UK Mobile Operators Win Appeal vs 2014 Radio Spectrum Licence Fee Hike

The UK Court of Appeal has reversed an earlier ruling that found in favour of Ofcom’s proposed hike to annual licence fees for the 900MHz and 1800MHz (3G / 4G) radio spectrum bands, which could have resulted in price rises for consumers and less investment by Mobile Network Operators.

The regulator has been trying to impose their hike since 2014, which followed an earlier 4G auction of the 800MHz and 2.6GHz (4G) bands that arguably failed to raise quite as much money as the Government might have hoped (here). Critics thus suggested that the proposed hike was just a way for the Government to balance its books and it was certainly a significant change (see below).

At around the same time the Government was also trying to nudge operators towards agreeing a new £5bn deal that would extend geographic network coverage to 90% (here). Part of that agreement involved asking Ofcom to look again at the fees, although the regulator had already warned this was “unlikely to have a material effect” on their proposal and indeed it didn’t.

Suffice to say that the mobile operators (e.g. EE, Vodafone, Three UK and O2) weren’t happy and they attempted to challenge the decision by launching a Judicial Review, which argued that Ofcom had wrongly calculated the bills (e.g. they didn’t factor network running costs) and failed to consider the potential impact on future investment in networks.

Unfortunately the Judge, Mr Justice Cranston, last year ruled that Ofcom’s approach gave a “better reflection of market value” than the cost models provided by EE and its supporters (here). Meanwhile EE said that the fees were “excessive at a time when significant private investment is needed to ensure the UK benefits from first class mobile infrastructure” and promptly launched an appeal.

Yesterday the Court of Appeal in London dramatically found in favour of EE’s argument. According to the FT (paywall), the judge ruled that Ofcom’s annual fee rise was inconsistent with EU laws on infrastructure investment. The court also found that Ofcom had misinterpreted a 2010 instruction from the government that ordered it to review the levy and reflect the fact that the market value of spectrum had risen due to rising Smartphone use.

The HM Treasury has already started collecting the higher fees and if the ruling stands then it could force a repayment to the mobile operators, which could be worth between £200m to £300m.

A Spokesperson for Ofcom said:

“This case raised an important point of law concerning the government’s spectrum direction to Ofcom. We are considering the judgement carefully.”

Naturally EE said they were “happy” with the decision and have suggested that if the money is returned then it could be invested back into their network. The move is also a big blow to Ofcom, which has somewhat of a patchy history when it comes to settling disputes between warring Mobile Network Operators (lest we forget the current 5G case).

However the battle may not yet be over because the court also gave Ofcom permission to appeal against the decision. On top of that the UK’s decision to leave the EU in over one year’s time could potentially throw another spanner into the works, although it’s difficult to know the reality of that until a clear direction is agreed.