Introduction
Businesses in the Netherlands are regularly faced with so-called scarce public rights. These are permits, licences or exemptions that grant access to certain markets or public spaces and are available in limited numbers. Examples include operating licences for canal boats in city centres and frequency licences for radio stations. The concept of ‘scarcity’ arises when there are more applicants than available rights – for instance due to lack of space, environmental standards or technical limitations. In other words, when demand exceeds supply.
If the number of available licences is limited, it becomes difficult or even impossible for new players to enter the market. Access to the market is effectively regulated by the authorities. This can lead to a competitive advantage for certain (existing) licence holders. A transparent and fair allocation of such scarce rights – for instance through an auction or lottery – is therefore crucial to ensure a level playing field and allow new players to enter the market.
In this blog, we address when public rights are scarce, what legal rules apply to their allocation, and what consequences this allocation has for businesses that wish to gain access to a de facto regulated market. We also address practical examples from various sectors and explain what options are available to businesses when they are confronted with scarce rights.
When are rights scarce?
There are three types of scarcity: physical scarcity, technical scarcity and policy-driven scarcity. Physical scarcity refers to a limited amount of natural resources or available space. Only a limited number of physical locations are available for beach pavilions along the Dutch coast, for instance. Technical scarcity refers to a limitation on the number of usable technical possibilities. Examples include radio and mobile telecommunications, for which only limited frequency space on the airwaves (specific frequency bands) is available, in order to prevent interference. Only a limited number of parties can therefore operate in these markets at the same time. Frequency space in the broader spectrum is also physically scarce, however.
Policy-driven scarcity is scarcity that is ‘artificially’ created by administrative bodies to serve a policy objective. They then set a ceiling on the number of rights to be issued, although more might be physically possible. Such scarcity is created to serve the public interest. Examples include spatial planning (liveability) or economic planning, whereby the government organises the market in such a way that it functions in an efficient, effective and socially responsible manner.
In its ruling of 8 April 2020, the Administrative Jurisdiction Division of the Council of State (the “Division”) found that scarcity may also arise from a combination of physical and policy-driven factors. In the case in question, the municipality of Amsterdam had opted to construct only one 100-metre pier, thereby limiting the number of berths available for commercial vessels. Although no explicit maximum number of licences had (yet) been set in the municipal regulations, the policy decision to limit the length of the pier, combined with the large number of applications for mooring permits, led to the conclusion of a scarcity of mooring permits in this case. A right can therefore also be scarce if no ceiling has been set by law. This is referred to as an implicit or ‘hidden’ ceiling.
Scarce rights may take various forms, such as permits, licences, exemptions, concessions or subsidies. A concession means that a business is granted the exclusive right (and, under the agreement with the authorities, also the obligation) to provide a service or perform a task, such as providing public transport. Scarcity may also arise in the case of subsidies, for instance if the total subsidy scheme is limited and the authorities can honour only a certain number of applications.
Below, we address a few practical examples of scarce public rights in various sectors and how they are allocated.
Scarce frequency licences (telecommunications and radio)
There is high demand for radio frequencies, particularly between 100 MHz and 6 GHz. But the (technically) available frequency spectrum is limited and therefore scarce. For providers of telecommunications services and radio stations (radio broadcasting), the use of airspace is regulated by the issue of frequency licences under the Telecommunicatiewet (Telecommunications Act). The National Inspectorate for Digital Infrastructure (formerly the Dutch Telecom Agency) grants scarce licences for mobile telecommunications and radio broadcasting (FM and DAB+) on behalf of the Minister of Economic Affairs, for instance through an auction or a similar assessment, or on a first-come, first-served basis, as set out in the Telecommunications Act.
Gambling licences
The Wet op de kansspelen (Betting and Gaming Act) provides that a licence is required in order to organise games of chance. Gaming machines require a licence from the mayor. Local authorities often limit the number of available licences in order to protect public interests: policy-driven scarcity, in other words. In practice, the scarce licences for physical games of chance are allocated in various ways, including through a comparative assessment (see also below), in which the applications are compared. Not everyone who submits an application will therefore be granted a licence.
Fast-charging facilities along the motorway
In order to operate a fast-charging facility at a motorway service area, permission is required for the use of the land, since it falls under the management of the State. The use of such land was previously regulated in the Wet beheer rijkswaterstaatswerken (Public Works (Management) Act). In earlier rulings, the Division found that permits for fast-charging facilities as additional facilities did not constitute a scarce right. The reason for this was that, in principle, the Public Works (Management) Act allows multiple operators to be admitted to a single service area, provided that sufficient physical space is available.
