Issue 37, 19 April 2012
Contents
US Congress Ratifies FCC Incentive Auctions
1
Australian Regulatory Round-up
6
International Regulatory Round-up
2
US CONGRESS RATIFIES FCC INCENTIVE AUCTIONS
The US Congress has ratified a policy authorising the Federal Communications Commission (FCC)
to conduct incentive auctions of the US spectrum. Spectrum is used to transmit information by
mobile networks and other telecommunications services such as television, radio and Wi-Fi.
The development of new technologies means that the commercial demand for spectrum changes
over time. For example, consumers increasingly use spectrum to watch video content on smart
phones and tablets. The National Broadband Plan (NBP) has recommended that an additional 500
MHz of spectrum be made available for commercial use. President Obama has called for a near
doubling of the spectrum available for wireless broadband.
Incentive auctions are designed to provide broadcasters with an incentive to return unused
spectrum licences to the FCC. The spectrum could then be auctioned to companies offering mobile
data services. Participation is voluntary and broadcasters receive a share of the revenue raised
from selling their spectrum.
The ratification follows an open letter by 112 prominent economists, including Nobel laureates,
former members of the White House Council of Economic Advisers, and former FCC Chief
Economists,
endorsing
the
use
of
incentive
auctions
(available
at
http://siepr.stanford.edu/system/files/shared/Letter_to_obama.pdf). The economists argued that
similar spectrum auctions that occurred in 1993 had led to a more efficient allocation of the
spectrum and that the auction process had since been adopted in other countries around the world.
Changing technologies, demand and relative costs have resulted in old spectrum allocations that
are inefficient and that waste spectrum resources, according to the open letter. Further, incentive
auctions facilitate the reallocation of spectrum from inefficient uses to more valuable uses, while
minimising the transaction costs incurred. This, in turn, increases social welfare. The economists
argue: ‘Voluntary transactions in free markets ensure that trades happen only when the buyer and
seller both benefit. Just as for most assets, when radio spectrum is used inefficiently and
appropriate property rights are in place, the potential buyers and sellers will be encouraged to find
terms that capture and share the benefits of transitioning spectrum to higher valued uses.’
The FCC has announced the appointment of Paul Milgrom and other leading auction experts to
advise in relation to the incentive auction design and implementation process. The FCC will also
consult with broadcasters and other interested parties.
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INTERNATIONAL
ROUND-UP
consultation includes a proposed approach to
release the 700 MHz band. The closing date
for responses is 7 June 2012.
REGULATORY
Communications
Oceania
Europe
NZ:
Customers
Switch
for
Broadband and Cheaper Mobile
Germany:
The
Bundesnetzagentur
Prohibits Telekom Deutschland GmbH’s
Price Model
A New Zealand-wide survey has been
conducted for the Commerce Commission in
relation to consumer-switching behaviour of
broadband,
mobile
and
other
telecommunications services.
The survey
results suggest that the main reason
consumers
switch
fixed-line
telecommunications service providers is to
obtain better broadband services. In contrast,
the main reason for switching mobile
telecommunications service providers is to
obtain a cheaper rate. The survey involved
analysis of behaviour of 12000 consumers in
New Zealand, and 1053 telephone interviews
with mobile and fixed-line customers
throughout New Zealand.
The Bundesnetzagentur has released a
decision to prohibit Telekom Deutschland
GmbH from selling VDSL bitstream access
under a new price model.
Telekom
Deutschland GmbH had informed the
Bundesnetzagentur of its plans to introduce a
price model known as the VDSL contingent
model.
The model effectively offered a
volume-based discount for use of existing
infrastructure. In conjunction with the term of
the lease, this may make it unattractive for
competitors to develop new infrastructure. As
a result, the Ruling Chamber concluded that
the model hampered competitive opportunities
of
other
companies.
The
European
Commission
and
national
regulatory
authorities of the other EU Member States
have one month to submit comments.
