Motorola making excessive profits from UK emergency network - CMA

The competition watchdog announced a proposal on Friday, to restrict how much Motorola can charge for the emergency services to use the Airwave network.

It said the Airwave network provides an “essential” separate mobile network enabling police, fire, ambulance and other emergency services to communicate securely.

A market investigation by the Competition and Markets Authority (CMA), led by an “independent group of experts”, had provisionally found that Motorola, which operates the network, was able to charge the Home Office - which represents the emergency services - prices “well above” competitive levels, resulting in higher costs, ultimately paid by taxpayers.

The CMA said as a result, it had outlined a set of proposed changes to limit the price that Motorola could charge to a level that would apply in a well-functioning, competitive market.

Motorola was originally commissioned to build and operator the Airwave network by the Home Office in 2000, with the original contract due to end in late 2019 or early 2020, as the network was expected to be shut down and replaced by a new, secure communications 4G solution - the ‘Emergency Services Network’ (ESN).

However, because the new ESN was not ready for switchover as planned, and was not expected to be ready until 2026 and possibly later, the emergency services were still relying on the Airwave network, which is a monopoly provider of the “essential” communications services.

The CMA opened its investigation in October last year, following concerns that the market might not be working well, resulting in a more expensive service.

One concern was the Home Office’s weak bargaining position when it came to the network; and another was Motorola’s dual role in providing the current network, and in helping to deliver the ESN to replace it.

It also wanted to understand if the “significant profits” Motorola could earn from the Airwave network affected its incentive to support, and not to delay, the delivery of the ESN.

“It is vital that the market for critical mobile radio network services used by our emergency services works well and provides an excellent service at a fair price,” said Martin Coleman, chair of the CMA’s independent inquiry group.

“As far as the price is concerned, the market does not appear to be working well at the moment.

“Our current view is that the Home Office and our emergency services are locked in with a monopoly provider which can charge much more than it could in a properly functioning market, while taxpayers foot the bill.

“We are therefore proposing a direct intervention through a price control to stop this and lay the basis for the Home Office to decide how it intends to ensure these vital services are to be delivered in future.”

In its provisional findings, published on Friday, the CMA found that the Home Office was being charged more by Motorola to use the Airwave network than should be the case.

The price set under the original agreement entered into in 2000 included the capital costs of building the network, and by the time the period covered by the original agreement ended, that cost should have been recouped, and the price should have fallen “substantially”.

That did not happen, and prices remained at substantially the same level.

The CMA said its provisional estimate was that Motorola could make in the region of £1.1bn excess profit from the operation of the network between January 2020 and December 2026.

If the roll-out of the new ESN continues to be delayed, Motorola could make around a further £160m excess profit each year after 2026.

Recent figures suggested that, while the Airwave network accounts for around 7% of Motorola’s global revenues, it made up around 21% of its global pre-tax profits.

The CMA also recommended that the Home Office put in place a “clear plan” to ensure that a new, upgraded network, or more competitive arrangements, replaced the existing set-up by the end of 2029.

Reporting by Josh White at Sharecast.com.