Specifically, whilst a commercial provider of the service that gains the spectrum will benefit from any increase in profits, this may not be closely aligned with the incremental change in the total value of the service from the change of use if the increase in output results in a significant incremental change in private external value or broader social value that are not fully monetised by the commercial service provider. In principle, this could be remedied through subsidies for the commercial service that ensure these non-financial impacts are taken into account by the commercial service provider. A similar difficulty can arise if the service that gains the spectrum is provided by a public sector body in that the new willingness to pay may not capture all of the user’s incremental value generated by the activities for which the spectrum is to be used. In practice, however, this may be a more acute problem for an intra-public sector change of use, compared to the public to commercial sector case, since the new public sector service provider may be less able to monetise the incremental value of the increase in service output. This may arise for two reasons: services provided by the public sector often have zero or low service revenues; and external value may be particularly significant. These same issues may also arise in the cases of some commercially provided services (e.g. public goods provided under contract). Implications Market mechanisms can play a useful role in the evaluation of intra public sector change of use, especially if the decision is a technocratic one of evaluating cost savings from using additional spectrum and identifying efficient combinations of inputs. In this situation, provided the spectrum-releasing department is enabled to keep the resulting proceeds or cost savings and the department obtaining the spectrum pays the opportunity cost, a market mechanism can lead to an efficient outcome. Where the decision depends on the scale of externalities and broader social value, market mechanisms are less useful and other approaches may be needed. Ultimately, decisions of this nature require ministerial judgment, in the same way as decisions on taxation and public spending priorities are matters for ministers. The techniques discussed in the following section (stated preference, deliberative research and subjective well-being) aim to provide decision support to ministers making those judgments.
Specifically, whilst a commercial provider of the service that gains the spectrum will benefit from any increase in profits, this may not be closely aligned with the incremental change in the total value of the service from the change of use if the increase in output results in a significant incremental change in private external value or broader social value that are not fully monetised by the commercial service provider. In principle, this could be remedied through subsidies for the commercial service that ensure these non-financial impacts are taken into account by the commercial service provider. A similar difficulty can arise if the service that gains the spectrum is provided by a public sector body in that the new user’s willingness to pay may not capture all of the incremental value generated by the activities for which the spectrum is to be used. In practice, however, this may be a more acute problem for an intra-public sector change of use, compared to the public to commercial sector case, since the new public sector service provider may be less able to monetise the incremental value of the increase in service output. This may arise for two reasons: services provided by the public sector often have zero or low service revenues; and external value may be particularly significant. These same issues may also arise in the cases of some commercially provided services (e.g. public goods provided under contract). Implications Market mechanisms can play a useful role in the evaluation of intra public sector change of use, especially if the decision is a technocratic one of evaluating cost savings from using additional spectrum and identifying efficient combinations of inputs. In this situation, provided the spectrum-releasing department is enabled to keep the resulting proceeds or cost savings and the department obtaining the spectrum pays the opportunity cost, a market mechanism can lead to an efficient outcome. Where the decision depends on the scale of externalities and broader social value, market mechanisms are less useful and other approaches may be needed. Ultimately, decisions of this nature require ministerial judgment, in the same way as decisions on taxation and public spending priorities are matters for ministers. The techniques discussed in the following section (stated preference, deliberative research and subjective well-being) aim to provide decision support to ministers making those judgments.
SVOS_REPORT_-_FINAL_18112015REV26112015.docx