Spectrum - Culture, Media and Sport Committee Contents

Supplementary written evidence submitted by Everything Everywhere

Thank you for the opportunity to give evidence to the Culture, Media and Sport Committee last week.

We have been reflecting on some of the questions we received and also on how these questions were subsequently reported; and we thought it might be useful to you (and important for us) to provide you with some supplementary views and information.

Our comments below are focused around the suggestion in the Financial Times article, published on the morning of our hearing (Tuesday 21 June) and that Mr Watson quoted, to the effect that the sale of Everything Everywhere's 1800 MHz spectrum might result in proceeds for Everything Everywhere of £450 million; and the subsequent discussion in the Committee's proceedings which revolved around whether this wan appropriate outcome (given that the spectrum had attracted low annual fees up to this point and the proceeds of a disposal would benefit a French and German owned company).

The following observations seem to us to be relevant to the issues raised:

1.  Allocating property rights to spectrum users is an Ofcom policy that dates back to 2004; while we are broadly supportive of this policy, it has not been something that Everything Everywhere or it antecedent businesses (T-Mobile and Orange) have been prominent in arguing for. It applies to all spectrum designated for mobile use in the UK, not just the spectrum that is used by Everything Everywhere.

2.  The requirement to 2 x 15 MHz of 1800 MHz spectrum is something that was required of Everything Everywhere , as part of the merger between Orange and T-Mobile. If we were to be given the choice between retaining the spectrum or disposing of it and keeping the proceeds, we would choose the former.

For both the reasons mentioned above, the inference which might be drawn from the Committee's line of questioning (and from the subsequent press reporting) that Everything Everywhere has set out to secure something for nothing is quite wrong.

3.  Setting aside Everything Everywhere's motivation and what it has been arguing for, the broader issue which concerned the Committee—that a "free" resource was being gifted to a Franco-German company—is not one, in our view, that the Committee should be concerned about. We say this for a variety of reasons, namely:

—  Little directly comparable data is available for spectrum valuation, but indications from the German and Spanish markets are that comparable block of 800 MHz spectrum are worth £40-50 million in those markets;

—  Ofcom proposes to charge an annual fee for the spectrum to its acquirer. This fee will be set to reflect the full economic value of the spectrum; it is therefore designed to address precisely the issue which the Committee raised, namely that the UK tax-payer may lose out from the proposed arrangements;

—  This annual free will obviously depress the capital value received by Everything Everywhere; as spectrum valuation is a notoriously inexact science, we cannot state with any certainty what the proceeds might be—but the notion of charging annually for the full economic value of the spectrum after the sale clearly suggests that the sum received by Everything Everywhere could be negligible;

—  Everything Everywhere will incur substantial costs in vacating the disposed spectrum. There is no mechanism envisaged to ensure that these costs will be covered by the disposed proceeds;

—  The value of the spectrum that is sold by Everything Everywhere is also not independent of what Everything Everywhere has contributed in the past; Everything Everywhere is one of the UK's largest inward investors and the value of the mobile spectrum is intimately associated with years of investment by Everything Everywhere and other companies involved in the mobile industry.

To sum up therefore—first, we want to make it very clear that the outcome that Mr Watson was concerned about, ie that Everything Everywhere keeps the proceeds of the sale, is an issue that has not figured in our discussions with any of the relevant decision-makers in the recent past and derives from a long-standing policy on which we had no substantial influence; and, second, there is no basis for the view that the proceeds will be substantial or provide any form of unfair transfer of resources at the expense of British tax-payers.

As the topic addressed in this note has received widespread press coverage, we would like to put our consideration of it into the public domain. However, before doing so, we thought we should ask your opinion on this and check whether you would have any objection.

July 2011

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Prepared 3 November 2011