U.K. Mobile Operators Face New £244.5 Million in Annual Spectrum Costs

U.K. mobile service provider costs of doing business are going to rise in 2014, by about £244.5 million, because spectrum fees are rising.

Ofcom, the United Kingdom communications regulator, which has authority to reset spectrum fees to market value, has concluded that 900 MHz and 1800 MHz spectrum used by mobile network operators now is far more valuable, based on the latest fourth generation spectrum auctions.

Ofcom has been considering the fees since late 2010.

Mobile network operators currently pay a combined total of £24.8m per year for 900 MHz spectrum and £39.7m for 1800 MHz spectrum. The new fees will be substantially higher: £138.5m per year for 900 MHz spectrum and £170.4m for 1800 MHz spectrum.

To be sure, spectrum is a nationally-owned resource, and the value of new spectrum has grown, as reflected in auction prices. Ofcom has authority to revise fees in view of market value. One might also note that pricing is one way of allocating spectrum to its highest and best use.

Some also will argue, not without reason,  that giving service providers exclusive control of some blocks of spectrum actually promotes effective and efficient use of allocated spectrum, compared to unlicensed and shared use, where there is no single manager of contention and access.

But service providers will also bear higher costs as a result of the revised fees, all of which will be recovered from customer fees or partner payments.

At some level, one might also note that, in principle, making some unlicensed and shared spectrum available also will create incentives for innovation by providers of access and other services at lower cost than is possible when providers have to recover spectrum acquisition costs.

Annual license fees for 900 MHz and 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.