Opposition mounts to Ottawa’s proposed rules for next year’s 700 MHz auction that might give two carriers an advantage

Carriers gang up on Bell, Telus on auction rules

It’s been said that if everyone is upset by a proposal, then the idea must be good.

By that yardstick Industry Canada’s proposed rules for next year’s important 700 MHz wireless spectrum auction are a great success. Virtually every written submission from carriers made to the department this week on the rules found something wrong, although some were louder than others.

In particular, many carriers protested a rule they say would benefit BCE Inc.’s Bell Canada and Telus Communications Co., who share a wireless network.

The auction will be for what one analyst called prime beachfront spectrum for better deploying next-generation LTE ultra-high speed wireless service.
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Not surprisingly, some of the suggestions carriers made in their response to Industry Canada’s suggested rules could be seen as giving themselves an advantage, or giving a disadvantage to a competitor.

Bell, for example, isn’t satisfied with the proposal that bidders have to put down deposits of perhaps tens of millions of dollars before the auction starts. The country’s second biggest carrier — and one of the biggest conglomerates — suggests bidders should have to give Industry Canada a letter of credit every day of the auction equal to their previous day’s last package bid as a financial guarantee the bid is serious.

“This measure will provide a strong market disincentive to discourage bidders from engaging in gamed bidding designed solely to drive up the price of spectrum that they have no meaningful interest in acquiring,” Bell’s submission said.

Bell and some other carriers have bitterly complained that the rules of the 2008 spectrum auction pushed the total bidding on licences up to what they said was an unexpected and unjustified $4.2 billion.

Bell also demands changes to the rules so big foreign carriers won’t get what it sees as an unfair advantage in the auction.

Under the Ottawa’s soon-to-be adopted foreign telecom ownership changes, a foreign carrier will be able to buy a Canadian carrier with less than 10 per cent of the national telecom revenues (in essence, Wind Mobile, Public Mobile, Mobilicity or Videotron).

But, Bell says, the proposed auction rules say large incumbent carriers like Bell can only buy a certain amount of spectrum. Smaller carriers can buy more. The result, Bell says, is a small carrier owned by a big foreign company could have more spectrum than companies – like Bell — that have spent billions on wireless networks already.

“As a matter of common sense, there can be no economic rationale, let alone a public policy rationale” for such a restriction, Bell says.

Rogers Communications Inc. complains that a proposed rule limiting large carriers from buying contiguous blocks of spectrum will create a “harmful asymmetry” because Bell and Telus Communications Co., who share a wireless network, might be allowed to share side-by-side blocks.

Smaller carriers would be allowed to buy contiguous blocks of spectrum to protect them from big operators, who face a spectrum cap. However, Industry Canada has also proposed that with its approval bidders who work together but compete – so-called “associate entities” – would have separate spectrum caps. Bell and Telus fall into that category, for while they compete at the retail level, they share a wireless network. But Rogers argues the proposed rule would get around anti-collusion measures usually found in spectrum auctions.

The proposals “allow a level of co-operation by bidders in a spectrum auction never witnessed before in Canada or anywhere else in the world,” complains Rogers.

Globalive Wireless Management Corp., the parent of startup Wind Mobile, which has been trying unsuccessfully for some time to get fellow new entrants to team up, also fears the rules favour Bell and Telus.

It proposes broadening the spectrum sharing rules in allowing Industry Canada to bless a theoretical (or a real) spectrum sharing plan before the auction. The department could also say if theoretical plan could be okay if a carrier could strike a deal with a winning bidder after the auction.

Public Mobile and Mobilicity insist that associated entities like Bell and Telus bid as one company and have joint spectrum caps.

Mobilicity also wants the anti-collusion rules toughened to allow Industry Canada to disqualify offending bidders in the middle of the auction.

Quebecor Media, which owns cableco Videotron, calls on Industry Canada to broaden the associated entities rule to allow bidders in different geographies to team up.

The government of Ontario also objected to Industry Canada’s rural deployment proposals. Briefly, the proposals include a mechanism to encourage winning bidders to deploy wireless in the 700 MHz band in rural areas and not just in lucrative urban areas. Since 80 per cent of Ontarians already live in urban areas, the province suggests the department set rural deployment requirements based on a minimum rural population.

The province also objects to 700 MHz spectrum winners getting a 20-year licence instead of the usual 10 year term and makes alternate suggestions to encourage rural rollouts.

Broadly speaking, the carriers support the proposed combinatorial clock auction format (which allows bidders to submit a package or combination of desired licences, instead of bidding on them individually and simultaneously as in 2008), although some have technical objections.

The full list of submissions can be found here.

Carriers have until July 25 to submit written rebuttals. Industry Canada will issue the final rules later this year.

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