Ofcom has a philosophical policy conflict to resolve. It has a financially extractive approach to annual licence fees (ALFs) needed as an (invisible) instrument for ensuring optimal use of the spectrum but its advice to MNOs, in terms of more optimal use of their spectrum, is for them to step up financing the  densification of their networks. This is to generate the spectrum capacity to meet rising demand from consumers and citizens for data carrying capacity. Ofcom say that they are finding it too difficult to find new mobile bands to meet this rising demand. Since it is just as hard for the MNOs to find this additional investment as it is for Ofcom to find new mobile spectrum bands, Ofcom has a policy conflict to resolve.  

There is only one right answer. The £300m a year Annual License Fees (ALFs) invested in extra data carrying capacity ensures optimal use of the spectrum, the current approach of taking away the £300m a year in ALFs doesn’t. 

For mobile spectrum specifically used for our national mobile coverage, the way (the only way) more efficient use can be made of that spectrum is for it to be made to transport more data to and from the 40+ smartphones and other devices on the move across all parts of the UK and the only way of doing that is providing more coverage (capturing more connections) and more data capacity (ensuring every connection has all the data capacity it needs where and when it is needed). Both are currently sub-optimal. Growing the data capacity across all parts of the UK where it is needed is proving to be a significant investment challenge. The significance of this finding is that Ofcom directing ALFs towards improving the quality of coverage is no longer a distraction from its duty to ensure optimal use of the spectrum (the concern in their report to DSIT) - it actually directly delivers on that duty.

This still leaves practical concerns on Ofcom’s part about how they can ensure these investments contribute to optimal use of the spectrum.  What is unduly influencing these concerns is the problematic history of coverage obligations. But with so little new mobile spectrum in the pipeline “the coverage obligation” is no longer the right policy tool anyway. Also, the traditional way of expressing coverage obligations has been unduly influenced by “appearances” than practicality. It looks good to consumers for Ofcom to say they are imposing coverage of say 98% of the population. But measuring it is quite another matter. But MNOs have only one way to meet these coverage obligations and that is to build new towers. A 98% of the population obligation was likely to require 1200 new masts. So the obligation could have been expressed as an obligation to build 1200 new masts – and everyone in Ofcom knows how to count up to 1200. So investment obligations do not have to be complicated.

What has been suggested by Ofcom is for DSIT to retain the ALF money collected and put it into an investment fund and for MNOs to bid into this investment fund. But again why take such a complicated long winded route when a much simpler faster route would far better address national policy priorities whilst delivering optimal use of the spectrum. Such a high performing pro-investment approach to ALFs would be something like the following:

• The government sets a 20-year national goal for the quality of universal mobile coverage and rolling five-year mission objectives towards that goal.
• Each year the MNOs have the option of paying their ALFs in cash or in a qualifying “additionality” (*) investment. An investment qualifies if it falls under the one of the following categories:
  • Relevant research (including  funding UK university research)
  • Technical standardisation of radio access technologies
  • Improving quality of coverage along rail and road links outside of urban areas
  • Adding mobile coverage where they have none including urban dead spots
  • Cost of integrating private 5G and WiFi indoor coverage into seamless public coverage to improve indoor access to public mobile networks
  • Resilience of mobile networks against power failure and related issues
  • Higher energy efficiency in use of mobile spectrum including use of renewable energy sources
• Ofcom approve individual MNO five-year qualifying investment plans (including evidence of “additionality”). Ofcom can give guidance where “additionality” has prior approval and facilitate collaborative investments where this would be more effective. Once approved, the proposed qualifying investment plans become a contractual commitment.

What could be simpler? It would be far less resource intensive than running competitions. It embraces all policy priority critical areas to sustain optimal use of the spectrum over the long term. It enables each MNO network weakness to be addressed individually. It allows MNO investments to be coordinated where MNO collaboration is essential. Most of all it is affordable. It is making no huge demand on taxpayer subsidies and investments are spread over a long period of time to bring them within range of the level of Annual License Fees (ie £300m a year over 20 years delivers £6 billion of investment riding on top of the MNOs business as usual investment).

The UK was at one of those junctions in the road. The current road will see the continued decline of the MNOs ability to sustain quality of coverage improvements and the other road allows the government, Ofcom and MNOs (playing their independent respective roles) to all be pulling in the same direction to turn things around and sustainably drive these improvement in what has become a critical national infrastructure. DSIT officials were sympathetic and it led to their spectrum statement of March 2023 that called for Ofcom to review its approach to ALFs so as to support a strong investment environment.

August 2025 update:

Ofcom, no doubt with strong behind the scenes Treasury pressure, chose to continue the financially extractive status quo. Instead of repurposing ALFs to deliver better mobile networks, mobile operators were placated by giving them a discount on their Annual License Fees amounting to around £20m per MNO.

Every year Ofcom will continue to extract the financial equivalent of 12,000 small 5G cells...and the UK will remain with one of the poorer performing 5G networks and users will have to learn to live with slowly congesting mobile networks on top of all the flakey coverage over much of the country.

(* Note: The term “additionality” means expenditures that is additional to what the MNO would be spending for commercial reasons).