UK spectrum fees hiked: an offer they can't refuse

The regulator has announced that it will now charge the overall industry an annual £309 million for its low frequency airwaves, up from the £64 million it's currently charging.

This move was in part a response to the result of the LTE spectrum auctions, held earlier this year, which came in well under government expectations. The UK treasury knew it wasn't going to win the £20 billion windfall it had enjoyed with the 3G auctions in 2000, but it was expecting to reap around £3.5 billion and was caught over £1 billion short when the £2.3bn result came in. (see Going for a song. UK 4G spectrum auction raises a lot less than the government expected and leaves Finance Minister exposed to ridicule)

A billion here and there makes all the difference in the middle of an austerity period, so it should have come as no surprise that the regulator would be tasked to get the missing billion back for the public purse.

The charges are for the 'old' spectrum dished out in pre-auction days for 2G GSM networks, first at around 900 MHz and then for what were initially called 'personal communications networks', and later GSM 1800 at 1800 MHz.

The 'best' spectrum (reach and wall penetration) is at 900 MHz and so Vodafone and Telefonica (which bought O2 from BT) are paying a premium for their allocation. At present they only pay £15.6 million each - that is set to rise to £83.1 million each.

EE, which remember is an amalgamation of two 1800 MHz networks, will cop a rise to £107 million, up from £24.9, while the fourth player, 3, will see its annual bill go from £8.3 million to £35.7 million.

Ofcom had been tasked by the government to recalculate these fees to reflect "full market value". Bear in mind that the spectrum auction approach was a controversial mechanism from day one and now, given recent events, both regulators and governments may ultimately be more comfortable with a greater reliance on a license fee mechanism which can be adjusted on an ongoing basis.

For instance, in the UK the recent auction came up (some might say "suspiciously") low, while a recent auction to allocate spectrum in Czech Republic went the other way and was called off because the regulator suspected the incumbents were trying to price out new entrants.

As it's turned out for the UK government, the extra £240 million per year looks like a better revenue option than the up-front billion it 'lost' in the auction and, not surprisingly, the operators have unleashed a stream of rhetorical protest.

The extra charges are likely to dissuade operators from making 4G network investment and even cause mobile price increases, they've been saying today.

Ofcom has naturally factored in a consultation period when all the protests can be heard and expects the new rules will take effect next year.