Lobbying starts on 700 MHz spectrum auction

The government has sent a long-awaited discussion paper to carriers calling for written comments on a number of auction technical issues by Feb. 28, with rebuttals filed by March 30.

But the biggest fight will be over whether there is still a need for special rules to encourage wireless competition, despite the entry of four new carriers in the last 12 months.

Expect the new entrants – including Wind Mobile, Public Mobile, Mobilicity and Videotron – to argue heavily for protection from the incumbents.

Spokespersons for Wind, Public Mobile, Rogers Communications Inc. and BCE Inc.'s Bell Canada weren’t available for comment Wednesday. However, Michael Hennessy, senior vice-president of regulatory affairs at incumbent Telus Corp., said the rules in the 2008 auction that paved the way for the newcomers are now “anachronistic.”

“[Wireless] competition is firing away on all engines,” he said. “We’re finding the market is crazily dynamic at this point.”

Cable operator Shaw Communications Inc. of Calgary, one of the 2008 spectrum winners which is preparing to build a new wireless network, found $2 billion to buy Canwest Global Communications Corp. television empire, while the parent of Wind’s largest investor, Orascom Telecommunications Holdings S.A.E. is merging with telecom giant VimpelCom Ltd. Neither needs protection, he argued.

Iain Grant, managing director of the SeaBoard Group, a Montreal-based telecommunications consultancy, said Wednesday the carriers have already been letting Ottawa know where they stand on the next auction for some time. “This paper is just another waypoint” he said. However, he added, the issues it raises are important, particularly whether there will be special rules to promote competition.

"I think the government has every reason to be delighted with what transpired" in the 2008 auction, he said, when spectrum was set aside for new entrants that incumbents like Telus couldn't bid on. The four new carriers that launched over the last 12 months have pushed incumbents in many ways, he said.

Some incumbents have urged Ottawa to hold the auction next year, given the increasing demand for wireless from owners of mobile devices like smart phones, laptops and tablets. However, Industry Minister Tony Clement said last month the auction will likely be held late in 2012.

The discussion paper notes that one of the department’s goals is to encourage competition to ensure all Canadians benefit from advanced and affordable telecom services.

But Hennessy said he’s surprised the government wants to get cracking on another auction when it hasn’t decided if it will allow more foreign investment in wireless companies. Clement has put off that decision until the spring, suggesting spectrum auction and foreign ownership rules are tied together.

At stake in that auction is the valuable 700 MHz band, which offers two advantages over the current spectrum carriers own: Wider signal coverage with fewer antennas, ideal for covering suburban or rural areas, and better ability for users to receive signals inside buildings.

One question the government wants answered is whether there’s a way to tailor the auction to encourage more wireless service in outlying areas.

In addition to deploying the so-called fourth generation broadband data technology called LTE on their existing AWS spectrum in the 1700 and 2100 MHz bands, LTE is a perfect fit for 700 MHz.

Ottawa is also looking to auction more spectrum in what is called the Broadband Radio Services (BRS) 2500-2690 MHz bands, of little interest to most carriers. BCE Inc.’s Bell Canada and Rogers Communications Inc. hold 96 per cent of the BRS spectrum already handed out in a shared venture called Inukshuk Wireless targeting rural ares. Inukshuk currently uses a proprietary fixed wireless technology, but Rogers has indicated it is looking at using this band for LTE. Presumably, so would Bell. If feasible, that would lift its value.

Last month Inukshuk added to its holdings by buying $14 million worth of spectrum in Saskatchewan from Vecima Networks. 

The government hasn’t decided if it will hold a BRS auction at the same time as a 700 MHz auction.

The carriers with the most at stake in a 700 MHz auction are the new entrants who bought spectrum in 2008 – Wind Mobile, Mobilicity, Public Mobile, Quebecor Inc.’s Videotron, Shaw Communications Inc. and Bragg Communications Inc. For them the auction will be an opportunity to solidify the beachhead they gained by paying a combined $1.5 billion for licences. Without more spectrum, they will starve.

For the incumbent big three carriers -- BCE Inc.’s Bell Canada, Rogers Communications Inc. and Telus  -- the auction rules will be an opportunity to stunt the challengers’ growth.

Before Wind, Mobilicity, Public Mobile and Videotron launched their services in the last 12 months, the big three owned about 95 per cent of Canada’s wireless subscribers. It’s still early days and they still likely have at least 90 per cent of the market.

More importantly for the purpose of tailoring an auction, the discussion paper notes that between them Rogers, Bell and Telus own 85 per cent of the cellular, PCS, Broadband Radio Services (BRS) and AWS spectrum the government has sold in the last 25 years, weighted by population. That’s a considerable stockpile compared to what the newcomers bought in 2008.

The big three might argue that the more important spectrum is their smaller AWS holdings because cellular and PCS likely won’t be used by devices sporting LTE. That will be deployed in the AWS and 700 Mhz bands. However, the big three still make lucrative use of cellular and PCS spectrum for their discount brands, Solo (Bell), Chatr and Fido (Rogers) and Koodo (Telus).

But Iain Grant notes that one advantage of LTE is its ability to look beyond contiguous spectrum to find an appropriate frequency pair. That might give new life to cellular and PCS spectrum.

When Industry Canada set aside AWS spectrum for new entrants and low spectrum holders in 2008, the big three only grabbed 55 per cent of the spectrum. Videotron bought 14 per cent, Wind got 12 per cent, Shaw got 7 per cent (largely in Western Canada, where its cable network is based), Mobilicity won 6 per cent and Bragg got 4 per cent (largely in the Maritimes, where its Eastlink cable network is based). Shaw and Bragg are expected to launch their wireless networks late next year.

In the 2008 auction new entrants could bid on AWS spectrum outside the blocks of frequencies reserved for them, blocks open to all bidders. However, in those blocks the big three overwhelmed the new entrants, likely contributing to the total bidding being pushed up to just over $4.2 billion.

Undoubtedly Bell, Rogers and Telus will urge the government not to structure the 700 MHz auction in a similar way to help keep spending down. With a record deficit on its books and hungry for revenue, Ottawa may not oblige.

The discussion paper notes Industry Canada has a number of ways to structure an auction, particularly if it wants to spur competition. It could again create a set-aside. In 2008, the set-aside was for new entrants or those who have spectrum with less than 10 per cent market share.

Another weapon is a limit on the amount of spectrum a carrier can buy in a geographical area. That was used in the 2001 PCS auction. The cap could be for 700 MHz only, or for a combination of cellular/PCS/BRS/AWS and 700 MHz. As the discussion paper notes, setting the right cap amount is the trick.

The government can also affect outcomes by setting different band tiers (for example, national and regional). Large geographic areas would make better use of spectrum, while a number small areas would give flexibility to bidders.

Finally, the government also wants to hear from the industry on whether some of the 700 MHz spectrum should be sliced off for public service agencies, and if so how it should be allocated.

This consultation isn’t the end of things. After Industry Canada has decided these issues, it will talk to carriers again about the nitty-gritty auction details, including the conditions of the licences.

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