Better
Energy
Europe
EU: Madrid Forum Endorses Gas Target
Model
UK: Ofcom Publishes Consultation on
Strategy for UHF bands
The participants at the European Gas
Regulatory Forum (Madrid Forum), have
endorsed the Council for European Energy
Regulator’s (CEER’s) Gas Target Model.
They have invited Member States to
commence implementation work to reach the
Internal Gas Market Target Model by 2014.
The aims of the CEER’s Gas Target Model
include: the promotion of a sustainable
internal gas market and functioning wholesale
markets where they currently do not exist;
efficient use of existing infrastructure; wellfunctioning wholesale markets throughout
Europe; the connection of wholesale markets;
The Ofcom has published a consultation on a
proposed long-term approach for spectrum
UHF bands IV and V in Great Britain. The
spectrum is in demand by a wide range of
services including: digital terrestrial television
(DTT),
mobile
broadband,
local
TV,
programme making and special events
(PMSE),
emergency
services,
and
applications using white space devices
(WSD). Further, the use of high-power DTT
transmitters in this spectrum requires
international agreements to co-ordinate
significant changes to its use.
The
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UK: Guidance on the Regulated Third
Party Access Regime for Liquefied Natural
Gas facilities in Great Britain
secure supply patterns that ensure gas flow to
Europe; and to ensure investment in the
industry.
The Ofgem has published a guidance
document that aims to provide greater
certainty and clarity in relation to the
provisions relating to regulated third-party
access (rTPA) arrangements for LNG
facilities. From 3 March 2011, LNG facilities in
Great Britain have had an obligation to comply
with the EU Third Internal Energy Package
(the Third Package).
The guidance
document provides the Ofgem’s views on
aspects of the Third Package, including: that
auctions and open seasons are the most
appropriate market-based mechanisms to
determine tariffs under rTPA arrangements;
that equitable and timely access to information
facilitates informed decision making by market
participants; that improved transparency will
reduce barriers to entry and facilitate
competitive markets; and that the Ofgem
should adopt a mix of monitoring and industry
engagement to determine whether LNG
system operators are complying with
regulatory requirements.
EU: CEER and GLE Improve Access to
European LNG terminals
CEER and Gas LNG Europe (GLE) have
jointly released a ‘Transparency Template’ at
the European Gas Regulatory Forum (Madrid
Forum) designed to more clearly identify
existing requirements and access conditions
to use Liquefied Natural Gas (LNG) terminals.
The Template addresses problems identified
by a 2011 study on congestion management
procedures and anti-hoarding mechanisms in
European LNG terminals.
The study
concluded that areas for improvement
included amending information provided on
the LNG System Operators (LSOs) website
that is required by shippers to book capacity at
the terminals. The study found that this
information was not easily accessible or
understandable, and may otherwise hinder the
access of new participants to LNG terminals.
UK: Mitigating Network Charging Volatility
The Ofgem has issued a consultation paper
that outlines five options designed to mitigate
network charging volatility arising from the
recent price-control settlement. As part of the
network price-control consultation process, the
Ofgem was asked to consider the impact of
the price-control settlement on network
charging volatility. Suppliers have included a
risk premium in customers’ energy bills in
order to compensate for unforeseen changes
in network charges. Suppliers argued that
charging volatility can act as a barrier to entry
to the energy retail market, particularly in
relation to entry by small suppliers. The
closing date to respond to the consultation
paper is 11 June 2012.
UK: Proposal to Amend Treatment of
Manifest Errors Rejected
The Ofgem has rejected a proposal by npower
Limited (DCP104) that sought to amend the
Distribution Connection and Use of System
Agreement (DCUSA) to allow adjustments to
Distribution Use of System (DUoS) charges
resulting from manifest errors to be smoothed
over three years. ‘Manifest errors’ are the
result of human error and occur when data are
inputted incorrectly into a Distribution Network
Operator’s (DNO’s) charging methodology
model. This may result in an over or under
recovery of allowed revenue. The proposal
was rejected on the basis that it would conflict
with DNOs’ licence regulations, including a
requirement to correct any over or under
recovery within a single regulatory year.