But this principle is expected to change under the new policy. The government is working towards a situation in which the operation of fast-charging facilities at service areas will be considered an exclusive right. If this intention becomes final, only one party will be granted the right to operate a fast-charging facility at each service area. In its policy vision, the minister acknowledges that demand for such operating rights has increased significantly and that the existing allocation methods (such as individual applications or the one-off lottery in 2012) no longer suffice. These methods did suffice when interest was low and there was little spatial pressure.
In its recent advice, the Netherlands Authority for Consumers and Markets (“ACM”) found that having multiple providers of fast-charging facilities at the same service area is desirable from a competition perspective. It is in any event likely that there will be a shortage of licences, which will need to be allocated (more demand than supply). According to ACM, an auction is a good allocation method that is preferable to a comparative test.
Canal boats
In September 2024, the Division put a stop to the new canal boat policy of the municipality of Amsterdam. Open-ended licences could not simply be converted into fixed-term licences. The Division ruled that it is permissible to set a maximum number of licences, but that the policy had not been properly substantiated and that small boating companies were disproportionately affected by the measure. The ruling means that the old canal boat policy is back in force and that boating companies once again have open-ended operating licences. There will be no additional canal boats, sloops or saloon boats for the time being. Alderman Scholtes has stated in a letter to the municipal council that a moratorium will be introduced that will remain in force until 25 September 2025. It remains to be seen what the new permit system will look like.
When may the government limit the number of licences?
The basic principle in European law is that the provision of services is free, in principle. In certain cases, however, the government may restrict access to a market by introducing a licensing system. This is regulated at a European level by the Services Directive.
A licensing system may be introduced only if it is non-discriminatory, a compelling reason of public interest justifies such a system, and that objective cannot be achieved by a less restrictive measure (which is the case in particular where ex post control would not be effective). These criteria are cumulative and the administrative body must provide sound reasons as to why a licensing system meets those criteria.
This was confirmed, for instance, in the aforesaid canal boat cases in Amsterdam, where the justification for the licensing system was at the heart of the dispute, because the municipality wished to replace open-ended licences with fixed-term licences and to limit the number of boats in order to reduce congestion on the canals. According to the Division, the municipal executive had insufficiently explained why the measures were appropriate and necessary to reduce congestion on the canals, and why a less restrictive alternative did not suffice.
Businesses must have a fair chance of obtaining a scarce licence
When scarcity has been established and a licensing system is applied, the allocation of scarce rights must be fair and transparent. This follows from the Services Directive and Dutch case law (see the Division's ruling in the Speelautomatenhal Vlaardingen case from 2016, as well as the advisory opinion of AG Widdershoven).
According to the Division, Dutch law contains a legal standard that requires that, when allocating scarce licences, the authorities must in some manner give applicants (or potential applicants) the opportunity to compete for the available licence(s).
This means that if, for instance, two rights are to be allocated among three applicants (businesses), all three of them must be given an equal opportunity to compete for these rights. Specific rules thereby apply with regard to the criteria for eligibility for a scarce licence and the procedure for allocating the licences.
The criteria for eligibility for a licence must be clear, unambiguous, non-discriminatory, apparent beforehand, objective, transparent and proportionate to the objective pursued. The licensing procedures and formalities must be made known beforehand and must be clearly formulated, so that applications can be assessed objectively and impartially. The procedures furthermore may not have a discouraging effect on applications: they must be easily accessible and the costs for applicants must be reasonable and proportionate. The authorities must also process the application as quickly as possible and in any event within a reasonable, predetermined and published timeframe.
It follows from case law that an ‘adequate degree of openness’ must be provided, which in concrete terms means that:
- information must be available in good time;
- the announcement must be adequate;
- the allocation rules must be clear, precise and unambiguous;
- the allocation criteria must be applied equally to all requests; and
- in principle, scarce licences may not be granted for an open-ended period.
This means that scarce licences may be granted only for a fixed period. If they are grated for an open-ended period, the licence holder obtains an unfair advantage, because it is then virtually impossible for newcomers to access the market.
Allocation mechanisms
In practice, there are various ways of allocating scarce public rights. The authorities are often free to choose the method that best suits the purpose of the scarcity, the nature of the market, and the policy considerations. The most common allocation methods are addressed below. In some cases, the allocation methods are prescribed (to a certain extent) by law, such as in case of the Telecommunications Act (Article 3.10), which is based on the assumption that scarce frequency licences should, in principle, be allocated by auction.
First come, first served
The allocation of applications based on the order in which they are received means that an application is ranked higher the earlier it is received. The party that submits an application first and meets all the requirements is granted the licence. The selection criterion here is therefore the moment at which the applicant submits the application to the administrative body. Once the ceiling has been reached, the applicant is out of time and the application may be rejected on that ground. The phrase ‘first come, first served’ adequately summarises this method. The Division has accepted this allocation method, provided that the available operating licence is announced in a timely and adequate manner, so that third parties have the opportunity to compete.
