Analogue broadcasting has used the sought-after UHF band in the frequencies 470-862 MHz. Transmissions in these bands cover large geographical areas with relatively few base stations, offering national network rollout at lower costs when compared to services delivered at higher frequencies which offer greater bandwidth but at shorter range.  A number of digital multiplexes have also been inserted in the band.  On analogue switchover, which is being done in stages from October 2007 to 2012, two-thirds of the band will be occupied by digital territorial transmission.  The remainder (112 MHz- see below) is subject to reallocation as the digital dividend.
The amount of spectrum released through digital switchover will be one of the largest in the UK for many years, potentially supporting a range of new and innovative services of benefit to millions of people every day.
Ofcom estimates that the benefit to the economy from the use of this spectrum (as opposed to revenues raised for the Government from the auction of the spectrum) is likely to be around £5bn-10bn in total over 20 years.
Ofcom’s primary duty, as defined in Section 3 of the Communications Act 2003, is to further the interests of citizens in relation to communications matters and further the interests of consumers in relevant markets, where appropriate by promoting competition. Ofcom has a number of other statutory duties relevant to the Review, including a duty in the Act, to secure the optimal use of the electro-magnetic spectrum.
Ofcom believes that the most effective way to ensure spectrum is used for the greatest benefit for the UK as a whole is to allow spectrum users the flexibility to adapt and innovate as markets evolve over time.
Historically, spectrum use has been dictated by a command-and-control approach by the regulator or government agency, which set down precise rules as to what spectrum could be used for, and by whom.
In its Spectrum Framework Review (SFR), published in November 2004, Ofcom set out a new deregulatory approach under which the market, not the regulator, would determine the most appropriate use of spectrum. This also created the freedom to trade licences between providers and carried a commitment by Ofcom to make spectrum available on a liberalised, platform and technology-neutral basis.
Ofcom's research indicates a wide range of uses of the digital dividend spectrum with high social and commercial value. It is also clear that demand is likely to exceed supply. However, under such circumstances Ofcom does not believe that the regulator is best placed to decide which services should get access to spectrum; nor which should not. This is because:

• to do so would distort incentives: users who benefited from preferred access to the spectrum would have less of an incentive to use this allocation efficiently, as well as less of an incentive to consider more efficient alternatives;
• it would reduce flexibility: the more the regulator stipulates preferred uses, the more the use of the spectrum is constrained to those uses alone; and
• it assumes that the regulator can make better decisions than the market, when in reality there is significant uncertainty and information is limited.

The consultation document proposes that the most effective way to maximise the value to society of the spectrum is to give freedom to spectrum users, with appropriate incentives, to decide how these frequencies should be put to use. This includes both commercial and public service or public sector users.
The spectrum that will be released by digital switchover is in the UHF band in the frequencies 470-862 MHz. There are three types of spectrum that will be auctioned:

1. Cleared spectrum: 112 MHz of spectrum that will become available as a result of digital switchover. These channels are numbered 31-35, 37, 39-40 and 63-68. ¹
2. Channel 36 and Channel 69: two blocks of spectrum that fall within the spectrum bands currently used by terrestrial television across Europe. Channel 36 is currently used for airport radar and Channel 69 for wireless microphones. Both channels have the potential to be cleared, and together make up 16 MHz of spectrum.
3. Interleaved spectrum: the ‘white space’ that exists geographically between television transmitters to prevent interference.

The wide range of potential uses for the digital dividend distinguishes it from other awards. Potential uses which have been identified or include:

• mobile television and other types of mobile video and multimedia;
• extending existing DTT coverage;
• new DTT channels aimed at a UK market in either SD or HD;
• new DTT channels aimed at local markets (i.e. local television);
• wireless microphones and applications for PMSE;
• other low power applications, like hubs to distribute content around the home or using ultra wideband (UWB) technologies;
• broadband wireless applications, which could be mobile, and other mobile voice and data services;
• services using satellite communications;
• emergency and public safety services;
• cognitive radio;
• community radio;
• digital radio;
• communication with medical professionals and educational institutions;
• amateur and/or university use;
• new services for people with disabilities;
• international and cross border uses (e.g. an international emergency channel);
• digital public service teletext to match the analogue service; and
• user created networks (e.g. employing mesh technology).

Ofcom proposes to award licenses that are tradable. This offers scope for organisations to develop efficient ways of using spectrum.
Before deciding how to allocate and assign the spectrum, Ofcom analysed the case that certain services should receive privileged treatment because they conferred special social or external benefits upon UK citizens and consumers. Broadcasters, for example, argued that they fell into this category. In the event, Ofcom found grounds for making an exception only for spectrum used for programme-making and special events (PMSE), for which licences will be assigned via a beauty contest.
Consequently, Ofcom has followed its normal practice in the case of awards of spectrum in short supply, and will adopt a technology- and service-neutral auction, which it hopes might take place as early as the middle of 2009. Licences will be associated with fully defined spectrum usage rights. Lots will be packaged in 5 and 8 MHz units. The auction will take the form of a combinatorial clock auction, in which all units are considered as interchangeable, and bidders can submit their requirements in the form of bids to acquire one or a combination of lots. Following rounds where aggregate demand exceeds supply, prices are raised. At the conclusion of the auction, specific frequencies are assigned to the successful bidders in a manner calculated to minimise the costs of interference. A cap of 50 MHz acquired by any participant will be imposed. 

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