Original article Total Telecom:Read More
News
All four of the UK’s mobile players have found fault with Ofcom’s proposed adjustments to spectrum annual licence fees (ALFs) for spectrum, arguing the prices are too high
This week, Ofcom has published statements from the UK’s four national mobile network operators, all of whom are unhappy with proposed spectrum pricing remedies.
The comments come following an Ofcom review into ALF pricing launched last summer, the results of which were published seeking industry comments in December.
In short, these proposals would see a decrease of ALFs for 900MHz spectrum of to £1.097m per MHz (a 21% reduction), a decrease of ALFs for 1800 MHz spectrum to £0.81m per MHz (a 21% reduction), and an increase of ALFs for 2100 MHz spectrum to £0.766m per MHz (a 12% increase).
In total, the regulator said these changes would save UK mobile operators around £40 million per year.
The operators, however, say they would still be being overcharged.
The issue revolves around Ofcom’s methodology when calculating an appropriate price for ALFs. Currently, the regulator does this by assessing the estimated market value of the spectrum, converting this value into an annual payment over the licence fee period (typically 20 years), and increasing the ALFs annually in line with inflation via the consumer price index (CPI).
The operators say that both Ofcom’s estimations of the spectrum’s market value and the inflation-linked price increases are flawed. They say that these calculations do not reflect the fact that the value of the spectrum licence is actually decreasing year-on-year as more bands become available and older services like 3G are discontinued.
“We think that the appraisal of current ALFs still does not reflect the observed changes in market value of the spectrum and therefore the proposed ALFs will not promote the optimal use of spectrum in line with Ofcom’s duties,” said BT’s statement, suggesting the proposal overestimates BT’s ALFs by £36 million a year.
Virgin Media O2 agreed, noting the significant loss in spectrum value today compared to 2021, when the spectrum’s value was initially calculated.
“Our response identifies four key factors that have driven value change from 2021–25: inflation (used by Ofcom); discount rates; the timing of future spectrum supply; and projections for mobile traffic,” said the company’s statement. “The impact of these factors, individually and jointly, must be considered to secure a full understanding of how spectrum values have evolved in recent years.”
Vodafone’s complaints, meanwhile, focussed on ensuring market stability, arguing that excessive fees “risks derailing the Government’s desire to invest for growth” in the telecoms market.
“Ofcom has failed to take a suitably conservative approach” to ALFs, said the operator, suggesting that Ofcom should “introduce guard rails in the application of CPI”. Capping CPI increases to 4%, for example, would help operators significantly with their investment planning.
Finally, Three UK argued that ALFs should be abolished entirely.
“We reiterate that ALFs have no role to play in mobile and should be abolished, as we invited Ofcom to do in 2018. Professor Martin Cave (the original proponent of ALFs) has now withdrawn his support. Spectrum trading already ensures that spectrum will find its way to the highest-value users without the need for ALFs,” said Three, which nonetheless proposed similar ALF reductions in line with the other operators.
Exactly how receptive Ofcom will be to these various arguments remains to be seen, but it seems unlikely that the regulator will abandon ALFs completely or stop linking them to inflation.
“We think it is appropriate to increase ALFs by actual, rather than forecast, inflation such that they remain constant in real terms,” said Ofcom in its December statement.
A final decision from Ofcom on ALF pricing was initially set to be published later this year, but is now likely to take place in Q2 of the next financial year as the regulator assesses the mobile operators’ objections.
Join the mobile operators in discussion about key regulatory issues and the UK connectivity market at Connected North live in Manchester
Also in the news:
UK SMEs lose £3.4bn annually to cyberattacks – report
Rogers strikes $7bn deal with Blackstone-led group to boost balance sheet
Harmeen Mehta Joins Equinix as Chief Digital and Innovation Officer to Accelerate Customer and Employee Experiences