Lottery
In a lottery, the successful applicants are selected entirely by chance, without any comparison based on quality or the moment of the application. Applicants are given a predetermined period in which to apply, and (non-discriminatory) qualitative conditions may be attached to the application. This is the simplest selection method, but leaves no room to take into account differences in quality or the highest (societal) return. An example of the use of a lottery is the allocation of numbers for telecommunications facilities, such as telephone numbers.
Comparative assessment (beauty contest)
In a comparative test, applications are assessed on the basis of substantive criteria such as quality, societal added value or sustainability. The authorities often use this mechanism when the quality of the service outweighs the price, or when policy objectives (such as sustainability or quality of life) are to be achieved, as in the case of subsidies. The test essentially consists of two components. First, the applications are assessed to see whether they meet the legal requirements. The applications that meet these criteria are then subjected to the actual comparative assessment. The administrative body has considerable discretion in that comparative assessment. It is therefore important that the administrative body applies clear, objective and relevant criteria that are logically related to the objective of the scheme and are systematically applied to all the applications.
Auction
The last method is an auction, in which the scarce right is awarded to the highest bidder. This method is generally used when scarcity is created in order to promote an economically rational market structure, as in the case of frequency licences for mobile networks. The government is also likely to use an auction for the future allocation of licences for the operation of fast-charging facilities at motorway service areas. Auctions of scarce rights often involve significant financial interests, as a result of which their preparation (how the auctions are organised, which model is used, what restrictions apply, etc.) and their outcome are frequently the subject of legal proceedings.
What can businesses do if they wish to enter a market with scarce rights?
Businesses that wish to enter a sector that is restricted by scarce public rights are well advised to take the following steps.
First, investigate whether the authorities have applied a correct allocation method. If, for instance, a municipality has granted a scarce licence to a third party ‘tacitly’ (i.e. without a public announcement or a transparent selection procedure), that may constitute a violation of the principle of equality and the principle of transparency.
Second, check the duration of scarce rights that have already been allocated. Those rights should not be open-ended. Businesses are well advised to keep a close eye on developments such as policy intentions regarding the sector in question. A current case in point is the allocation of scarce licences for fast-charging facilities and shops at motorway service areas, which is scheduled to begin in 2028.
Third, analyse the selection criteria for participation in the allocation mechanism. Interested parties must often meet certain requirements, such as financial obligations or technical competence. These requirements must be objective and proportionate; if they seem unnecessarily strict, they may be challenged or contested in court.
It follows from case law that businesses may successfully take legal action in situations where licences are wrongfully allocated. Courts are willing to rule against the authorities if the principle of equality has been violated or there is a lack of transparency in the allocation of scarce rights.
An example of this is the Speelautomatenhal Vlaardingen case, referred to above, in which only one licence was granted for the operation of a slot machine arcade. It was awarded to Hommerson Casino, as a result of which the application of another slot machine operator was rejected. That operator challenged the decision, arguing that it should be able to compete for the licence on an equal footing. The Division ruled that scarcity was involved and that the municipality should have followed a transparent allocation procedure. The licence was annulled and the municipal executive had to set up a new, fair procedure. The ruling serves as an important precedent for the allocation of scarce rights.
In another case from 2022, the Minister of Economic Affairs wished to extend the licences for national FM frequencies for commercial radio stations without organising an auction. Kink FM objected to this extension, because new entrants would not have a chance to obtain the scarce frequency space. The District Court and later the Trade and Industry Appeals Tribunal (the highest court in such matters) ruled that the minister had not prepared this extension decision with due care and had not properly substantiated it.
In 2021, the court ruled that an event permit that the municipality of Texel had refused to grant to the organiser of Sommeltjespop was a scarce licence, because only one event could take place on the selected date and location. Before that time, the municipality had wrongly given priority to another organiser without following a transparent and pre-announced allocation procedure. The court ruled that this policy was contrary to the principle of equality and the obligation of transparency.
Conclusion
By allocating scarce public rights, the authorities determine who may access certain markets and under what conditions. This means that such scarce rights must be allocated in a transparent, objective and non-discriminatory manner, so that new entrants are actually given the opportunity to compete for the available licence(s).
Businesses that are faced with scarce rights can enforce their right to a fair chance and are well advised to closely monitor the allocation of these rights (and the allocation method used). The time limits in administrative law are short and strict. Businesses must therefore take action in good time.
We have been involved in various proceedings centred on the allocation of scarce public rights. Examples include assisting a telecommunications company in the largest frequency auction in the last 15 years, filing an appeal against the proposed allocation of telecommunications frequencies, and advising a radio station on the possibilities for challenging the outcome of the auction for national FM frequencies.
Please feel free to contact us if you have any questions about scarce licences, have been unjustly excluded from an allocation, or wish to be well prepared for an upcoming auction or other allocation of scarce rights.
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