Mobile meltdown - is 4G about to get expensive?

Image of apps
Using apps like these might soon be more expensive...
"The concern now for consumers must be that the increased costs will be passed onto them in the form of higher tariffs"
  • | by Graham Thomas

You might think from watching the TV ads that we are all swaying happily in one nation-long conga line - party horns blowing amid the silly string - towards some kind of 4G instant-internet nirvana.

But as with energy prices and much else besides, where the government and private companies jostle to avoid responsibility for funding investment, it's usually the poor old consumer who's left to pick up the tab.

In the case of the mobile phone market, Ofcom, the industry regulator, recently announced it was going to increase the cost of renting space on the frequencies by 400%. Sounds steep.

Annual licence fees will be hiked to £309m a year, up from the current annual total of £64.4m. The new prices will see Vodafone and O2's individual fees rise from £15.6m to £83.1m. EE will pay £107.1m, up from £24.9m, and Three will go from £8.3m to £35.7m.

Predictably, for the big phone companies this went down with only slightly less fuss than Luis Suarez.

All that was missing was the outstretched arms and imploring faces as they claimed that the increases were excessive. They went on to mutter darkly about how the extra charges could affect their ability to invest in new 4G services.

Finally came the familiar conclusion that the increases might be passed on to consumers - those same people who are regularly reminded by the TV ads that mobile life is one long, casually dressed, sunny Sunday afternoon of happiness.

But should the phone companies really be so shocked? Are the increases really so unfair?

The prices for these airwaves - the 900Mhz and 1800Mhz spectrum bands, if you want to get technical - were set back in the 1980s and 1990s. Initially, they were actually given away for free.

Those were the days when people used to use their mobiles to shout at friends and colleagues from trains. Dom Joly was on the telly.

But the 2G spectrum was then, in the words of Ofcom, "liberated". This does not mean hooded techies with wire-cutting equipment broke into a communications tower and released the wavebands into the wild.

It simply means the companies began using 2G space for high-speed internet services for mobile. Fed up with shouting into their handsets, customers now prefer to use them to watch films.

As the companies can also trade this space amongst themselves, the values of these spectrums have leapt. It was a bit like giving away an old stretch of road, only for it later to become a 12-lane highway, complete with expensive toll booths.

The annual licence fees were last increased 13 years ago, so the adjustments could be said to be long overdue.

For a time it appeared the government preferred the auction method as a means of selling off this scarce resource.

In 2000, the networks got very excited about 3G and spent £22.5bn at the auction. They may have concluded they over-stretched themselves because they coughed up  a far more modest £2.3bn on 4G earlier this year.

But they could hardly complain that annual fees were not something they should prepare for.

Back in 2010 the providers were told to expect annual fees with Ofcom calculating them from the market rates being charged in the rest of Europe. The message was clear that they had been getting the frequencies on the cheap.

Ofcom do not feel the phone companies will struggle to meet the price increases, nor that they should necessarily opt to fleece their customers.

The Ofcom consultation document clearly states: "We do not propose to phase in fees. Licensees have known since December 2010 that fees would be revised to reflect full market value.

"We believe that revised fees can be implemented in a single step without having an adverse impact on services delivered to customers. Therefore, we consider that it would be in line with the direction for fees that are reflective of full market value to be implemented at the outset without a period of phasing in."

But the concern now for consumers must be that the increased costs will be passed onto them in the form of higher tariffs, although nothing will happen until next year as Ofcom has promised a consultation period before it imposes its own increases.

For most people mobile phones are now a necessity as well as a toy. Even job seekers without internet access at home are now told to use their phones in order to apply for their allowance as well as search for work.

With energy bills set to rise by 11% before the end of the year, the prospect of mobile phone bills ballooning in 2014 is simply something else to worry about.

But according to Hannes Wittig, head of telecoms research at JP Morgan, there may yet be an unlikely consumer champion able to offer some protection from the major network providers.

He has identified a key role for companies such as Tesco Mobile and Virgin Media in potentially keeping prices down.

These are labelled "mobile virtual network operators" - firms you may take out a mobile contract with, but who do not themselves hold licences for the airwaves.

The theory is that since these companies have contracts with the main operators but are not subject to the fee increases, they may be able to hold their prices - forcing the likes of Vodafone, EE, O2 and Three to do the same.

Well, that's the theory…