framework promulgated by the Government. The CA has also considered the pros and cons analysis of the re-assignment options and concluded that the hybrid approach would best meet the four objectives in spectrum re-assignment, viz (a) ensuring customer service continuity; (b) efficient spectrum utilisation; (c) promotion of effective competition; and (d) encouragement of investment and promotion of innovative services.

     "For the sole reason of safeguarding the continuity of the provision of 4G services at the MTR stations and 2G services across the territory, the CA decided to deviate from the full-fledged market-based approach and adopt the hybrid approach and administratively re-assign 20 MHz of spectrum in the 1800 MHz band to each of the four MNOs through the offer of the right of first refusal. With at least 120 MHz of spectrum to be re-assigned by auction, this is one of the largest lots of spectrum to be released under the market-based mechanism in a single exercise," the spokesman for the CA said.

     On the SUF of the Auctioned Spectrum and that of the RFR spectrum, a spokesman for the Commerce and Economic Development Bureau (CEDB) said the SCED has thoroughly considered views collected during two rounds of public consultation in arriving at his decisions on the methods for determining them.

     "Given that frequency spectrum is a scarce public resource, the SCED considers that the SUF should be set at a level that can reflect as close as possible its full market value so that spectrum assignees who run their commercial operations in a fully liberalised market would put the spectrum so acquired to its most efficient use," the CEDB spokesman said.

     For the auction reserve price of the Auctioned Spectrum which should represent the minimum base value of the spectrum for the purpose of kick-starting the competitive bidding process, the SCED proposed in the second consultation paper that in setting the price, reference should be made to the auction reserve prices for the two most recent auctions (in respect of spectrum in the 2.5/2.6 GHz band and in the 1.9 - 2.2 GHz band), which are equivalent to $19 million and $54 million per MHz respectively at 2021 prices. His inclination then was that the auction reserve price should be closer to the higher end of the two reference values.

     "Taking into account the effect of the release of a large quantum of spectrum involved in the present re-assignment exercise, the submissions from MNOs about their ability and willingness to invest in new and innovative technologies, and the anticipated launch of the fifth generation (5G) mobile services in 2020 in which MNOs will need to invest substantial resources into constructing the relevant infrastructure, the SCED considered that the auction reserve price should be set above, but closer to the average of the reference values instead. Accordingly, the SCED decided that it is appropriate to set the auction reserve price for the Auctioned Spectrum in the 900 MHz and the 1800 MHz bands at $38 million per MHz," the CEDB spokesman said.

     As for the SUF of the RFR Spectrum in the 1800 MHz band, the SCED considers that it should be set as close as possible to its full market value. In this regard, the outcome of the auction of the 70 MHz of Auctioned Spectrum in the 1800 MHz band should be the best available indicator of that market value.

     "Accordingly, the SCED decided that it is appropriate to set the SUF of the RFR Spectrum at the average SUF of the Auctioned Spectrum in the 1800 MHz band, subject to a minimum price and a cap," the CEDB spokesman added.

     The minimum price is the minimum fee an incumbent spectrum assignee has to pay to be entitled, and to be able to exercise the right of first refusal to be re-assigned the RFR Spectrum as part of its current spectrum holdings, whereas the cap aims to provide certainty for the incumbents when they have to decide on whether to exercise their right of first refusal.

     In the second consultation paper, the SCED proposed that in setting the minimum price, reference should be made to the level of SUF in the two most recent assignment/re-assignment exercises (in respect of spectrum in the 2.5/2.6 GHz band and in the 1.9 - 2.2 GHz band), which are equivalent to $38 million and $67 million per MHz respectively at 2021 prices. His inclination then was to set the minimum price closer to the higher end of the two reference values.

     "For the same reasons as mentioned above in the case of the auction reserve price and in view of the substantial investment commitments MNOs are facing in constructing the infrastructure in preparation for the launch of 5G services, the SCED considered that the minimum price should be set above, but closer to the average of the reference values instead. Accordingly, the SCED decided that it is appropriate to set the minimum price of the RFR Spectrum at $54 million per MHz," the CEDB spokesman said.

     "As to the cap, having considered all relevant factors, including the MNOs' feedback over the lack of certainty posed by linking the SUF of the RFR Spectrum with that of the Auctioned Spectrum, the SCED decided that it is appropriate to set the cap at $70 million per MHz," the CEDB spokesman continued.

     Meanwhile, given that a large quantum of spectrum and potentially substantial amount of SUF will be involved in this exercise, all spectrum assignees are given a choice to pay the SUF either by lump sum payment upfront or by annual instalments according to their individual circumstances.

     The right of first refusal for the RFR Spectrum is expected to be offered to the incumbent spectrum assignees in the second half of 2018, while the auction of the Auctioned Spectrum is expected to be conducted in around the end of 2018. The CA's decision today provides advance notice of about three years to the incumbent spectrum assignees for them to prepare for the spectrum re-assignment.

     For details of the arrangements for spectrum re-assignment and the related SUF, please see a Joint Statement published by the CA and the SCED today, which is available at www.coms-auth.hk/filemanager/statement/en/upload/429/ca_statements20171219_en.pdf
www.cedb.gov.hk/ccib/eng/paper/pdf/900_1800MHz_Spectrum_joint_statement_eng.pdf.

     The paper prepared by the consultant entitled "Response to Views and Comments on the Technical Study Conducted by Plum Consulting in the Submissions to the Second Consultation on the Arrangements for the Frequency Spectrum in the 900 MHz and 1800 MHz Bands upon Expiry of the Existing Assignments for Public Mobile Telecommunications Services and the Spectrum Utilisation Fee" is also published today and is available at www.ofca.gov.hk/filemanager/ofca/common/reports/consultancy/cr_201712_19_en.pdf.
 

Ends/Tuesday, December 19, 2017
Issued at HKT 14:00

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