Ofcom Revises Fees for Mobile Operators

Ofcom has today published revised annual fees for mobile operators, determining the amount of money they must pay to use certain parts of mobile spectrum.

The Government directed Ofcom in 2010 to revise these fees to reflect full market value. The fees are paid annually by mobile network operators for the 900 MHz and 1800 MHz spectrum bands, which they use to provide voice and data services using a mix of 2G, 3G and 4G technologies.

Following extensive analysis and consultation, Ofcom has concluded that mobile operators should pay a combined annual total of £80.3m for the 900 MHz band, and £119.3m for the 1800 MHz band.

Total fees payable by operators will now be £199.6m per year, which is 13% lower than Ofcom’s earlier proposals in February. Operators have also paid the fees at different points in the year but will in future pay on a single common payment date set by Ofcom.

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 2015.

The second half will come into effect on 31 October 2016, with full fees payable annually from that point.

Ofcom has conducted a series of detailed consultations on the level of the fees. This complex analysis considered a number of factors. These included the sums paid in the 4G auction and the amounts bid in overseas spectrum auctions.

Ofcom’s final assessment also takes into account stakeholder feedback and relevant considerations such as mobile operators’ requirement to provide voice coverage across 90% of UK landmass, which Ofcom concluded did not have a material effect on the market value. The fees set also take into account the outcome of the spectrum auction in Germany, which concluded in June this year.

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.”

A spokesperson for EE said Ofcom had taken a “flawed approach” in how it determined the new fees, putting investment in to its network at risk.

“We think Ofcom has got this wrong,” the EE spokesperson added. “The proposed licence fees for 1800MHz spectrum are based on a flawed approach.

“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.”

Andy Huckridge, director of service provider solutions at Gigamon, has made the following comments:

“There is no doubt that this increase in costs is going to have a huge impact of mobile operators. Most have made significant 4G investments in recent years with rollouts and improvements continuing across the country. Carriers are already facing a difficult balancing act between implementing tools to manage increased data volumes, while keeping Annual Revenue Per User (ARPU) up and churn rates down. What’s more, Ofcom earlier this year said it wants to make switching mobile networks easier for consumers, which may make operators wary of increasing charges and pushing away loyal customers.

“Mobile technology is becoming more advanced at a rapid rate and, with that, comes an increased demand for content and applications. Operators have the opportunity to use the developments to their advantage by creating new revenue streams, but only if the infrastructure is managed correctly. This, however, calls for a certain level of network planning and subscriber intelligence to do so – and many carriers unfortunately overlook existing blind spots in the haste to offer better services and rollout bigger networks than their competitors. Now operators need to take time to fully understand the drivers of traffic – whether it be applications, devices or subscriber behaviour – in order to make better business decisions and optimise the design of their existing networks.

“With the right tools, carriers can correlate and characterise customer, application and operational data – helping them move away from the universal, flat rate pricing plans of the past, toward a model that can prove profitable more quickly. Such deep subscriber intelligence will also enable the creation of tailored portfolios and pricing strategies based on usage patterns and premium level content. With such stress on operators to innovate while coping with rising expenses and remain profitable in a hugely competitive space, improving network visibility is rapidly emerging as the most viable solution. Only through increased visibility will operators be able to improve on current business models and offer innovative services and packages to keep the customers they have as well, as attract new ones.”

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David Dungay

Editor - Comms Business Magazine