Operators Unhappy As Ofcom Trebles Cost Of Spectrum Licences

The UK’s four major mobile operators will see their annual licence fees for 900MHz and 1800MHz spectrum increase from a combined £64.4 million to £199.6 million a year.

Ofcom was ordered by the government to revise the fees in 2010 to reflect the true market value of the airwaves, which are used for 2G, 3G and 4G services. Original proposals published in October 2013 would have seen the licences increase five-fold to £309 million.

Operators opposed the increases, while the GSMA warned that higher fees could harm investment in 4G networks in the UK. Ofcom claimed that the hikes would force networks to be more efficient with their use of spectrum, which it said is a finite resource. These were revised to £246.8 million in August last year and again in February to £223.3 million.

Spectrum price hike

Now, the regulator has made its final decision, offering operators a 13 percent decrease from the February figure. The new fees take into account the amount paid by operators in the 4G spectrum auction in 2013, spectrum auctions for the same airwaves around the world and the legally binding pledge by EE, O2, Three and Vodafone to spend a combined £5 billion on their respective networks to extend voice coverage to 90 percent of the UK landmass.

Vodafone and O2’s annual spectrum bills have increased from £15.6 million to £49.8 million while EE’s has gone up from £24.9 million to £75 million. Three’s is set to jump from £8.3 million to £25 million. The fees take into account Three’s purchase of some of EE’s 1800MHz bandwidth, due to be completed in October.

“We have listened carefully to the arguments and evidence put forward by industry, and conducted a complex and comprehensive analysis to determine the new fees,” said Philip Marnick, Ofcom’s group director of spectrum. “The mobile industry has not previously had to pay market value for access to this spectrum, which is a valuable and finite resource, and the new fees reflect that value.”

Operators unhappy

Despite the proposed increases coming down by more than a £100 million, operators are unhappy at having to pay more for the valuable airwaves – especially given their commitment to the government to improve coverage

“We think Ofcom has got this wrong. The proposed licence fees for 1800MHz spectrum are based on a flawed approach,” an EE spokesperson told TechWeekEurope. “The trebling of fees is bad news for British consumers and business as it raises the risk that we won’t be able to offer the best prices, and invest and innovate at the pace we and our customers would like.

“We’re also very disappointed that Ofcom has not reflected the higher costs we’ve taken on to meet enhanced coverage obligations that Ofcom and Government encouraged us to accept.”

“We will be reviewing Ofcom’s proposed spectrum fees over the coming days as they represent a significant increase when we are already investing around £1 billion on our network and services this year,” added Vodafone.

O2 and Three have also been contacted for comment.

Just get on with it

Analysts say the networks may not like it, but will have to accept the increases as the price of competing in the UK market.

“The near-2 year process included analysis of the recent spectrum auction in Germany and concluded that a mandate to offer 90 percent voice coverage in the UK had no impact on the market value of the licences,” said Kester Mann, Principal Analyst, Operators at CCS Insight. “Although the fees are 13 percent lower than those proposed in February, they still represent a significant increase from current levels.

“Operators will inevitably protest at the large hike in fees and are likely to warn that investment in networks and services will be impacted as a result. However, the reality is that this is a pill the providers are going to have to swallow. In one of Europe’s most competitive markets, they have no choice but to continue to make improvements to coverage and capacity and have little margin to adjust pricing to compensate.”

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