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Operators being betrayed by failed government promises

Michael Garwood
November 9, 2015

£200 million spectrum price hike and failure to reduce mast rental costs harming industry

EE says there is now a breakdown in trust between operators and the UK government after seeing significant price rises on spectrum and its continued failure to act on promises made last year around achieving 90 per cent geographic coverage by 2017.

This was the view from EE CEO Olaf Swantee, who was speaking to Mobile News during EE’s business event in London last month.

A riled Swantee suggested the industry was being let down following last year’s “landmark” agreement, which saw EE, O2, Three and Vodafone voluntarily change their current license agreements, and commit £5 billion to meet the target, and halve UK not-spots.

In return a “gentleman’s agreement” was made with the DCMS assuring each operator would receive consultation on the proposed price-rises of spectrum, as well as a commitment to reforming the ‘outdated’ Electronic Communications Code (ECC), making it easier to build and access masts.

Swantee, who has seen EE’s spectrum costs treble to £75 million (see box out) said the government has yet to show any signs of fulfilling its side of the bargain, and in hindsight, may not have signed the deal.

“I’m really angry about it ,” said Swantee. “We made a commitment as an industry to make a voluntarily change to our license.

“In return we would have the ECC amended, which hasn’t happened. We would also have serious consideration for the annual licence fee, that hasn’t happened. That leaves a pretty bad taste.”

Landlord charges

Part of the deal would also see a long overdue review into the amount landlords are able to charge for masts built on private land, with costs up to 27 times higher compared to other utilities such as electricity, energy and fixed line.

Figures from network alliance group The Mobile Operators Association, show UK operators could save more than £271
million a year, if rental costs for mobile operator masts were more aligned.

It claims set up fees for an operator mast is typically around £100,000, with rental fees ranging from £7,500 (rural) and £9,500 (urban) a year. By comparison, other utility company’s pay on average just £270 (rural) and £280 (urban) a year.

EE said the indications during the original meeting were that an update would have been completed by now. Contracts with landlords are typically “long term” with many now set for renewal, placing a financial burden, which was expected to be reduced.

Swantee said it was essential the ECC was updated to ensure operators fulfil the government and customers expectations or risk stalling the UK’s progression in the digital market.

“If you read it [the ECC], you would laugh as it was written when there were virtually no mobile phones,” he said. “It’s a piece of legislation which is totally out of date and as a result mobile sites are significantly more expensive than any other market. With products being so important to people’s lives, we need access to sites as quick as possible, whether that’s because of flood, a fault or whatever, this code doesn’t allow us to do that.

Added costs

EE has already committed to spending £1.5 billion on improvements to its network to meet the 90 per cent target by 2017, but admits the added costs to spectrum and the continued landlord fees, means cost cutting across the business is likely, although price increases to customers are not expected.

EE, Vodafone, Three and O2 have all confirmed they are reviewing the spectrum price rise. Ofcom told Mobile News operators have until the end of December to request a judicial review although insisted they had not been “legally challenged” at press.

Swantee was critical of Ofcom for its decision to hold an uncapped spectrum auction in February. 2.3GHz and 3.4GHz spectrum, previously used by the Ministry of Defence, has been made available for operators, and is being valued at around £70 million,

EE and O2 had requested Ofcom postpone the auction due to three of the four UK operators futures’ being uncertain, due to acquisitions (BT and EE, Hutchison and O2), but its calls were flatly rejected. Swantee warned the UK’s efforts in becoming a benchmark leader for mobile infrastructure could be wrecked unless decisions are made based on the long term future.

“We are always interested in more spectrum,” said Swantee. “But if it’s just about the government wanting a quick way of making a very large amount of money, then that would not be very good for Britain. I hope another spectrum auction and another annual increase in spectrum licence fees, doesn’t spoil the party.”

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