This Attachment is based on the French experience. However, the general principles identified may well apply to other countries.

Redeployment is a spectrum management tool which makes it possible to observe the timetable laid down for the availability of frequencies to newcomers.

The community as a whole must derive sufficient benefit from a redeployment of radio frequency bands to merit the granting of authorization. This benefit is reflected, in economic terms, through a maximization of the community surplus. In other words, one must reach an equilibrium point such that no other use of the spectrum can improve the community surplus, according to the Pareto optimality criterion.

In seeking this equilibrium point, it is useful to compare the preferences (utilities) of the various players involved. Their utility functions are expressed in terms of private value and social value for the community. Private value corresponds to the profits they can derive from the use of the frequency bands, whereas the social value corresponds to the importance of the service to society at large. The calculation of private value is fairly simple, whereas quantifying the social value is relatively complex. It is possible to call on the notion of "opportunity" in trying to evaluate the social value of the service. In other words, by calculating what the absence of the service would cost the community.

As regards the process of spectrum redeployment, it is necessary to compare the utilities in terms of private value and social value of the agent being asked to relinquish the frequency bands and of the incoming agent.

Let Uoutgoer and Uincomer denote the respective utilities (comprising the private and social values) of the operator leaving the spectrum and the operator who replaces him. Let Cremoval denote the spectrum redeployment cost for the outgoer:

if Uincomer >Uoutgoer +Cremoval then the removal is socially and economically optimal;

if Uincomer <Uoutgoer then the removal is not socially and economically optimal; and

if Uoutgoer <Uincomer <Uoutgoer +Cremoval then a choice has to be made.

It is assumed that, as the result of spectrum redeployment, the user of a frequency band is obliged to relinquish the band and to pursue his activity in a different frequency band or to use a non-radio solution where this is possible. For this user, the obligation to leave the frequency band may induce an additional cost that he would not have incurred in the absence of this obligation. In what follows, this additional cost will be known as the "redeployment cost". The removal cost Cremoval discussed earlier forms part of the redeployment cost.

In the telecommunication sector in particular, the resale value of the equipment involved in the move is in most cases unknown. Investments made in these networks are often so called "sunk costs" for the users. This means that if the activity ceases the users cannot recoup their investments. Calculation of the residual value makes it possible to determine the theoretical value of this equipment when it cannot be resold. It is useful to distinguish the residual book value and the residual economic value. For this reason, two methods are envisaged and presented below for the calculation of the redeployment cost:

The book value method is applied in particular when the outgoer keeps normal accounts. Moreover, in the case of commercial activity, this method takes into account the tax advantages that the outgoer has enjoyed relating to the depreciation of his equipment.

It must first be determined whether the outgoing user is obliged to use radio frequencies if he is to pursue his activity. If this is the case (as, for example, for an operator of mobile services), the outgoing user is moved to another frequency band and the cost, Cd, of this move to another part of the spectrum is evaluated. If this is not the case (as for example, for an organism owning fixed radio links), the two following hypotheses must be envisaged:

The choice between these two hypotheses, taking only the economic criterion, leads to adopting the least costly of the two.

Let Ci be the cost incurred by the user on leaving the frequency band. Ci is equal either to Cd if the user is obliged to occupy a different frequency band, or to the smaller of Cd and Cs if the user has the possibility of adopting a wire-based solution.

This method makes allowance for the age of the outgoing user’s equipment, taking the residual book value Vcr of this equipment. The usual definition of the residual book value of an item of equipment is obtained as follows:

Vcr = purchase price of the equipment ready for use minus depreciation

Vcr represents the value of the fraction of equipment remaining to be depreciated. If at this stage in the depreciation, its owner can no longer use the equipment, the latter, according to accounting theory, would incur a loss equal to Vcr.

Because of technological evolution and the ageing of equipment, the occupier of a frequency band is called upon to renew his equipment even in the absence of any change of band. Let Cr be this cost of renewal of equipment, with identical properties and the same frequency band. Cr in this case represents the cost this occupant would incur even in the absence of any spectrum redeployment.

