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Ofcom mobile licence fee price rise is 'bad news' for consumers

Thursday, September 24th 2015 by Ellen Branagh

Consumers could face mobile price hikes after Ofcom increased the amount operators have to pay to use parts of the mobile spectrum.

The regulator announced license fee rises that are up to three times current amounts, with EE branding the hikes “bad news” for consumers.

The licence fees are paid annually by mobile operators for the 900MHz and 1,800MHz spectrum bands, which are used to provide voice and data service using 2G, 3G, and 4G.

After a lengthy consultation, Ofcom said operators should pay an annual total of £199.6m per year – up from the current £64.4m.

Fees paid by Vodafone and O2 will rise from £15.6m to £49.8, while the UK’s biggest mobile operator EE will see its licence fee increase from £24.9m to £75m a year.

And the amount Three pays will increase from £8.3m to £25m.

The regulator is also altering the way the fees are paid – previously operators have paid at different points in the year, but in future will pay on a single date set by Ofcom.

The move comes after the government directed Ofcom in 2010 to revise licence fees to reflect “full market value”.

Philip Marnick, Ofcom’s group director of spectrum, said: “We have listened carefully to the arguments and evidence put forward by industry, and conducted a complex and comprehensive analysis to determine the new fees.

“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.”

The hikes are less than those originally proposed by the watchdog, but have still fallen under fire from some operators as “bad news” for consumers.

An EE spokesman said: “We think Ofcom has got this wrong”, and said proposed licence fees for 1,800Mhz spectrum were based on a “flawed approach”.

'Very disappointed'

“The trebling of fees is bad news for British consumers and business 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.

“We’re also very disappointed that Ofcom has not reflected the higher costs we’ve taken on to meet enhanced coverage obligations that Ofcom and government encouraged us to accept.”

An O2 spokesperson said: "We're examining the decision in detail before deciding how best to proceed."

A Vodafone spokesperson added: “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 £1bn on our network and services this year.”

The new fees come into effect in two phases: one half of the fees increase, from the current to the new rates, will come into effect on 31 October, with the second half coming into effect on 31 October. The full fees will be payable annually from that point.

Matthew Howett, regulation analyst for media research firm Ovum, said: "In some respects it's a classic case of poor policy coordination.

"While it's necessary for the fees to reflect the true market value of the spectrum, the government could also think about what it's asking operators to do in terms of improving coverage in rural areas.

"Germany recently announced that money earned during a recent spectrum auction will be poured back into rural broadband initiatives. It's about time the UK government started thinking in a similarly joined-up way."

John Delaney, mobile analyst at IDC, said while the rises are a "massive hike" it is hard to know at this stage whether they will lead directly to price rises.

"This is not going to please the operators at all," he said, "but whether they are going to pass the price rises on to consumers is a matter of complete speculation."

Update: An Ofcom spokesperson added: “Mobile operators have a strong incentive to invest in networks and to keep prices competitive. The operators have had five years’ notice that the fees would be increased to reflect full market value and we expect them to have budgeted for this.

“We’ve listened carefully to the arguments and evidence put forward by industry. The fees announced today are in line with analysts’ expectations and with the amounts that operators pay for accessing spectrum in other countries.”

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