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|Mobile networks face fivefold increase in cost of renting spectrum
|Created: 10 Oct 2013
Mobile networks are facing a fivefold increase in the cost of renting spectrum from the government, amid warnings that the price hikes will be passed on to customers and hamper investment in 4G.
Annual licence fees will be ramped to £309m a year, up from the current annual total of £64.4m, under proposals published on Thursday by the telecoms regulator Ofcom. The fees apply to spectrum that was given away by the government in the early years of the mobile phone industry, before the 3G auction attracted bids worth billions.
The government wants a price hike from next year, to reflect the value of a scarce resource that has become essential in the age of the smartphone, but there are concerns that customers could pay a high price for the Treasury's windfall.
"The size of these figures may come as a shock to the mobile networks, but more worryingly could sound alarm bells for consumers," said Adam Kirby, telecoms expert at the price comparison site uSwitch. "The proposed new costs reflect a huge leap in the amount networks will have to pay the regulator for using the spectrum. Our concern is that it will be mobile users who are left to foot the bill, and it isn't clear if there will be any direct benefits to them. In fact, providers will no doubt be concerned that their investment in network infrastructure will be limited if they are shelling out more for licence fees."
Ofcom may face a fightback from networks, which have threatened the regulator with legal action over past decisions. Privately, they say the rollout of 4G to rural areas would be affected. While most are promising that their signal will give indoor coverage in 98% of UK premises by 2015, rural speeds could be slower because there will be less invested in the wireless or fibre links that connect mobile phone masts to the internet.
"There must be a balance between licence fees and the critical 4G network investment consumers and businesses are demanding to drive growth and jobs for the UK economy," said a spokesperson for EE. "The proposed increase in licence fees is excessive at a time when we are investing heavily in the rollout of 4G."
O2 and Vodafone are facing the biggest price rises: Ofcom is proposing their more valuable holdings should attract a 433% price increase, from £15.6m a year to £83.1m. Both companies have spectrum in the 900 Megahertz (MHz) range, which travels further and therefore requires fewer masts.
EE and Three, whose holdings are in the less valuable 1800MHz range, could nonetheless see their licence fees rise by 330%. As the larger network with the biggest spectrum holding of all the UK's operators, EE could be paying £107.1m a year. Three would pay £35.7m.
A Vodafone UK spokesperson said the company was "disappointed" with Ofcom's stance. "Vodafone UK is spending more than £900m this year alone on its network and has pledged to bring indoor 4G coverage to 98% of the UK population by 2015. The regulator should be encouraging such private sector investment in infrastructure and new services like 4G, which will benefit consumers, businesses and the wider British economy for many years to come."
The income of networks has already been hit by price cuts imposed across Europe on charges for calling a mobile phone, and the cost of using phones abroad. Brussels is now campaigning to abolish all roaming fees for those travelling within its 28 European member states.
Three said it welcomed Ofcom's move to reflect the value of spectrum, but that the price difference between high and low frequency spectrum should be more marked. "The sums proposed by Ofcom overvalue high frequency spectrum," a Three spokesman said.
Ofcom signalled in 2010 that annual licence fees would rise, at the request of ministers. The fees apply to spectrum which was originally granted in the mid 1990s and mid 1980s and used for 2G services. It is now worth more because networks are free to run superfast mobile internet signals over those airwaves, and to trade them with competitors.
For more recent spectrum awards, the government has held auctions and demanded upfront payments instead of annual licence fees. Networks spent £22.5bn at the 3G auction in 2000, and a more modest £2.3bn on 4G earlier this year.
Ofcom has revised annual licence fees, which were last increased in 2000, based on prices paid for 4G in the UK and elsewhere in Europe. The watchdog wants the fees to increase annually in line with the retail price index, and has asked for responses to its consultation by 19 December.
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|Source: The Guardian, Juliette Garside, 10 Oct 2013
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