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UK: Ofgem Produces Electricity and Gas
Supply Market Indicators
while intermittent generators had access to a
one-rate tariff. The structures of the tariff
reflect the ability of the different generators to
export electricity at peak times. The UKPN
argued that intermittent generators should not
be restricted to a one-rate tariff if exports
coincide with peak demand. The proposal
was rejected on the basis that it does not
facilitate the achievement of objectives of the
relevant legislation.
The Ofgem has produced an estimate of the
net margin on supplying a typical standard
tariff for a dual fuel customer for the next 12
months. The calculations suggest that, for the
period from April 2012, the net margin for a
typical, standard tariff dual fuel customer is
approximately £55 per customer. This
represents a £5 decrease from the 28 March
2012 update. It is a result of increased
wholesale costs. It is expected that the 12
month margin will fall to around £45 over the
next six months, mainly due to changes in
wholesale prices.
UK:
Consultation
of
Investment Incentives
Transmission
The Ofgem has published a consultation in
relation to extending the Transmission
Investment Incentives (TII) framework to
2012-13. The TII framework was introduced
to provide project-specific, interim funding for
critical, large-scale investment projects that
Transmission Owners (TOs) identify are
required to support achievement of the
Government’s 2020 renewable energy targets.
Originally applying to the price-control period
(TPCR4) which ended on 31 March 2012, the
Ofgem has proposed to extend the TII under
the one-year adapted rollover of TPCR4
(TPCR4 rollover) which ends on 31 March
2013. The closing date for submissions is 8
May 2012.
UK: Response to the Deputy Prime
Minister’s Announcement on Energy
Tariffs
The Ofgem has welcomed initiatives
announced by the UK Government on energy
tariffs. As part of the proposals, the major
energy companies will write to customers
annually to inform them of the most costeffective tariff, given their past consumption.
Vulnerable customers will be contacted twice
a year. Customers will also be offered the
best tariff when their contract comes to an
end, or after customers have contacted their
supplier. There are currently more than 120
different tariffs in the UK. It is estimated that
seven out of ten people are not on the best
tariff.
UK: Guidance on Monitoring Suppliers’
Performance in Relation to Domestic
Customers
The Ofgem has published a guidance
document that sets out revised reporting
arrangements
for
monitoring
domestic
electricity and gas suppliers’ performance in
relation to domestic customers.
The
document provides an overview of the data
that must be provided to the Ofgem, the
process to submit the data, and detailed
guidance notes. The document requires that
a variety of data are provided at different
intervals, including quarterly and annually, to
the Ofgem on areas such as debt levels;
UK: Rejection of Proposal to Amend NonIntermittent Generator Tariffs
The Ofgem has rejected a proposal by the UK
Power Networks (UKPN) (DCP108) to make
non-intermittent generator tariffs available to
intermittent generators.
The Common
Distribution Charging Methodology (CDCM)
was implemented in April 2010 and provided
credit to generators for offsetting demand on
the distribution networks. Non-intermittent
generators had access to a three-rate tariff,
4
Northern Ireland: The Utility Regulator
Publishes Consultation Regarding Global
Settlement in the Single Electricity Market
disconnection rates; prepayment meters;
payment methods used by customers; and
help for vulnerable customers.
The Utility Regulator has published a
consultation on the changes that are required
to implement the Global Settlement in the
Single Electricity Market for Northern Ireland
(the Northern jurisdiction).
The proposed
implementation date is September 2012. The
Utility Regulator is consulting on two separate
changes – the proportion of the residual
volume for each trading period that will be
allocated to suppliers’ meter volumes derived
from different types of meters; and the
changes required to Power NI’s supply
licence. The closing date is 28 May 2012.
UK: OFT Secures Voluntary Changes to
Bulk LPG Contracts
The Office of Fair Trading (OFT) has secured
voluntary agreements from the major liquefied
petroleum gas (LPG) suppliers to amend their
domestic
bulk-customer
contracts
and
improve transparency in relation to customers’
switching and cancellation rights. The OFT
action follows its 2011 Off-Grid Energy Market
Study, which raised concerns in relation to the
contractual arrangements between suppliers
and domestic bulk LPG customers.
