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450-470 MHz band alignment

Appendix 1: Quantifying the Costs and Benefits of the 450-470 MHz Band Alignment

This appendix provides an estimate of the potential costs and benefits.

1.Quantifying the Costs

In calculating the costs of alignment, the following assumptions have been made:

Any equipment that is not retuneable will need to be replaced. Therefore, costs will be incurred by users whose equipment will not operate on the new frequencies and will expire after 2010.

Between 2005 and 2010, costs may be incurred by users whose equipment expires early because they are required to operate on new frequencies when it is technically feasible (according to the new band plan). This may mean that users cannot move when it is economically viable, namely at the end of their equipment’s lifetime.

Equipment that is retuneable will incur retuning costs.

Most users will incur their equipment costs in a single year. Users with a large number of terminals may incur equipment costs over several years; however, the band alignment survey found that over 40% of respondents had up to nine handheld or vehicle-mounted terminals, suggesting only a small number of large users.

The potential costs of band alignment have yet to be estimated using the format outlined in Table 2 below.

2.Quantifying the Benefits

The most significant benefit from band alignment will be the release of harmonised spectrum. This spectrum may benefit many companies and individuals. The benefit to the UK economy from releasing this spectrum has been calculated using RA’s Economic Impact Study 200112. This study calculated the net benefits of different types of radio services, including Private Mobile Radio (PMR).

Large firms, small companies and public organisations use PMR to help them in their day-to-day business. The principal beneficiaries are the users, and therefore the largest benefits accrue in the form of consumer benefits. Consumer benefits (consumer surplus) accrue if the price users are willing to pay for a good or service exceeds the price they actually pay.

In the Economic Impact Study, the consumer benefits of using PMR were estimated by commissioning a survey to determine the willingness to pay for PMR. The total net benefit of Private Mobile Radio was estimated to be £1,051 million in 2000. The spectrum available to PMR was estimated to be 39 MHz13.

Dividing £1,051 million by 39 MHz of spectrum provides an estimate of the annual average benefit to the UK economy from using PMR per MHz of spectrum. This figure was calculated to be £26.9 million per MHz per year at 2000 prices. This is £27.5 million per MHz at 2002 prices14. However, this value assumes that all 39 MHz of PMR spectrum is congested and of equal value.

The migration of the Emergency Services from the 450-470 MHz band will free up around 6 MHz of spectrum. If this spectrum is used for PMR, assuming that PMR is the best use of spectrum, then 6 MHz of spectrum could benefit the UK economy by £165 million per year. This benefit could be achieved regardless of band alignment. See Table 1 below.

Band alignment will release additional spectrum by re-packing existing users into the band more efficiently. It is estimated that an additional 2-3 MHz of spectrum may be released. It is assumed that this additional spectrum will be released in 2011, as band alignment will have completed by the end of 2010. Therefore, the one-off benefit of releasing 2-3 MHz spectrum in 2011 is estimated to be in the range of £55 million to £82 million in today’s prices. See Table 1 below.

12 Available at www.radio.gov.uk/topics/economic/eis-report.pdf

13 Source: Land Mobile Statistics Report 2002, published by RA. The calculation consisted of

{(Total number of dual-frequency channels x 2) + Total number of single-frequency channels} x 12,500 = 39MHz

14 Inflated using GDP deflators. Source: www.hm-treasury.gov.uk/Economic_Data_and_Tools/GDP_Deflators/data_gdp_fig.cfm

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