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Administered Incentive Pricing

Ofcom, the independent telecommunications regulator, is proposing to introduce ‘Administered Incentive Pricing’ (AIP) for the use of aeronautical and maritime spectrum. AIP is intended to reflect the market value of that spectrum to an alternative user.

By introducing a market mechanism Ofcom argues that it will increase the efficiency with which spectrum is used, as users will seek to reduce their holdings of spectrum (and thus their costs), and any spectrum they give up can be reused by other parties.

The principle of AIP originates with the 2005 Cave Audit of Spectrum. The review recommended the application of AIP to ‘public-sector’ spectrum uses in order to establish a market mechanism to encourage the more efficient use of that spectrum. It was, however, noted that:

"If there is judged to be no prospect of alternative use due to international restrictions and since the UK is unable to act unilaterally in spectrum that is internationally harmonised for on-board use, then the opportunity cost of the spectrum for alternative use should be judged to be zero." Cave Audit p.56

In its response to Cave (2006) the Government stated that:

"Economic incentives such as AIP could be effective in promoting greater efficiency in aeronautical spectrum where there is flexibility to influence choice of technology or service. In many cases, international agreements limit the scope to improve spectrum efficiency, and safety considerations will remain paramount."

In December 2010, Ofcom announced plans to proceed with its proposals in the second consultation, the implementation of AIP to the use of VHF in the aeronautical sector. Ofcom do not propose to apply AIP to navigational aids, to fire/distress channels, or to aircraft radio licenses. Ofcom has proposed a range of AIP fees for different VHF applications. These fees, they propose, should be phased in over a 5 year period.

The AOA remains opposed to the principle on the grounds of safety and cost. We have written to the Ed Vaizey, the Minister with responsibility for spectrum and we continue to lobby Ofcom to reduce the fees and increase the phasing period.