For
example, many customers with large supplierowned LPG tanks on their premises have
entered into contracts for the supply of
domestic bulk LPG that included a two-year
exclusive-supply arrangement. During this
time, the customer was tied to the supplier
and was unable to obtain supply from a
competitor.
Water
Europe
UK: The Ofwat Proposes Flexible Price
Setting Arrangements
The UK Water Services Regulation Authority
(the Ofwat) has published an information
notice in relation to proposals to modify the
conditions of appointment of water-andsewerage and water-only companies. This
includes proposals to amend the way in which
prices are set. A single price limit is currently
set for a five-year period. The Ofwat has
proposed to introduce a flexible price-setting
arrangement, where the price limit is based on
the nature, form, number and duration of the
price limits at each review. The information
notice provides that the Ofwat has extended
the timetable for consultation and will publish
proposed future price limits in May 2012.
Northern Ireland: Utility Regulator Refers
PNGL to Competition Commission
The Utility Regulator has referred the Phoenix
Natural Gas Ltd (PNGL) price-control licence
conditions to the Competition Commission.
This follows PNGL’s rejection of the Utility
Regulator’s price-control determination and
proposed licence modifications.
The
Competition Commission will assess whether
the PNGL price-control licence conditions
operate against the public interest.
The
Competition Commission is expected to report
within six months. The Utility Regulator has
stated that the price-control determination
would lead to lower business and domestic
consumer prices. In contrast, the PNGL
proposals would increase domestic consumer
bills by £25 per annum.
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Rail
Ireland:
ComReg
Initiates
Proceedings against An Post
Europe
The
Commission
for
Communications
Regulation (ComReg) has initiated legal
proceedings against An Post in relation to An
Post’s quality of universal postal service.
ComReg published the results of the ninth
annual monitor report for the calendar year
2011. The report shows that 83 per cent of
single piece priority mail was delivered within
one working day throughout the State. This is
a two per cent decline on the figure achieved
in 2010. Ninety-eight per cent of mail was
delivered within three working days, a one per
cent decline on 2010. The 2004 direction
issued by ComReg to An Post set a next-day
delivery standard of 94 per cent for single
piece priority mail posted in the State for
delivery in the State, and a 99.5 per cent
standard for delivery of this mail within three
working days.
UK: ORR Capability Review Published
The Office of Rail Regulation (ORR) has
published an external review of its
organisation. The review’s scope included an
assessment of the ORR’s current capabilities
and a comparison with its current functions,
and against a proposed expansion of its
current role.
The proposed expansion
includes monitoring train performances and
service standards.
The review also
highlighted areas in which ORR can improve,
including in relation to the way the ORR
handles change, and in relation to enhancing
skills within the ORR.
Post
Legal
Europe
AUSTRALIAN
ROUND-UP
UK: The Ofcom Announces Measures in
Relation to UK’s Universal Postal Service
REGULATORY
Airports
The Ofcom has set out measures that provide
Royal Mail with greater freedom to sets prices.
Royal Mail will be able to set prices for the
majority of its products, including First Class
stamps and most business mail. Safeguards
have also been introduced that are designed
to protect consumers and competition. These
include a cap on the price of Second Class
stamps for standard letters; a cap on the price
of Second Class small parcels and large
letters;
monitoring
of
Royal
Mail’s
performance; and requiring Royal Mail to
continue to provide network access to its
competitors. The regulatory framework will
apply for seven years. The Ofcom will retain
the ability to intervene if the new regime fails
to safeguard the universal service and the
affordability of mail services.
ACCC Issues Annual Report on Airport
Performance
The Australian Competition and Consumer
Commission (ACCC) has completed its
annual report into the performance of
Adelaide, Brisbane, Melbourne, Perth and
Sydney airports for 2010-11. These airports
face limited competition and may enjoy
market power.
In 2002 the Australian
Government directed the ACCC to monitor
the prices, costs, profits and quality of certain
services provided by Australia’s five major
airports.
