U.S. Comments to Japan Ministry on Radio Spectrum Draft

Comments of the Government of the United States on the Draft Final Report from the Study Group on Policies Concerning Effective Radio Spectrum Use

August 24, 2004

The Government of the United States respectfully submits the following comments to Japanfs Ministry of Public Management, Home Affairs, Posts and Telecommunications (MPHPT) in response to the July 22 study group report on the revision of the spectrum user fee system. A wide range of issues are addressed in the July 22 study group report, forming the basis of possible recommendations. These comments address two issues: (1) how spectrum usage fees relate to the efficient use of spectrum; and (2) how to fund programs relating to the management of spectrum and research and development of wireless technologies.

Spectrum Usage Fees as a Tool to Promote Efficient Use of Spectrum

Spectrum Users in the Licensed Bands.

The United States agrees with the key conclusion of the study group: commercial providers that benefit from exclusive or preferential use of spectrum should have economic incentives to use spectrum efficiently, so as not to waste a valuable public resource. Unless a cost is imposed, providers enjoying such preferences or exclusivity may have insufficient incentive to innovate and put spectrum to the most economically efficient use. They may also have an increased incentive to "warehouse" spectrum, in order to prevent rivals from acquiring it. Given the benefits increased competition would bring to both fixed and mobile sectors (where NTT companies enjoy control over 98 percent and 60 percent respectively of enduser access links), encouraging companies to use or return unused spectrum would clearly be in Japanfs interest. Appropriately-designed usage fees, or other incentives (1), could contribute to this. However, setting spectrum use fees large enough to encourage greater actual spectrum use efficiency is untested in practice.

Given the broad direction given to the MPHPT by the Diet (2), in addition to incentives suc h as user fees, MPHPT should also consider whether a more flexible policy on the use of spectrum should be adopted to increase innovation and efficiency. There are two areas where this could be relevant. First, Japan appears in many cases to unduly restrict the services and technologies that can be used in particular bands. For example, MPHPT officials have suggested that only ITUapproved standards should be used for the services in the 2010 MHz band, despite lack of any evidence that ITU-approved technologies are superior to commercially available alternatives. Second, Japan does not appear to have clear policies or rules facilitating licenseefs ability to lease, sub-lease, or exchange licensed spectrum with other users. While a licensee may be unwilling to give up control of spectrum (even if holding it has a cost), rules facilitating the ability to lease, sub-lease or exchange spectrum could further facilitate putting available spectrum to more economic use.

Spectrum Users in the License-Exempt Bands.

The comments above refer to incentives appropriate only for users who are granted exclusivity or priority in dedicated bands. This logic does not extend to devices or users of spectrum on an unlicensed basis, which do not enjoy such privileges. Such unlicensed device users have no ability to "warehouse" spectrum, since by definition the spectrum is not dedicated to particular users. Furthermore, because such spectrum tends to be intensively used, incentives to maximize efficiency are already high. Whereas exclusive or priority rights may need to be accompanied by economic incentives to promote efficiency, measures such as usage fees could have the opposite effect on unlicensed users that do not enjoy such privileges. Creating what essentially amounts to a "tax" on purchasing unlicensed devices would lower demand, thus resulting in less spectrum usage and reduced efficiencies. Given the low regulatory burden involved in the license-exempt sector (i.e. there are no licenses to process or adjudicate nor records to keep, and other expenses can be recouped by an equipment certification fee) "spectrum management" is not a convincing rationale for imposing a usage fee. Thus, MPHPT should reject any suggestion that unlicensed users that do not enjoy exclusivity or priority should be subject to usage fees, as this would clearly be contrary to the intent of the Diet resolution.

The study group also addressed a third category of users: devices (e.g. home electronics) that would be granted exclusive use of spe ctrum on an unlicensed basis. While the logic of imposing a usage fee in return for such exclusivity is consistent with arguments above, this begs the question of whether such exclusivity is appropriate or whether efficiency could be better promoted by opening this spectrum up to a broader range of devices and users. Rather than grant a new category of exclusivity or priority, MPHPT should create an open proceeding to examine the needs of such proposed devices, and whether home electronics makers can design equipment that can meet quality of service goals without excluding other, possibly more efficient or socially optimal users of the spectrum.

Spectrum Usage Fees for Funding R&D and Rural Development Projects

The United States believes the issue of spectrum usage fees and R&D funding should be dealt with separately: although R&D might lead to more efficient spectrum use, such an outcome is speculative and should not be used to justify an expansion of fees. Increased MPHPT-funded R&D may not necessarily promote more efficient use of the spectrum, particularly since no evidence has been presented demonstrating that current levels of MPHPT-funded R&D are insufficient; or, if deemed insufficient, are being managed in an optimal manner. Spectrum usage fee reform should be examined on its own merits, not as a vehicle to expand unjustified spending. In this light, the MPHPT may want to examine whether R&D funding it currently controls should be reallocated.

As a general matter, the United States has long been concerned that R&D funded by MPHPT, which also manages the commercial use of spectrum and licenses operators, presents potential conflicts of interest. Given MPHPTfs role in promoting specific technologies, and its practice of including technology choices in its licensing criteria, MPHPT has an incentive to favor the licensing of operators deploying technologies it has sponsored, to the possible detriment of competing technologies. If a greater percentage of the spectrum usage fees is allocated to R&D, it would be appropriate to consider whether another agency could manage such fees in a more impartial manner.

Use of spectrum usage fees as a possible source of subsidies for rural development of wireless services, deserves greater attention: Funding for innovative wireless services that could substitute for or complement inefficient services currently supplied by NTT, and would be available to any supplier in a competitively neutral manner, would appear to be a worthy goal.

1) The United States disagrees with the study-group conclusion (Section 3.2.2) that auctions are an inappropriate way to create similar incentives. Although poorly -designed auctions can have negative outcomes, many countries have successfully used them as an impartial means to allocate scarce resources and create incentives for its productive use. MPHPT has so far failed to develop an alternative method for assigning licensed spectrum among competing users that satisfies standards of objectivity and impartiality

2) "Measures that lead to efficient use of spectrum are required ... [including] development of technology aimed at opening up currently unused bands ..." (Reference Document Number 2)