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After a number of heavy financial blows over the past six months regarding its contract to run the UK Emergency Services Network (ESN), Motorola Solutions is reeling again, after a market investigation by the UK’s Competition and Markets Authority (CMA) has recommended restricting how much the tech firm can charge the country’s emergency services to use its Airwave Network, the essential dedicated mobile infrastructure that the police, fire, ambulance and other agencies utilise to communicate securely.
The charge control will limit the price of the Airwave Network services to a level that the CMA says would apply in a competitive market. It will, in the CMA’s judgement, mitigate what it regards as the detrimental effects on customers – that is the emergency services and ultimately taxpayers – from Airwave Solutions’ and Motorola’s market power, in effect lowering prices by almost £200m a year.
The Airwave Network was originally commissioned by the UK Home Office through an open procurement exercise in 2000. Motorola Solutions acquired Airwave, the company behind the network, in 2016.
The original contract, which was due to end in late 2019 or early 2020, was to build and operate the Airwave Network – and the network was expected to be shut down and replaced by a new secure communications offering using the ESN, a commercial 4G mobile network, when the contract ended.
However, almost from inception, the entire ESN network has been beset by delays and cost overruns, attracting criticism which led to Motorola Solutions deciding to end early its involvement in the project. The CMA opened an investigation into the role of the Airwave network in the ESN in October 2021, with a particular focus on the impact of Motorola’s dual role as the owner of the company providing the planned new mobile radio network and as a key supplier.
The ESN is not expected to be ready until at least 2026, more likely 2029, and the emergency services continue to rely on the Airwave Network, which the CMA regards as a monopoly provider of these essential communications services.
The CMA investigation concluded that the market is not working well and the emergency services have no choice but to carry on using the Airwave Network. It added that as a result, Motorola, which owns the company that operates the network, can charge the Home Office (which negotiates the contracts on behalf of the emergency services) prices well above competitive levels, resulting in higher costs which are ultimately paid by taxpayers.
The price set under the original agreement included the capital costs of building the network. The CMA argued that by the time the period covered by the original agreement ended, that cost should have been recouped, and the price should have fallen substantially at that point – in the same way that consumers can get cheaper mobile deals after they have paid off their handset.
The investigation concluded that this did not happen, and prices remained at substantially the same level, but unlike consumers with mobile phones, the emergency services have no choice of an alternative supplier. It said a price cap on the Airwave Network was the “only option” to reduce cost to emergency services.
“Our emergency services have to use the Airwave Network to protect the public and themselves,” said Martin Coleman, chair of the CMA’s independent inquiry group. “When the original contract period for the Airwave Network came to an end, there was no alternative provider, so Motorola held all the cards when it came to pricing. As a result, the emergency services are locked in with a monopoly provider with no option but to pay a much higher price than they would if the market was working well.
“We are generally reluctant to impose price controls, but the particular circumstances of this case mean that a price cap is the only effective way of ensuring the emergency services, and the taxpayers who fund them, aren’t paying considerably over the odds. The cap will end the supernormal profits that Motorola has been making while allowing it to make a fair return.”
Read more about the Airwave Network
- CMA issues proposals to prevent emergency services being overcharged for Airwave network: UK competition watchdog unveils proposals to restrict how much Motorola can charge emergency services to use mobile radio network.
- UK Competition and Markets Authority opens investigation into Motorola’s Airwave: Three months after considering whether to launch a probe, UK competition watchdog opens market investigation of role played by tech firm in mobile radio network used by emergency services.
- Airwave goodbye, hello ESN: UK government recently announced plans that – despite facing delays and setbacks – a new Emergency Services Network (ESN) will be phased in from the beginning of 2019.
To the extent that in the CMA’s eyes Motorola will no longer be earning supernormal profits, the charge control is also designed to reduce Airwave Solutions’ and Motorola’s incentives to delay the delivery of technology that will help shut down the network and to slow down the transition to a more modern replacement. The CMA also believes the charge control is set at a level that will also allow Motorola to continue to invest in the network and ensure that quality and safety is maintained. It will come into force later this year and be subject to a review in 2026.
Not surprisingly, Motorola Solutions strongly disagreed with the CMA’s final decision, and believes it cannot be justified on competitive, economic or legal grounds and will appeal the decision.
In an official response to the CMA, Motorola Solutions argued that a price control on Airwave would in effect alter a long-term contract that was mutually agreed, duly executed and is still in effect.
Furthermore, in its opinion, Airwave currently delivers “exceptional” value for money for the UK taxpayer, highlighting the number of price reductions it had even while making “significant” investments of more than $1bn since 2016. Moreover, the company believes that if Airwave is continued on the existing agreed terms until the end of its life in 2026, the Home Office will have enjoyed a better deal than it agreed to at the outset of the contract, and better terms than the UK government typically accepts even for non-mission-critical service contracts.
The company statement added: “In 2016, the Home Office negotiated and agreed to the fixed price Airwave contracts, which were also provided to the CMA as part of the CMA’s approval of Motorola Solutions’ acquisition of Airwave. Despite the CMA finding no shortcomings in Airwave’s exceptional service, the CMA intends to forcibly reduce the contractually agreed pricing going forward.
“We believe this unprecedented overreach will have a chilling effect on long-term investment and contracting with the UK government,” it said. “Motorola Solutions is committed to vigorously protecting its contractual position in delivering the Airwave network, an essential service that operates at the highest levels and is relied upon by the 300,000 emergency services professionals who protect communities across the UK every day.”