The ACCC’s annual airport
monitoring report provides information on:
prices for services provided to airlines and to
consumers; financial performance; and
quality of service based on ratings given by
airlines, passengers and border agencies. All
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airports except Melbourne showed increased
profits from aeronautical services in 2010-11.
Total car parking revenue increased for all
monitored airports. For Brisbane, Melbourne
and Perth airports, these increases in
revenue were attributable to increases in both
demand and prices.
Charter of Independence. The closing date for
submissions is 20 April 2012.
ACCC Seeks Comment on Proposed
Variation to Fixed Line Final Access
Determinations
The ACCC has commenced a public inquiry
into
varying
fixed-line
final
access
determinations. Telstra has requested that
the
ACCC
vary
the
final
access
determinations for the declared wholesale line
rental, local carriage service and a subset of
the public switched telephone network
originating access service (PSTN OA) called
preselect and override services. The ACCC
will not consider the long-term regulation of
these services as part of the inquiry. The
ACCC may consider the need for regulation
of wholesale aggregation services provided
over the NBN at a future time. The closing
date for submissions is 11 May 2012.
PC Releases Inquiry Report into Airport
Services
The Productivity Commission (PC) has
released an inquiry report into the economic
regulation of airport services. The PC made
recommendations in relation to the future
regulation and monitoring of services, and the
scope and mechanisms for transparency and
accountability
in
airport
infrastructure
provision and services. The issues examined
included: aeronautical services and facilities
provided by airport operators; passengerrelated aeronautical services and facilities
provided by major airline tenants; land
transport facilities providing access to the
airports; and the effectiveness of remedies in
dealing with potential abuses of market
power.
Energy
Productivity Trends of Australian Utilities
Examined
The Productivity Commission has released a
staff paper that examines productivity trends
of Australian utilities and highlights issues
relating to the measurement and interpretation
of changes in measured productivity over
time. The staff paper suggests that multifactor
productivity (MFP) growth in Australia’s
market sector has been below average since
2003-04. Utilities (electricity, gas, water and
waste services), have played a significant role,
with MFP growth strongly negative between
1997-98 and 2009-10 (MFP falling, on
average, by 3.2 per cent per year).
Communications
ACCC
Begins
Consultation
on
Establishment
of
Independent
Telecommunications Adjudicator
The ACCC has released a discussion paper in
relation to Telstra’s establishment of an
Independent Telecommunications Adjudicator
(ITA).
Telstra’s structural separation
undertaking requires Telstra to implement
dispute resolution processes, including an ITA
scheme. The establishment of the scheme
requires ACCC approval of a Constitution, a
Charter of Independence and appointment of
an individual to the role of ITA Adjudicator.
The discussion paper invites comment on
draft versions of the ITA Constitution and
AER Approves Minimum Disconnection
Amount
The Australia Energy Regulator (AER) has
approved a minimum disconnection amount of
$300, for the purposes of the National Energy
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AER Discussion Paper Released on Public
Lighting in NSW
Retail Law (Retail Law) and National Energy
Retail Rules (Retail Rules). This is due to
commence on 1 July 2012. The Retail Rules
set out the circumstances where a retailer can
arrange for the disconnection of a customer’s
premises. In particular, the Retail Rules
provide that a retailer cannot disconnect a
customer for non payment where the amount
owing is less than an amount approved by the
AER and the customer has agreed to repay
that amount. This amount will apply to both
gas and electricity and to all jurisdictions
adopting the Retail Law and Rules. The AER
will review this in the next 18 to 24 months.
The AER has released a Discussion Paper on
issues in relation to public-lighting services in
NSW.
The AER is seeking views from
interested parties on whether the current
regulatory approach is satisfactory; if the
current regulatory approach has led to new or
unexpected difficulties; and if so, whether the
current regulatory approach should be altered
for the next regulatory-control period. The
closing date for submissions is 11 May 2012.
Regulatory Observer is a regular publication of the Australian Competition and Consumer Commission.
For editorial enquiries please contact Jason King ([email protected]), and for mailing list enquiries please contact
Genevieve Pound ([email protected]).
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