UK operators face 'one-off tax of £4.5B' under Ofcom 2G spectrum fee plans

Plans by Ofcom to implement a possible fivefold increase in the fees that UK operators pay to use 900 MHz and 1800 MHz spectrum for 2G, 3G and now LTE services have come in for harsh criticism by one analyst company, which said the proposed charges would effectively impose a one-off tax of £4.5bn on the industry over 20 years.

Currently, the operators pay a combined total of £24.8 million ($39.5 million) per year for 900 MHz spectrum and £39.7 million for 1800 MHz spectrum. Under the new Ofcom proposals, they would pay £138.5 million per year for 900 MHz spectrum and £170.4 million for 1800 MHz spectrum.

Vodafone

O2

EE*

H3G*

Current

Proposed

Current

Proposed

Current

Proposed

Current

Proposed

£15.6m

£83.1m

£15.6m

£83.1m

£24.9m

£107.1m

£8.3m

£35.7m

* 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

The move by Ofcom sparked anger among UK operators, which said the extra charges would hurt their efforts to build new LTE networks.

"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," EE said in October, when details of the increases were made public "The proposed increase in licence fees is excessive at a time when we are investing heavily in the rollout of 4G."

Ofcom said it acted on instructions by the UK government to charge the mobile operators 'full market value' for the 2G spectrum they have been using for many years, despite there being no liquid market for the spectrum

However, a report by Enders Analysis on the economics of 2G spectrum fees has now backed the operators' criticism of Ofcom's calculations, calling them "both harsh and unfair". According to The Telegraph, the report was commissioned by EE, which has been a particularly vocal critic of Ofcom's proposals.

While Enders Analysis said Ofcom's general approach to "such an imponderable question" is eminently sensible, the company disagreed with the detail of the regulator's methodology on three key aspects, "which makes the current proposed charges over three times too high in our view, effectively charging the industry a one-off tax of £4.5bn," the company observed.

"The elevated fee levels are (perhaps) still affordable on their own, but coupled with other recent regulatory decisions the UK is in danger of being seen as a hostile regulatory environment, with negative consequences for future investment levels," Enders Analysis added.

Ofcom's consultation period on the proposals ended on Dec. 19. The regulator is now in the process of considering all submissions and told the Telegraph it would make a final decision on the charges later this year.

For more:
- see this Enders Analysis post
- see this Telegraph article

Related Articles:
Ofcom threatens fivefold increase in UK spectrum fees starting in 2014
UK LTE auction comes under spotlight over weak return
Analysys Mason: What the UK spectrum auction bid data reveals
UK LTE spectrum auction draws £2.34B, below government expectations

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