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Transforming the Media Landscape

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The government has taken the bold step of trying to totally transform the rules for the operation of electronic media: from now on, apart from the competition laws, there will be few restrictions on who can own spectrum.

On Wednesday the media bosses came to Canberra for a full court press on the crossbench to persuade them to pass the laws.

For the media the rules are critical: without them Channel 10 and Fairfax Media will probably not survive in their current form.

The government will have a much smaller role in the allocation of spectrum with many of the powers being delegated to the Australian Communications and Media Authority (ACMA).

Instead of having a hands-on role in the allocation of licences and the rules to be applied to them, the Minister for Communications will issue ‘policy statements’ that set out the government’s overall policy approach.

In the first instance this policy statement would call for restrictions on gambling advertising during sporting events.

Ministerial statements will be included on the ‘Register of Legislation’.

The government makes the point that communications is an essential component of the Australian economy and social well-being which contributes approximately $177 billion to gross national product annually.

However it is also a sector that is changing rapidly: constantly transforming technology is disruptive and causes continuous structural change.

As a consequence, a regulatory environment that was developed in the early 1990s is becoming more and more irrelevant.

The Coalition is taking the approach that all spectrum users should be treated in the same way so that the government avoids picking winners when it comes to spectrum use.

To some extent this is at odds with the media operators who view their licences as real estate that constitutes a valuable asset.

The government recognises this because it has proposed new rules for dealing with licences such as transfers, sub-divisions and sub leases.

The government has taken the view that demand for spectrum is likely to increase as changes such as the ‘Internet of Things’ become ubiquitous.

Interestingly the government recognises that considerable amounts of spectrum are in the hands of government agencies such as the ABC and that these are not being used efficiently.

Indeed, in the case of the ABC, there are suspicions in the industry that the possession of spectrum is being used to maintain an artificial monopoly in order to exclude commercial competitors.

To give an example, regional radio surveys conducted in the last three years (available on the Commercial Radio Association’s website) found that, in many cases, the ABC has more than half the spectrum but with some programmes, particularly News Radio, having no listeners.

In fact, in the Ballarat survey, just released, News Radio did not have a single listener in an 800 person survey while Radio National attracted 2% of those surveyed and ClassicFM 1.6%.

The biggest Commonwealth user of spectrum is the Department of Defence and it will continue to have priority over all other users but other agencies will have to review their use of spectrum in the hope that more of it can be freed up for productive purposes.

In its new role as the statutory manager of radio communications ACMA will manage the spectrum through radio frequency plans that will outline the mechanisms for managing the scarce spectrum.

These plans will in fact be regulatory instruments but they will not be able to be disallowed by the Senate in the way that normal regulations can.

Once a plan has been implemented ACMA is itself bound by it and cannot take measures for spectrum management that are inconsistent with the plan.

This will make ACMA’s operation of spectrum management much more transparent.

When it comes to pricing the government’s approach is more difficult to discern.

It has already announced that the free to air television networks will have their licence fees waived.

This is said to be a trade-off for the loss in gambling advertising revenue but it is also recognition that television is a dying medium.

A large proportion of the millennial demographic does not own or access a television set preferring to view television on their phone or I Pad.

While the government acknowledges that the market is the best way to allocate spectrum, in the discussion paper that accompanies the exposure draft it says that, because spectrum represents a form of ‘commons’, ACMA should have the power to intervene to determine the pricing for spectrum.

This raises some concerns because it opens the prospect that different spectrum users operating in the same space may be subject to differential pricing that affects competitiveness.

The government haselected to use a hybrid approach which combines market forces with intervention by ACMA.

In the discussion paper it says: “In the absence of clear property rights and/or government intervention, there may be overuse, resulting in interference to other users. Government therefore has a role to play in providing orderly and fair access to spectrum, while enabling market forces to operate as much as practicable.

“The government’s use of efficient pricing methods can influence the allocation of spectrum between different users of a similar use. The price determines which user will most likely put the spectrum to the highest value use. Such an approach by government enables the efficient allocation of spectrum while ensuring interference is managed. “The government also manages spectrum to achieve other public policy outcomes. For example, governments may intervene in spectrum markets to foster competition in upstream and downstream markets, realise innovative spectrum uses, and manage spectrum resources for government use. Effective regulation can drive greater economic growth, increased investment, lower prices, better quality of services, higher penetration, and more rapid technological innovation in the sector. Effective spectrum management considers and promotes the long-term public interest derived from spectrum.”

While these are noble objectives it leaves open the prospect that ACMA can develop pricing policies that are inimical to the commercial interests of licensees and to radically restructure

competitive markets.

In general the question of controls over ACMA is probably the elephant in the room.

In many cases the legislation excludes the right of appeal to the Administrative Appeals Tribunal where licensees are unhappy with ACMA’s decisions.

This means that the policy statements from the minister that guide ACMA in its administration of the act assume greater importance.

Smaller players in the sector are concerned at the capacity of the bigger players to adversely influence decisions to their own interests.

Unfortunately the representative groups are funded by the major players and usually respond to their demands at the expense of smaller entities.

In reality this means that, where a major player objects to the allocation of a licence to a smaller player, the latter usually loses out.

There is no indication in the current suite of legislative measures that this issue will be dealt with.

John McDonnell is a member of the FlowFM advisory board.

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