EE: Spectrum Fees Hike May Hit Customers

UK mobile operators lash out after Ofcom decides to more than treble the fees they pay to use 900MHz and 1800MHz spectrum.

Iain Morris, International Editor

September 24, 2015

4 Min Read
EE: Spectrum Fees Hike May Hit Customers

UK mobile giant EE has indicated it may be forced to raise the price of its telecom services following a regulatory decision to increase the annual fees the country's operators pay for their spectrum licenses.

Ofcom earlier today said that from October 2016 it will more than treble the yearly fees that Three UK , EE , Telefónica UK Ltd. and Vodafone UK collectively pay to use spectrum in the 900MHz and 1800MHz bands.

The four operators currently pay a total of £64.4 million ($98.1 million) each per year for their licenses, but that figure will soar to £199.6 million ($304 million) as a result of Ofcom's move.

"We think Ofcom has got this wrong," an EE spokesperson told Light Reading. "The trebling of fees is bad news for British consumers as it raises the risk that we won't be able to offer the best prices and invest and innovate at the pace we and our customers would like."

The hike is supposed to reflect the value these frequencies have gained in recent years: Originally awarded to support basic voice services, the airwaves can now be used with more lucrative 3G and 4G data technologies as a result of a more laissez-faire regulatory approach to spectrum usage.

In February, Ofcom proposed charging operators more than 3.5 times their current fees but it appears to have revised its plans as a concession to the industry, which had reacted angrily to the move.

Operators clearly remain unimpressed, however. Both EE and Vodafone have complained they are already facing a sharp increase in spending on network improvements so that customers in remoter parts of the country can make use of mobile services.

"We will be reviewing Ofcom's proposed spectrum fees over the coming days as they represent a significant increase when we are already investing around £1 billion [$1.5 billion] on our network and services this year," said a spokesperson for Vodafone.

Vodafone's annual fees for 900MHz and 1800MHz licenses are set to rise from £15.6 million ($23.8 million) at the moment to £49.8 million ($75.9 million) as a result of Ofcom's decision, while EE's will go up from £24.9 million ($37.9 million) to £75 million ($114.2 million).

Number-two player Telefónica currently pays the same amount as Vodafone and will also be expected to pay £49.8 million ($75.9 million) annually from October next year, while 3 -- the smallest of the four companies -- will see charges grow from £8.3 million to £25 million.

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Despite suggesting it may have to pass the higher costs on to its customers, EE and its rivals may struggle to increase prices in such a competitive market and would probably fall foul of competition authorities if they did so in unison.

Nevertheless, the revised spectrum fees seem bound to add to the financial pressure on the main players, whose revenues are already shrinking because of regulatory measures and price-based competition.

An annual charge of £75 million ($114.2 million) would equal about 5% of EE's adjusted EBITDA last year, with Vodafone's new spectrum bill of £49.8 million ($75.9 million) representing about 4% of its own EBITDA over the April 2014-March 2015 period.

Moreover, while operators will not have to start paying the entirety of the new charges until late next year, Ofcom has indicated that one half of the fees increase will come into effect on October 31 this year.

Defending its move, the regulator said it had looked at the outcomes of recent multi-band 4G auctions at home and abroad when determining what operators should pay for 900MHz and 1800MHz spectrum in future.

"The mobile industry has not previously had to pay market value for access to this spectrum, which is a valuable and finite resource, and the new fees reflect that value," said Philip Marnick, Ofcom's group director of spectrum, in an Ofcom statement.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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