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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