UK Home Office seeks more Airwave measures against Motorola Solutions, including potential divestitures
Author : Radio China    Time : 2022-12-21    Source :

United Kingdom (UK) Home Office officials support the Competition and Markets Authority (CMA) preliminary decision to control pricing for Motorola Solutions’ nationwide Airwave TETRA network, but they also seek recovery of more than $600 million more and to expose the LMR vendor giant to potential divestiture requirements.

These requests were communicated in the Home Office’s 53-page response to the CMA preliminary decision that was filed on Nov. 22 but released publicly for the first time on Dec. 9. In October, the CMA issued its preliminary findings that the terms of the four-year Airwave extension deal signed less than a year ago by the Home Office should be changed, apparently cutting Motorola Solutions’ revenue from the agreement by more than 50%—a projected loss of more than 800 million pounds (about $1 billion or more) during the next four years.

But this proposed remedy from the CMA would not be enough, according to Simon Parr, the Home Office’s senior responsible owner for the Emergency Services Mobile Communications Programme.

“While the CMA’s proposed remedies go a long way to mitigate the future harm that will be caused by Motorola’s and Airwave Solutions’ unilateral market power, I do not believe that they address the very significant harm already caused, and the supernormal profits from which Motorola’s shareholders and other investors have benefited and will continue to benefit, until the charge control comes into force next year,” Parr states in a letter included in the Home Office response.

“The Home Office would therefore wish to explore how these earned supernormal profits can be recovered for the benefit of Great Britain’s Emergency Services and UK taxpayers.”

Specifically, the Home Office seeks the recovery of about 500 million pounds ($618.2 million at current exchange rates) in “supernormal profits” that Motorola Solutions realized from Airwave during the past three years

“While understanding the CMA’s proposed charge-control approach, the Home Office is concerned that the measure will leave Motorola, its shareholders and other investors with over £0.5 billion of value earned through supernormal profits,” the Home Office response states. “The Home Office would wish for a remedy that recovers this value for, ultimately, the benefit of UK taxpayers and citizens.”

Airwave originally was supposed to be replaced by the LTE-based Emergency Services Network (ESN) as the mission-critical communications systems used by UK public-safety personnel by the end of 2019. However, the ESN was not ready in time, resulting in the Home Office agreeing to a three-year Airwave extension that began in 2020 and the four-year extension that is set to become effective on Jan. 1 and conclude at the end of 2026.

In its response, Motorola Solutions noted that the Home Office signed both extensions of Airwave network service, agreeing to the terms that the CMA has described as monopolistic “supernormal profits” throughout its investigation during the past year.

“The Home Office needs to comply with the long-term contracts that were freely entered into,” the Motorola Solutions response states. “There is no reasonable basis to intervene under the Enterprise Act 2002, even if politically there may be pressure for such intervention.”

Motorola Solutions also questioned the precedent that the proposed CMA remedies could establish for the broader UK government and commercial markets.

“It is noticeable that in the 19 years of operation of the current market-investigation regime, none of the Office of Fair Trading, Competition Commission, or the CMA has ever sought to review a long-term fixed price commercial contract between two parties,” according to the Motorola Solutions response. “It is scarcely conceivable that the CMA would do so if faced with such a request from two well-advised private-sector organizations. The CMA is not entitled to create a new category of government-protected customers alongside consumers.

“As this response and all of Motorola’s prior submissions make clear, the matter at hand is in substance not a market issue, but a contract issue, and the CMA’s 693 pages of provisional decision and appendices do not change this.”

These written responses were submitted to the CMA in preparation for the CMA conducting oral response hearings this month and in January. Motorola Solutions indicated that its response hearing is slated for Jan. 10. The CMA is scheduled to release its final decision in February.

Home Office officials publicly plan to have the ESN replace Airwave by the end of 2026, but numerous response references by both the Home Office and Motorola Solutions indicate that Airwave could be needed through 2029, and the pricing control would be in place during that time (although a 2026 review of the pricing is proposed). Meanwhile, the Home Office acknowledged the possibility that Airwave could be needed beyond 2029.

“While the Home Office accepts that there should be a presumption that the charge control end in 2029, the Home Office would ask that there be a review at this time to consider whether that presumption should be rebutted, and the control extended for a further limited period,” according to the Home Office response.

Other key ESN notes in the Home Office response include a confirmation that the massive project will require a new procurement in aftermath of Motorola Solutions’ planned exit of its role as the provider of software and services for ESN, although CEO Greg Brown recently said that the terms of that separation have not been finalized.

In addition, the Home Office response notes that it will seek cooperation from all four major UK cellular carriers in the new a version of ESN—a strategy driven in hopes of avoiding the creation of a new LTE-based monopoly that could repeat some of the same problems that the Home Office has experienced with the Airwave TETRA system.

Significant portions of the Home Office response express concerns about what Motorola Solutions might do after the CMA proposed remedies are implemented.  The Home Office indicated that it fears that Motorola Solutions could lower its quality of service to Airwave users if there is less profit to be made.

Motorola Solutions also sent a letter to the Home Office on Oct. 25—shortly after the CMA provisional decision was released—that “the Home Office is treating as a clear warning from Motorola” may take three undisclosed actions that were redacted from the publicly available response.

With this in mind, the Home Office asked that the CMA remedies include measures to ensure that Motorola Solutions meets needed quality-of-service thresholds for Airwave users. It also asked CMA to include language that would allow the Home Office take over the Airwave system and hire a new company to run it, if needed.

“Should Motorola take more aggressive action, it may be necessary for the Home Office (as a last resort, and only if all else fails) to seek to terminate the Airwave Network, to acquire the transferable assets, and tender the running of the network to a third party,” according to the Home Office response.

One key Home Office request is that the CMA include language that obligates Motorola Solutions and Airwave to deliver an interworking solution to support interoperable communications as users migrate between the Airwave TETRA network and the LTE-based ESN system in the future. This is needed, because the Home Office believes “there remains a continuing incentive on Motorola to seek to cause further delay to ESN,” even with the CMA’s proposed remedies.

Finally, the Home Office response expresses concern that Motorola Solutions could use market pressure outside of Airwave and the ESN—namely, its Command Central Control Room Solutions (CCCRS) business—to influence the UK public-safety communications sector. Without the control rooms being upgraded appropriately, the transition from Airwave to ESN cannot be completed, according to the Home Office response.

“Control rooms form a vital part of the overall emergency services mobile land radio environment as they enable either police, ambulance or fire service control rooms to communicate with individual police officers, ambulance personnel or fire personnel, to manage dispatch and incidents,” the Home Office response states. “Before transition can start, it is necessary for each control room to be upgraded to work with both the Airwave Network and the ESN.”

Motorola Solutions recently has increased its market share in the UK control-room sector, “winning control-room business by offering ‘keen’ prices”—a development that is a concern for the Home Office. If this becomes problematic, the Home Office would like the CMA to address the matter.

“As Motorola’s share of the control-room business increases, so does its market power and its ability to significantly impact and delay transition, enabling Motorola to act on its incentive to delay,” the Home Office response states.  “The Home Office continues to investigate this concern with the Airwave User community and will provide a further submission in due course. However, the Home Office remains concerned that a remedy may be necessary, for example, to impose clear information and decision-making barriers between Motorola’s CCCRS business and other parts of Motorola or, potentially, as a last resort, for Motorola to divest itself of its CCCRS business.”

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