Monopolies watchdog says supplier is making £160million excess profits a year due to delayed ESN

The Competition and Markets Authority (CMA) is proposing to restrict how much Motorola can charge for the emergency services to use Airwave because of the overrun on closing down the end of life radio network and delays in the ESN roll out which the company is also a major contractor for.

The provisional findings of the CMA’s review found that the Home Office and police forces appear to be "locked in with a monopoly provider" and this lack of competition is allowing Motorola to make around £160 million excess profits a year.

Motorola has rejected the provisional findings as being an "unfounded and incorrect calculation of “excess” profits, which is based on an arbitrary time period of the Airwave project."

It has also said it will pursue legal means to "protect its contractual position."

The Airwave Network was originally commissioned by the Home Office through an open procurement exercise in 2000. 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 solution using a commercial 4G mobile network, the Emergency Services Network (ESN), when the contract ended. 

However, because the new ESN network was not ready for switchover as planned, and is not expected to be ready until 2026 and possibly later, the emergency services continue to rely on Airwave including having to procure new handsets and other equipment.

There was a clause in the Airwave contract awarded to Motorola when it bought the network from the previous supplier  -  a  deed of recovery  -  that stated if there was a delay in shutting down Airwave and rolling out ESN there would be a price penalty for the amount the company could charge to forces for keeping the old network going.

But Police Oracle understands that this has never been enacted because it is not clear who is responsible for causing the longs delays to rolling out the ESN which is one of the most overspent programmes in Whitehall.

The CMA opened its investigation in October 2021. One concern was the Home Office’s weak bargaining position when it came to the network; another was Motorola’s dual role in providing the current network and in helping to deliver the ESN to replace it. The CMA also wanted to understand if the significant profits Motorola could earn from the Airwave Network affected its incentive to support (and not to delay) the delivery of ESN. 

Martin Coleman, chair of the CMA’s independent inquiry group, said:  “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.”

In its provisional findings, published today, the CMA has found that the Home Office is being charged more by Motorola to use the Airwave Network than should be the case. The price set under the original agreement entered into in 2000 included the capital costs of building the network. 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 the CMA says. But the emergency services have no choice of an alternative supplier.  

The CMA’s provisional estimate is that Motorola could make in the region of £1.1bn excess profit from the operation of the network between January 2020 and December 2026. If the roll-out of the new ESN continues to be delayed, Motorola could make around a further £160m excess profit each year after 2026. 

According to the CMA recent figures suggest while the Airwave Network accounts for around 7% of Motorola’s global revenues, it makes up around 21% of Motorola’s global pre-tax profits. 

The CMA has also recommended that the Home Office puts in place a clear plan as soon as possible to ensure that a new, upgraded network, or more competitive arrangements, replace the existing set-up by the end of 2029. 

A spokesperson for Motorola said: "The fact is that Airwave, over its life, is a much better deal for the UK taxpayer than the Home Office originally agreed.  

"In 2016, both the CMA itself and the Home Office approved all of the Airwave contracts that remain in place today. Airwave has been relied upon by the UK emergency services for the past 22 years. 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. Such unprecedented intervention would severely undermine confidence in long-term infrastructure investment and contracting with the UK government.

"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. 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."