Today's court ruling will not change the operational or strategic directions of the operators. However, it would set a precedent, deterring similar cases from reaching the court.
The European Union (EU)'s top court has ruled against mobile operators seeking to reclaim part of their 3G licence as a value-added tax (VAT) rebate. In a ruling today, the EU Court of Justice ruled against the U.K. quintet of Vodafone, O2, T-Mobile, Orange and Hutchison Whampoa, which had argued that they were entitled to a refund of £3.3 billion (US$6.6 billion). The operators contend that the licence fees include a refundable VAT component and have insisted that given that there was a £3.3 billion VAT component out of the total of £22.5 billion they collectively paid for 3G licences in 2000, they should be entitled to a refund as individual mobile phone users, rather than companies, were the final consumers. Reuters reports that the court also ruled against T-Mobile Austria and others in a similar case in that country.
In reaching its verdict, the court sided with the government, which insisted that there was no VAT component in the licence fees. The court ruled that spectrum licensing cannot be subject to VAT taxation because it is not an economic activity. "The award by the state of 3G mobile telecommunication licences by auction does not constitute an economic activity," the court said in a statement. "The court holds that such an activity constitutes a necessary precondition for the access of economic operators to the mobile telecom market...What is at issue is the activity of controlling and regulating the use of electromagnetic spectrum," it added.
- Status-Quo Remains: Although the sums involved are quite large, today's ruling is not expected to have a drastic effect on current operations or the strategies of the operators. The companies involved have realigned their priorities and have clearly got on with their services regardless of any hope of a refund.
- Academic Exercise: Regardless of their public posturing, the court cases were more of an academic-cum-opportunistic endeavour for the operators, which would cherish an opportunity to recoup some of the licence fees they paid in 2000. At that time, the £22.5 billion they collectively spent looked like a cheap bargain as expectations of a 3G boom loomed. Seven years later, and with 3G having undeniably flopped, the licence fees have become the perfect case study of how not to overpay for a hyped technology. However, today's ruling at Europe's highest appellate court sets a precedent for similar cases.
