Tech firm criticises CMA’s ‘unprecedented overreach’ and pledges to appeal

The UK’s competition regulator has imposed price controls that will force Motorola Solutions to reduce by more than £1bn its contracted price for the provision of the UK’s emergency services communications network over the coming years.

Following the conclusion of an 18-month market process, the Competition and Markets Authority has announced its final decision – that an enforced price cap is “the only effective way of ensuring… taxpayers aren’t paying considerably over the odds” for Motorola’s delivery of the Airwave network.

Airwave was commissioned as the nationwide communications system for the emergency services in 2000. It was acquired by Motorola Solutions in 2016 – by which time work had already begun on Airwave’s replacement: the Emergency Services Network (ESN).

The contract to support Airwave was scheduled to conclude around the end of 2019 – by which time the switchover to ESN was scheduled to have been completed.

After numerous delays, the new network is now forecast to begin operating in 2029, according to the CMA.

In the meantime, the UK’s emergency services continue to rely on Airwave. The most recent extension of the contract between Motorola and the Home Office – covering the operation of the network from the beginning of 2023 to the end of 2026 – was valued at almost £1.6bn.

But the CMA claims that the original contract – that concluded in 2019 – factored into its pricing the upfront costs of building the network. The regulator said that such costs should have been fully recouped by the start of this decade and that this should have been reflected in the cost of services.

The watchdog’s report finds that, as a result of its “virtually unconstrained monopoly position”, Motorola has been able to continue charging a price that is about “£200m per year more than we would expect to see in well-functioning market”.

This has allowed the company to generate “supernormal profits” that, based on the current contractual terms, would add up to £1.27bn over the course of a decade.

The CMA first proposed the implementation of price controls following the conclusion of an independent inquiry in October.

It has now confirmed its decision that Motorola will be required to, effectively, lower by £200m per year the amount it charges government for supporting Airwave. Based on the near-£1.6bn value of the firm’s current four-year deal with the Home Office, this would represent a reduction in fees of nearly 50%.

CMA independent inquiry chair Martin Coleman said that the regulator is “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 has been set at a level that “will end the supernormal profits that Motorola has been making, while allowing it to make a fair return”, he claimed.

“Our emergency services have to use the Airwave Network to protect the public and themselves,” Coleman added. “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.”

Motorola swiftly responded to express its disagreement with the decision and indicated its intention to appeal against it. The firm claimed that is has invested $1bn in maintaining the network since acquiring it seven years ago.

A spokesperson said: “Motorola Solutions strongly disagrees with the CMA’s final decision and believes it cannot be justified on competitive, economic or legal grounds. We will appeal the decision. 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.”

The Home Office, meanwhile, has previously indicated that it believed caps on future pricing were insufficient, and suggested measures should also be put in place recover from Motorola “over £500m of value earned through supernormal profits”.

In a letter responding to the CMA’s charge-control proposals late last year, the department said: “The Home Office would wish for a remedy that recovers this value for, ultimately, the benefit of UK taxpayers and citizens.”

Following today’s announcement from the regulator, a spokesperson for the department said: “We welcome the outcome of the Competition and Market Authority’s investigation, which will save the UK taxpayer millions every year through the course of this decade. Our priority continues to be to deliver the Emergency Services Network as swiftly as possible, which will provide first responders with better technology and faster access to life-saving data in emergency situations.”

Motorola was also due to plat a central role in the delivery of the Emergency Services Network, having won a £400m-plus contract to deliver the network’s voice communications.

But, against the backdrop, of the ongoing dispute over the Airwave contract – and Motorola’s alleged monopoly position – the two parties agreed to terminate their ESN engagement two years early, as exclusively revealed by PublicTechnology. The Home Office – which paid £45m to enable the early termination – must now find a replacement supplier for one of ESN’s core components.