Big Change Unlikely as Ofcom Consult on UK Mobile Operator Licence Fee Hike

The national telecoms regulator has today carried out its promise to once again review the plans for a massive hike in annual licence fees on the 900MHz and 1800MHz radio spectrum bands, but they’ve also been quick to warn that the recent coverage agreement between mobile operators and the Government is “unlikely to have a material effect“.

The situation stems from the fact that the Government had already directed Ofcom in 2010 to revise the fees “to reflect full market value, after the completion of the 4G auction“. At the time mobile operators were paying a combined total of just £24.8m per year for the 900MHz band and £39.7m for 1800MHz, although Ofcom’s initial proposal said this should be hiked to £138.5m and £170.4m respectively.

Needless to say the operators were not happy and some, such as EE, warned that the move would slow their deployments of superfast 4G (LTE) connectivity. In response Ofcom reviewed their decision and in August 2014 updated their analysis, which resulted in a mild cost reduction (here), but some operators were still unhappy.

Since then the Government and mobile operators, including Three UK, Vodafone, EE and O2, have reached a separate agreement (here) that will see mobile voice (2G) coverage being extended across 90% of the United Kingdom’s landmass by the end of 2017 and mobile data coverage (3G and 4G) will also be extended to 85%.

Part of that new agreement involved requiring Ofcom to look again at their proposal, not least with regards to balancing the licence fee hike against the new coverage obligation for a possible cost reduction. But today’s provisional decision would see total fees payable by operators of £223m per year, which is just 10% lower than Ofcom’s earlier proposal.

The change factors a reduction in the discount rate that Ofcom considers to be appropriate when converting a “lump-sum value” (of the type paid by licensees when they acquire a licence in an auction) into an equivalent annual payment and a reduction in the assessment of the market value of the 1800MHz band (expressed as a lump-sum value).

Crucially today’s decision has not yet considered the impact of the new coverage obligation and that’s the primary reason for this consultation, which is set to run until 17th April 2015.

Never the less Ofcom’s “initial view” is that the incremental costs incurred by the operators in meeting the new obligation probably won’t have a “material effect on the market value of the spectrum“, although the regulator said they are open to “alternative views“.

Meanwhile the mobile operators will perhaps be hoping for something more significant from Ofcom.