Mobile Operators Face 900MHz and 1800MHz Licence Fee Hike Again

After years of delay and court battles Ofcom have today set the annual licence fees (ALF) that O2, Vodafone, Three UK (H3G) and EE will pay for their 2G, 3G and 4G Mobile services in the 900MHz and 1800MHz spectrum bands. The regulator has separately proposed fees for UK Broadband’s (H3G) holdings at 3.4GHz and 3.6GHz.

The situation began in December 2010 after the Government directed Ofcom to revise fees for mobile spectrum in the 900MHz and 1800MHz bands in order to reflect the “full market value” of those frequencies, as well as other statutory duties.

Mobile operators have long warned that doing this could also result in price rises for consumers and less investment going toward their networks, although the aggressively competitive market (inc. ever changing technology and new coverage requirements) make it difficult for them to sacrifice the latter of those two concerns.

Nevertheless the first proposal was published in late 2013 (here) and has since been revised several times. This followed an earlier 4G auction of the 800MHz and 2.6GHz (4G) bands in early 2013, which arguably failed to raise as much money as the Government might have hoped (here). Some critics thus saw the proposed hike as one way for the Government to balance its books.

Several years of court battles followed until November 2017, when the Court of Appeal announced it had reversed an earlier ruling that originally found in favour of Ofcom’s proposed hike to annual licence fees (here). The court agreed with EE and ruled that Ofcom’s rise was inconsistent with EU laws on infrastructure investment.

The court also found that Ofcom had misinterpreted a 2010 instruction from the government, which ordered it to review the levy and reflect the fact that the market value of spectrum had risen due to rising Smartphone use. However today’s announcement suggests last year’s court victory by EE will be short lived.

Ofcom Statement

In November 2017, the Court of Appeal quashed our 2015 decision. It did so on the basis that in implementing the Direction, Ofcom should have considered its statutory duties, in particular the Article 8 objectives in the Framework Directive which are reflected in section 4(2) of the Communications Act. [This] resulted in the fees reverting to a lower level which had applied for many years.

Specifically, the Court stated that whilst the Secretary of State has powers to issue directions to Ofcom under section 5 of the Wireless Telegraphy Act in relation to Ofcom’s exercise of its radio spectrum functions, section 5 does not empower the Secretary of State to exercise those radio spectrum functions himself. As such, Ofcom is not relieved of the requirement to act in accordance with its statutory duties when exercising its radio spectrum functions, such as when setting fees, even when it is directed in that regard.

However, the Court of Appeal did not find the Direction to be unlawful and it therefore remains in force.

In response Ofcom has simply “considered again at what level ALFs should be set” for the 900 and 1800MHz bands, having “regard as appropriate to the Direction and our statutory duties.” In short, Ofcom has concluded an outcome that is essentially the same as their final decision from 2015, albeit with slightly reduced ALF levels.

December 2018 ALFs (expressed in April 2018 prices):

A) 900MHz: £1.093m per MHz per annum (down from £1.128m in 2015)

B) 1800MHz: £0.805m per MHz per annum (down from £0.815m in 2015)

The new ALFs will become effective on 31st January 2019 and no doubt the big mobile operators will be displeased. Separately Ofcom has also begun a new consultation on the level of annual licence fees that should apply for the 40MHz of spectrum in the 3.4GHz band, and 80MHz in the 3.6GHz band, that are licensed to UK Broadband Ltd., which is owned by Hutchison 3G UK Limited (aka – Three UK).

As we know Three UK intends to harness this for their future 5G mobile and fixed wireless broadband network (here). Ofcom have thus proposed that the fees for both 3.4GHz and 3.6GHz spectrum would be £0.358m per MHz. “While we propose to apply the fees for 3.4GHz spectrum as soon as possible, we plan to phase-in the increase in fees for 3.6GHz spectrum over the period to mid-2020,” said Ofcom.

The new consultation runs until 11th February 2019.