UK mobile operators face massive hike in 2G spectrum license fees

The British telecoms regulator Ofcom has published proposals for raising the UK’s 2G license fees, in order to reflect the true worth of the relevant spectrum.

The spectrum in question, in the 900MHz and 1800MHz bands, can these days be reused for 3G and 4G services, so its value has gone up a great deal since the days when it was only usable for voice and SMS. According to Ofcom, that increase in worth (which also takes into account spectrum value in other countries) should be reflected thus, in terms of annual fees:

  • Vodafone(s vod) would pay £83.1 million ($132.5 million) rather than £15.6 million
  • O2(s tef) would pay £83.1 million rather than £15.6 million
  • EE would pay £107.1 million rather than £24.9 million
  • Three would pay £35.7 million rather than £8.3 million

Now, the government asked Ofcom to recalculate the fees almost 3 years ago, but it did ask the regulator to take into account the amount the carriers paid in this year’s 4G spectrum auction. It’s worth recalling the controversy surrounding that auction result, for context.

The British chancellor, George Osborne, had decided in advance of the auction that it would raise £3.5 billion, but it only raised £2.34 billion (on a reserve price of £1.3 billion). Where did the £3.5 billion prediction come from? Not from facts, certainly – I know, because I chased all the relevant government departments after the results came in, and all denied being behind the prediction. Indeed, there’s a pretty powerful argument that Osborne plucked the £3.5 billion figure from the air in order to help him manipulate perceptions of the UK deficit.

(And for those who wonder why the 4G auction raised around a tenth of what the 3G auction raised, that 3G auction involved disastrous overbidding by the British carriers, and it took almost a decade for the local telecoms industry to recover. Ofcom was always crystal clear that the 4G auction was about getting the most efficient result, not the most money for the Treasury.)

Anyhow, back to the 2G license fees. Ofcom is currently consulting on its proposals, and anyone who wants to comment has until 19 December to do so. The new fees will come in next year.

An interesting note from Ofcom’s side:

“We do not propose to phase in fees. Licensees have known since December 2010 that fees would be revised to reflect full market value. We believe that revised fees can be implemented in a single step without having an adverse impact on services delivered to customers.”

So far the carriers’ reactions have proven mixed. An O2 spokesperson told me: “The consultation document was expected and the approach appears to be in line with Ofcom’s earlier guidance. We’ll now be looking through it in detail and will respond to Ofcom in due course.”

EE, on the other hand, said the proposed increase was “excessive at a time when we are investing heavily in the roll out of 4G.” Which is rather what you’d expect the firm with the most 2G spectrum to say, although it is a bit rich considering EE was the first UK operator to refarm its 2G spectrum for 4G services, giving it a headstart over those with less 2G spectrum.

Note: This article was updated at 7.40am PT to add in EE’s comment.