Ofcom's spectrum licence fee increases: The carrier backlash begins
The UK's big four mobile providers -- EE, O2, Vodafone and Three -- woke up to a figurative punch in the gut this morning. Telecoms regulator Ofcom announced its final decision on increases to spectrum licence fees, and collectively, the carriers are looking at an annual bill of almost £200 million, compared with the £64.4 million they currently pay. The jump is said to realise the true financial worth of the mobile spectrum each provider licences; as the regulator puts it, spectrum "is a valuable and finite resource, and the new fees reflect that value." Ofcom's decision is set in stone, and mobile service providers have to come up with the money if they hope to continue, you know, providing mobile service.
We can only speculate on how it'll play out, but you'd have to be incredibly optimistic to think consumers aren't going to be on the hook for at least some of the inflated bill. At this point, damage control and blame shifting are of primary importance to everyone involved. The backlash begins...
EE
EE, being the spectrum hog it is, stands to suffer the most damage to its bottom line. The carrier is looking at a yearly pay-out of £75 million, triple its previous £24.9 million bill. Understandably, the provider's been the most vocal about the increases:
"We think Ofcom has got this wrong. The proposed licence fees for 1800MHz spectrum are based on a flawed approach. 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."
Within its statement, EE acknowledges that the licence fee increase will undoubtedly have an impact on the prices it can offer Joe Public. It also questions Ofcom's use of a recent spectrum auction in Germany as a benchmark for setting the higher fees, noting that it's already out of pocket under an agreement with Ofcom and the government to improve geographical mobile coverage.
Ofcom
Of course, it's in EE's interests to paint Ofcom as the bad guy. The regulator isn't going to sit by and take flak quietly, though, preparing a pre-emptive defence:
"Mobile operators have a strong incentive to invest in networks and to keep prices competitive. The operators have had five years' notice that the fees would be increased to reflect full market value and we expect them to have budgeted for this. We've listened carefully to the arguments and evidence put forward by industry. The fees announced today are in line with analysts' expectations and with the amounts that operators pay for accessing spectrum in other countries."
Not one to beat around the bush, Ofcom's basically said: "You knew this was coming..." And the regulator isn't wrong. A licence fee increase has been the cards for five years now, and an industry consultation that really got the ball rolling started off in 2013, after the 4G spectrum auction. It's also important to note that Ofcom's final decision on licence fees is the lowest increase it's ever proposed, so perhaps the regulator is right to imply carriers should've been fattening their piggy banks to make ready for this inevitable price hike.
Vodafone
Vodafone is also looking at a three-fold increase to its licence fee, rising from £15.6 million to £49.8 million per year. The provider doesn't have a great deal to say in the immediate aftermath, but the company has sent us this statement:
"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."
Like EE, Vodafone notes it's already dumping a shedload of money into improving its network, hinting its coffers aren't full enough to simply write the licence fee increase off without significant impact elsewhere. We expect to hear a more elaborate response from Vodafone in the near future, when its done "reviewing" the new terms, which we assume is code for looking at the bill and scratching its head.
O2
O2's in exactly the same boat as Vodafone, with its licence fee also increasing from £15.6 million to £49.8 million annually. In a slightly cryptic statement, O2's said:
"We're examining the decision in detail before deciding how best to proceed."
What that means is anyone's guess at this point. When pushed for an explanation, O2 said they didn't have any further comment right now, but we expect a lengthier monologue in due course. "How best to proceed" is an interesting choice of words, because barring some grand legal challenge, the only way to proceed is to pay the piper. Perhaps the carrier means "how best to proceed" drumming up the extra cash.
Three
Three is the only carrier keeping mum for now, declining to comment on the licence fee increase altogether. It, too, is looking at a three-fold hike for its small slice of spectrum, jumping from £8.3 million to £25 million per year. Maybe it's still reeling from the blow; maybe it's taking its time to prepare a statement; or maybe it's trying to figure out how its going to pay for its spectrum and O2's when its acquisition of the network goes through. Undoubtedly it'll release some form of comment soon -- today is just the beginning of what'll likely be months of back and forth between the disgruntled carriers, and their overlord Ofcom.
[Image credit: Alamy]
