The Competition and Markets Authority (CMA) has said that telecommunications technology provider Motorola is making £160 million in excess profits from the Airwave emergency services network.
Announcing the findings of its year-long investigation, the CMA has said restrictions need to be introduced on the contract to protect public finances.
A lack of competition is leading to Motorola making annual excess profits of £160 million from the Airwave emergency services network, according to the CMA.
In a statement, it said Motorola "appears to be able to charge the Home Office (which represents the emergency services) prices well above competitive levels”.
Motorola would make £1.1 billion in excess profits from Airwave between January 2020 and December 2026 under the existing contract, the CMA estimated, saying that in 2020 the Airwave Network accounted for around 7% of Motorola’s global revenues and around 21% of Motorola’s global pre-tax profits.
Changes in costs
The investigation, which independent experts led, found that the price set in 2000 covered the capital cost of building the Airwave Network. This contract was due to expire in 2019. Costs to the Home Office after the original contract expired should have “fallen substantially”, the CMA said. “This did not happen, and prices remained at substantially the same level.”
The original Home Office open procurement expected the Airwave Network to be replaced by a secure 4G network. A 4G Emergency Services Network (ESN) is in development - with Motorola as a provider - but development of the new network has been delayed and not expected to be ready until 2026.
The CMA said the involvement of Motorola as operator of Airwave and in the implementation of ESN is of concern. “If the roll out of the new ESN continues to be delayed, Motorola could make around a further £160m excess profit each year after 2026,” it said in its statement.
Martin Coleman, chair of the CMA’s independent inquiry group, said: “It is vital that the market for critical mobile radio network services used by our emergency services works well and provides an excellent service at a fair price.” The investigation began in October 2021 following concerns that the market was not working well for the Home Office and that the department was locked in with a monopoly provider.
In response to its findings, the CMA has proposed how much Motorola can charge for the use of the Airwave Network.
“As far as the price is concerned, the market does not appear to be working well at the moment. Our current view is that the Home Office and our emergency services are locked in with a monopoly provider which can charge much more than it could in a properly functioning market, while taxpayers foot the bill,” Coleman said.
“We are therefore proposing a direct intervention through a price control to stop this and lay the basis for the Home Office to decide how it intends to ensure these vital services are to be delivered in future.”
The Airwave Network is used by the ambulance, fire, police and other emergency services and is a separate mobile network that enables secure communications.
Update: In response to the CMA findings Motorola issued a statement saying: "Motorola Solutions entirely rejects the CMA’s unfounded and incorrect calculation of 'excess' profits, which is based on an arbitrary time period of the Airwave project. The fact is that Airwave, over its life, is a much better deal for the UK taxpayer than the Home Office originally agreed.
"In 2016, both the CMA itself and the Home Office approved all of the Airwave contracts that remain in place today. Airwave has been relied upon by the U.K. emergency services for the past 22 years.
"Despite the CMA finding no shortcomings in Airwave’s exceptional service, or any material change in the cost to run this mission-critical network, the CMA is proposing to forcibly reduce the contractually agreed price for the remaining years of the contract. Such unprecedented intervention would severely undermine confidence in long term infrastructure investment and contracting with the U.K. government.
"As this is a provisional decision, Motorola Solutions will continue to work with the CMA to demonstrate the excellent value for money the Airwave network provides to the UK taxpayer. At the same time, Motorola Solutions will pursue all legal avenues to protect its contractual position for the benefit of the 300,000 emergency services personnel who rely on the Airwave network – and the people they protect – every day."