UK competition watchdog proposes price controls on Motorola Solutions’ Airwave system

Motorola Solutions could see its projected annual profits shrink by as much as $178 million for providing United Kingdom (UK)  public-safety personnel with mission-critical communications via the company’s nationwide Airwave TETRA network, according to a new proposal from the Competition and Markets Authority (CMA).

CMA today released its proposal for price control on Airwave services as part of its provisional decision regarding its year-long investigation into the market power that Motorola Solutions has in the UK. The CMA is scheduled to conduct response hearings about its provisional decision in October and November, then publish its final report in December.

In the preliminary decision, the CMA asserts that Airwave and Motorola Solutions have been enjoying “supernormal profits” of about 160 million pounds (more than $178 million) annually. This results projects to a total of more than 1.1 billion pounds ($1.23 billion) in “excess profits” from Airwave contract extensions covering the period from the beginning of 2020 through the end of 2026.

Under the CMA’s provisional decision, this “supernormal profit” would be eliminated from Motorola Solutions’ compensation for providing the Airwave TETRA service, even though such action effectively would alter the financial terms of an existing deal.

Motorola Solutions and the UK Home Office signed a four-year Airwave extension—covering the period from Jan. 1, 2023, to Dec. 31, 2026—at the same terms as the three-year extension that was signed for the period from 2020 through 2022. Given Motorola Solutions’ monopoly on the mission-critical communications market in the UK, the Home Office lacked the leverage necessary to negotiate better financial extension terms, because there is “no meaningful alternative option, in terms of its choice of supplier,” the CMA summary states.

With this in mind, the CMA proposes that price controls should be established for Airwave services.

“The charge control relating to the Airwave Network and services would set the price at a level that would apply in a competitive market,” the CMA summary states. “That would, in our provisional view, mitigate the detrimental effects on customers (the emergency services and, ultimately, taxpayers) from Airwave Solutions’ and Motorola’s unilateral market power.”

Martin Coleman, chair of the CMA’s independent inquiry group, said he believes that the proposed price controls on the Airwave service are appropriate.

“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,” Coleman said in prepared statement. “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. 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.”

Motorola Solutions also is a core vendor in the effort to build a nationwide, public-safety LTE network that is supposed to replace the Airwave TETRA system. In addition to Airwave price controls, CMA proposed that Motorola Solutions be required to provide interworking—solutions designed to enable interoperability between Airwave users and personnel on the proposed LTE-based Emergency Services Network (ESN)—on a “cost-plus” basis.

Many UK officials have expressed concerns that Motorola Solutions would take actions to delay the ESN deployment to ensure that it would benefit from more years operating Airwave, which is significantly more profitable to the company than ESN.

CMA officials acknowledged these dual-role concerns about Motorola Solutions and expressed hope that the proposed price-control model will help address the issues.

“Our provisional view is that Motorola’s dual role gives it both the incentive and the ability to delay the delivery of ESN and to prolong the highly profitable monopoly position of Airwave Solutions,” the CMA summary states.

“To the extent [Motorola Solutions] would no longer be earning supernormal profits, that would also reduce Motorola’s incentive to delay the delivery of ESN and thereby prolong the operation of the Airwave Network.”

Motorola Solutions’ Airwave system would be subject to the proposed price-control regime beginning next year and continue through the end of the decade, according to CMA’s provisional-decision summary.

“The charge control would commence in 2023,” the CMA summary states. “It would be subject to a review in 2026 that may result in its continuation, variation or removal, and, subject to that review, it would continue until 31 December 2029.”

In 2000, the UK Home Office signed an agreement with Airwave Solutions to establish a mission-critical TETRA network that was scheduled to expire at the end of 2019, when UK first responders were expected to have completed a transition of their communications to the proposed LTE-based Emergency Services Network (ESN). Motorola Solutions purchased Airwave in early 2016 in a deal that was supported by the Home Office and approved by the CMA, in large part because the Airwave system was scheduled to be retired less than four years later.

But extending use of the Airwave network has become necessary as the ESN deployment has been significantly slower than originally anticipated—a Home Office official in 2013 said the ESN transition would begin in 2016, but it still has yet to start in earnest.

CMA and Home Office officials assert that the Airwave extensions should include reduced annual payments, reflecting the fact that the TETRA network was completed years ago and that profits to recoup the initial buildout were included in the original contract that expired in 2019.

Instead, the annual Airwave costs in the extensions have remained at the same high level that helped spur UK officials to pursue the LTE-based ESN in the first place. The CMA summary includes a footnote that the Airwave contract “accounted for 7-8% of Motorola’s global revenue—but between 21% and 26% of its global pre-tax profits—in 2018, 2019 and 2020.”

Motorola Solutions disagreed with the CMA’s financial assessment of the Airwave contract.

“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,” according to a Motorola Solutions statement provided to IWCE’s Urgent Communications. “The fact is that Airwave, over its life, is a much better deal for the UK taxpayer than the Home Office originally agreed.”

Motorola Solutions stated that the Airwave system has served UK first responders well for more than two decades and that both the CMA and the UK Home Office have approved all Airwave contracts that are in place today.

In its statement, the LMR vendor giant also noted the potential problems that effectively altering the terms of an existing contract through the CMA’s proposed price controls could have on other UK government procurements.

“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,” according to the Motorola Solutions statement. “Such unprecedented intervention would severely undermine confidence in long-term infrastructure investment and contracting with the UK government.”

Motorola Solutions outlined the company’s next steps regarding the Airwave situation.

“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,” the Motorola Solutions statement. “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.”