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EE: Spectrum Fees Hike May Hit Customers

Iain Morris

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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9/25/2015 | 11:14:32 AM
Re: Triple?
I think the fees get passed through as general income for the gov & help to improve, in a very small way, the fiscal position

It's debatable whether the hike in fees will actually feed through into higher consumer tariffs as the competitive situation may limit this as mentioned above. Also despite their regulatory posturing they'll already have budgeted for this level of fees

One other point, standing back a bit, if you buy into the school of thought on spectrum liberalisation that lets the market decide the appropriate price of spectrum through auctions, spectrum trading etc., then this is simply Ofcom bringing these outdated rates into line with the market
Mitch Wagner
Mitch Wagner
9/25/2015 | 10:49:50 AM
Re: Triple?
186k - "I think it's pretty easy to justify the uptick in fees, as the operators were utilising a public asset (spectrum) for way below market rates.... "

Right, I get that, but the operators just pass the cost on to the customers – the very same public whose interest the government is supposed to be protecting here. 

How are the fees used once collected?
9/25/2015 | 7:31:05 AM
Re: Triple?
I think it's pretty easy to justify the uptick in fees, as the operators were utilising a public asset (spectrum) for way below market rates and were given around five years to prepare for this change. Anyway, they could always sell the spectrum if they feel the rates are too high but that'll never happen

What wasn't justified was the adhoc blackmail-type approach of the government last year to extract better rural coverage from the mobile players. They were told or assumed (not sure which), they would get better terms on the new spectrum rates to compensate but have been disappointed
Mitch Wagner
Mitch Wagner
9/24/2015 | 10:55:04 PM
Tripling rates? 

Or trebling, as you say over there?

It's hard to justify that, no matter what the rationale, particularly because those costs are inevitably going to pass on to the consumers – the very people whose public resource the government is supposedly protecting by raising tariffs. 

9/24/2015 | 7:12:04 PM
Re: How to justify price hikes to public? They can't
It would be a very interesting debate if the FCC even thought about remotely pulling off such a stunt by exploiting gaps in existing legislation.     As the debate over net neutrality showed, people will not be forgiving.
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9/24/2015 | 1:42:43 PM
How to justify price hikes to public? They can't
As Iain notes:

"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."

So right now the folks looking at this decision and being really worried are those in support and marketing jobs at the mobile operators as they will see their budgets cut and may lose jobs. 

If jobs are cut, the operators will blame Ofcom. The regulator will say it is a decision made by the operators. 
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