The UK’s competition watchdog has found that Motorola Solutions acted as a monopoly to gain around £160mn in excess profits per year from a lucrative contract to provide communications services for emergency services workers.
The Competition and Markets Authority launched an in-depth investigation a year ago into the US company’s dual role as a key supplier to the new Emergency Services Network that will support the country’s police, ambulance and fire fighting staff as well as the owner of Airwave, the older system used by emergency services.
Delays to the launch of the ESN meant that the Airwave network became highly lucrative for Motorola, accounting for around seven per cent of global revenues and 21 per cent of pre-tax profits.
As part of its ruling on Friday, the CMA proposed restricting the amount Motorola is allowed to charge for the radio network, forecasting that it stood to gain £1.1bn in excess profit from the network between 2020 and 2026, and could make a further £160mn in excess profit for each year after that.
“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,” said Martin Coleman, chair of the CMA’s independent inquiry group.
The CMA found that, while initial price for the services set in 2000 included the capital costs of building the network, these prices should have come down once the initial outlay ended, in much the same way as the price of mobile contracts fall once consumers have paid off the cost of the handset.
Motorola hit back against the CMA’s conclusions, saying that it rejected the “unfounded and incorrect calculation of ‘excess’ profits, which is based on an arbitrary time period of the Airwave project” and that is has offered discounts to the Home Office in the past.
“The fact is that Airwave, over its life, is a much better deal for the UK taxpayer than the Home Office originally agreed,” it said, adding that the Home Office and the CMA had approved the contracts that remain in place today back in 2016.
The CMA disputes this, saying that it had only approved Motorola’s acquisition of Airwave and “not the contract terms that apply today”.
On the CMA’s proposal to reduce the price for the remaining years of the contract, Motorola said: “such unprecedented intervention would severely undermine confidence in long-term infrastructure investment and contracting with the UK government”.
The investigation was sparked by the Home Office which wrote to the CMA in April of last year to express its concerns about whether the profits Motorola was reaping from its Airwave contract could affect incentives to rollout the new ESN.
Motorola agreed to buy Airwave — which was originally due to close in 2019 — for £817mn in 2015, after it was appointed as one of the main suppliers to the ESN.