Ofcom launches consultation on spectrum licence fee changes

Ofcom has launched a consultation to determine whether the recently agreed extended mobile coverage obligations should affect operators’ annual spectrum licence fees, which are being revised. Under the new rules, which shifted Ofcom’s historical focus from population to geographical coverage, operators are obliged to reach 90% of UK landmass each by the end of 2017.

The UK regulator said that while it believes there could be incremental costs to the operators in meeting the target, it doesn’t think there will be any material effect on the market value of the 900 MHz and 1800 MHz spectrum bands, which are used for voice and data services for 2G, 3G and 4G. However, Ofcom said it remains open to considering differing views on the matter.

In 2010 the UK government told Ofcom it should revise the licence fees of the said bands to reflect their ‘full’ value after the 4G auction in2013. “In Ofcom’s view the ‘market value’ required under the Government Direction should reflect the value to an operator not holding the spectrum at present, as opposed to the value to the operator that currently holds the spectrum – in a similar way that the price paid by the winning bidder in an auction is typically set by how much the next highest bidder was willing to pay,” the competition authority said in a statement.

Ofcom has set out a provisional decision regarding the revised fees, subject to the result of the consultation. Under the proposal, the total annual fees paid by all operators accumulatively would come to £223 million, representing a 10% decrease from previous proposals on the fees in August last year.

As becomes clear from the diagram below, Ofcom is still proposing massive price hikes for the annual 900 MHz and 1800 MHz licences. It wouldn’t be surprising to see operators argue against Ofcom’s claim the new obligations don’t have any material impact on the value of the spectrum for which they have reached deep into their pockets to pay for. On the other hand, with the 10% reduction from the previously proposed revised fees, Ofcom is clearly making a concession in the light of the rule changes. It remains to be seen whether the operators feel it is enough.

The consultation ends on April 17, after which Ofcom will make its final decision with a view of implementing the revised licence fees later this year.

Current and proposed total annual licence fees for 900 MHz and 1800 MHz spectrum, before considering the impact of the geographic coverage obligation (March 2013 prices)

* EE and H3G figures relate to holdings after EE’s divestment of 1800 MHz spectrum to H3G, to be completed in October 2015. Source: Ofcom