Excess profits on Motorola's Airwave estimated to be £1.3B
- Reference: 1684750390
- News link: https://www.theregister.co.uk/2023/05/22/excess_profits_motorola_airwave/
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As part of a consultation discussing "charge controls" over Airwave, which was founded in 2000, the Competition and Markets Authority (CMA) said the US telecoms and network giant was set to make "supernormal profits of around £1.27 billion ($1.58 billion) from the operation of the Airwave Network between 1 January 2020 and 31 December 2029."
In its latest report on the subject, the CMA has ruled that features of the market for the communications network created an "adverse effect on competition" which gives Airwave Solutions – owned by Motorola Solutions – the "ability to price services above levels the CMA would expect to prevail in a competitive market and results in a detrimental effect on customers."
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The CMA has published a draft [2]order [PDF] for consultation. It proposes charge controls to limit the price of Airwave Solutions and Motorola Solutions for services in scope by more than 40 percent.
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"It will, nonetheless, give Airwave Solutions and Motorola Solutions the opportunity to recover their reasonable costs of providing the services and to earn a reasonable level of profit in doing so, i.e. the level of profit that would be expected in a well-functioning market," the CMA said.
[5]Up to £895M up for grabs in UK Emergency Services procurement
[6]UK emergency services take DIY approach amid 12-year wait for comms upgrade
[7]£2B in UK taxpayer cash later, and still no Emergency Services Network
[8]Motorola benefits from delays in the UK's emergency services network, says govt
Airwave started out as part of BT, in various forms, was pun out in 2002 and ultimately became Airwave O2 Ltd. It was bought by two [9]Macquarie Group investment funds in 2007. [10]Motorola bought Airwave for £817.5 million ($1.017 billion) in 2015.
The CMA opened its investigation in October 2021 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; another was Motorola's dual role in providing the current network and in helping to deliver the Emergency Services Network to replace it. It proposed price caps on Airwave in [11]its report published earlier this year .
Airwave had been due to stop running in 2022, after ESN, an upgrade to 4G with additional data services, was introduced. However, ESN has been delayed until at least 2026, possibly 2029, with additional costs running up to more than £1 billion ($1.24 billion).
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In a statement sent to The Register , a spokesperson at Motorola Solutions, said:
"Anyone who enters into a contract with the U.K. government, and adheres to it, should be able to have trust and confidence in its terms. Despite the CMA finding no shortcomings in Airwave's exceptional service, the CMA intends to forcibly reduce the contractually agreed pricing going forward." ®
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[1] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/networks&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2ZGuRp4wTnttr2HL9PEdBkgAAANU&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[2] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1157644/Notice_of_intention_and_public_consultation.pdf
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/networks&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44ZGuRp4wTnttr2HL9PEdBkgAAANU&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/networks&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33ZGuRp4wTnttr2HL9PEdBkgAAANU&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[5] https://www.theregister.com/2023/05/18/home_office_launches_895_million/
[6] https://www.theregister.com/2023/04/28/uk_esn_alternatives/
[7] https://www.theregister.com/2023/03/09/esn_nao_report/
[8] https://www.theregister.com/2022/05/10/motorola_airwave_esn_profits/
[9] https://www.theregister.com/2007/04/20/macquairie_buys_airwave/
[10] https://www.theregister.com/2015/12/04/motorola_splashes_817m_on_airwave/
[11] https://www.theregister.com/2023/04/06/emergency_services_network_2029/
[12] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/networks&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44ZGuRp4wTnttr2HL9PEdBkgAAANU&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[13] https://whitepapers.theregister.com/
Re: Market not working well
Multiple suppliers of what equipment?
The end user radios are only a small part of the network - the real cost is in maintaining a resilient RF network with very high geographical (not just population) coverage of the UK.
Re: Market not working well
Surely Airwave should just have been a set of open protocols, plus a compatibility testing regime. Then multiple suppliers of the actual equipment could have been appointed, giving some opportunity for a competitive market to operate. Or am I being naïve?
Nope. That's the job of the government. So Airwave's gone the way of pretty much every PFI job. First hook your customer, then milk them for everything you can. Problem, as always is the price controls should have been written into the contract at the beginning. There would have been stuff like open-book accounting and 'reasonable' price increases, but the bidders are usually smarter. Hence ending up with basic stuff like indexation. The price of cheese has gone up a lot lately, so therefore should your network charges.
Rest is whether some monopolies can be desireable. Airwave is a pretty critical service, so you want it to just work and be manageable. Downside is it has a diverse customer base, so keeping all the service users happy. Motorola probably does have 'competition' in it's solution, but for it's benefit, not the users.
Re: Market not working well
ESN is also based on 'open standards' but, as with all open standards, there is some ambiguity eg web standards. Motorola are developing an implementation but switching to a another vendor would require a huge amount of development and testing*.
* worked for a company integrating Motorola's implementation into their main product
Macquarie . . .
the vampire kangaroo strikes again - well struck a while ago :)
Excess profits of £1.3B
Given it was originally £200M pa. I assume this is the estimated excess for 2024~2029 ie. The remaining 6 years of the contract.
Now need an agency to perform similar to the various Tory mates who gained from the mates CoViD contracts…
Re: Excess profits of £1.3B
This is a home office cockup, better to blame civil service incompetence than political greed.
Market not working well
"...concerns that the market might not be working well."
I confess I don't understand much about economics, but it seems to me that if you have a single monopoly supplier for an essential emergency service, that's not a market at all, and it's hardly surprising that the customer is in a poor bargaining position.
Surely Airwave should just have been a set of open protocols, plus a compatibility testing regime. Then multiple suppliers of the actual equipment could have been appointed, giving some opportunity for a competitive market to operate. Or am I being naïve?