Take the user of a frequency band whose present equipment has a residual book value Vcr and who has to evacuate this band by reason of redeployment. Leaving the band means that he has to spend a sum equal to Ci (see § 3.1) in order to be able to pursue his activities. The fact of evacuating the band will probably mean that it is impossible for him to use his present equipment, hence causing a loss equal to Vcr (see § 3.2). If he were to stay in the band, he would have to spend a sum equal to Cr (see § 3.3). We therefore have the following relationship:

Redeployment cost = additional cost for the user obliged to leave the frequency band

Ci = Vcr – Cr

Remarks:

The results of the calculation are highly sensitive to the level of depreciation and the architecture of the existing network.

The economic approach makes it possible, among other things, to leave aside the following two aspects:

Once the incomer has recognized his interest in using radio waves to provide his service and when it is established that the value to the incomer is greater than the value to the outgoer plus the cost of moving (in other words Uincomer >Uoutgoer +Cremoval), the outgoer has five options:

Each of these cases can be tackled by an economic study of the different investment options.

Referring to the work carried out in France on the unbundling of the local loop and the calculation of network costs, the spectrum redeployment cost is examined by comparing different options (again referred to in terms of "configurations"). Take the case of the operator who has to evacuate his frequency band (totally or partially) and move to a different frequency band or a different platform (or simply adjust his use of the frequency band in order to accommodate another operator). The removal of the operator (called the outgoer) must not be to his detriment. The move must involve an incentive for the outgoer. Otherwise, he will not evacuate the frequency band or will try to delay his departure. Equally, the move by the operator must not give rise to the constitution of profits. As a result, an equilibrium point has to be found through the calculation of "fair" compensation. This is done through a comparison between the situation of the outgoer who has to bear the costs of the move and the situation of this same operator if he had not had to move and if he had only incurred the costs of renewing his equipment.

The fund is managed by the body responsible for managing the spectrum (Agence nationale des fréquences (ANFR)) with a specific budget that is kept strictly separate from the ANFR’s general budget. It can be financed in several ways, including contributions from public entities for the requirements of redeployment. So far, the only contributions have come from the Ministry of Finance.

The Ministry of Finance supplies the initial share of the fund, on an annual basis of 3 million euros, increased by an additional amount determined each year on a case-by-case basis in the light of the cases dealt with. From 1997 to 2001, the contributions emanating from the Ministry of Finance have amounted to 65 million euros because of the moves required to accommodate GSM 1800, IMT-2000 and SRD applications (including BlueTooth). At a later stage, contributions will also come from private persons. Users may be called on to pay their contributions into the fund at the time they obtain the new frequency band. For example, GSM operators will contribute in 2002 for additional frequencies in the 1.8 GHz band and IMT-2000 operators will pay the contribution just after the granting of the authorizations, i.e. in September 2001.

The ministries and the independent authorities (or the entities delegated for the purpose) benefiting from the redeployment fund sign a redeployment convention with the ANFR.

The Board of the ANFR, on which all the ministries and authorities concerned are represented, approves these conventions. The cumulative total of conventions signed as of 30 June 2002 is 59 million euros. The entities that have already benefited from the redeployment fund are mainly the operator France Telecom and the Defence Ministry. Other beneficiaries are notably Electricité de France (EDF) and Société nationale des chemins de fer (SNCF).

The procedures are launched by the part of the administration responsible for assigning frequencies before the re-attribution of the frequency band. In France, the bodies in charge of assigning frequencies are known as "affectataires".

At their request, the tasks delegated by the State to the ANFR are as follows:

To carry out these tasks, the ANFR relies on a number of commissions within which consensus is sought and found.

The Commission pour la planification des fréquences (CPF) receives, examines and coordinates the demands for frequencies emanating from "affectataires".

It has the following tasks:

Other commissions are involved in synthesis and prospective in order to:

Usually, all decisions are taken by consensus. However, when this is not possible, the decision is taken by the ANFR Board, which is the highest decision-making body on matters related to the frequency spectrum. An appeals procedure can then be launched with the Prime Minister’s office at the request of a member of the ANFR Board.

To date, all redeployment cases have been handled using the usual procedure, with consensus obtained in the commissions concerned and with full transparency guaranteed.

__________________________________________