Incumbents could be big winners in auction for high-speed Internet spectrum

Industry Canada is preparing to auction more spectrum in a bid to meet the government’s 2004 deadline for broadband community access, but its willingness to let the dominant carriers compete could shut out smaller players. On Aug. 10, the department released a proposed policy for auctioning more than 300 10-year licences in the 2.3 GHz and 3.5 GHz bands (DGRB – 006-01). The fixed spectrum would be used to deliver high-speed Internet service to rural and remote areas, in keeping with the government’s promise to bring broadband access to every Canadian community by 2004 (RoW, July 9/01). One licensee already operating in the 3.5 GHz band says his company’s ability to expand into urban markets will be hampered if companies like Bell Canada, Telus Corp and Rogers Communications Inc are allowed to set up competing operations. The CEO of CSP Internet Ltd wants the government to restrict the incumbents’ participation in the auction. "The big question is whether the large dominant carriers are going to be able to get these licences, too, and do what they’ve done in the past with cable and DSL, which is run services at significant losses and drive everybody else out of business," says Dave Godfrey, whose company holds more than 100 licences in the 3.5 GHz bands to serve rural communities in British Columbia, Alberta and Saskatchewan. "But I think the real crux is (there should be) no dominant players because deregulation is fine as long as you’re not competing against elephants. But what’s currently happening just makes a mockery of deregulation." One analyst fully expects the major carriers to participate in the auction. Jeremy Depow, a research analyst at the Yankee Group in Canada, notes that large incumbents are already operating in the bands that will be up for grabs. Telus and Rogers are heavy users of the 2.3 GHz band, while Bell Canada has systems operating in the 3.5 GHz range. "I think all the major players will probably be interested, but I think there is potential for smaller players as well," Depow told Report on Wireless. He adds that the real opportunity for smaller companies is in the less-populated urban centres. Industry Canada clearly states in its proposed policy that the decision to open up the 2.3 GHz and 3.5 GHz bands is driven by the government’s broadband agenda. With Internet penetration forecast to reach 30-40 per cent of Canadian households in the next two-to-three years, the department notes that "new terrestrial wireless technologies have an important and distinct role to play in accelerating high-speed access to the new broadband infrastructure." Depow says the timing of the policy makes sense. "The government has this mandate to give everybody high-speed Internet access by 2004, and I think that perhaps this is a major motivator to fill that mandate and increase the penetration of high-speed Internet access," he says. Godfrey, however, is more suspicious of the government’s rationale for choosing an auction. "I think they’re a little greedy for money. I don’t think there’s any real reason to do this for another couple of years," he says. "It’s hard to justify, for example, more bandwidth for Penticton BC (where) you’ve got cable and DSL and two wireless providers. Where’s the crying deprivation?" Auction versus "beauty contest" Current policies require that licences for two spectrum bands be awarded following a comparative selection process. But officials at Industry Canada say demand for these bands outstrips supply, and as such, an auction is warranted. "The Department expects that the demand for this spectrum will exceed the available supply in certain areas and that reliance on the marketplace to select licensees will be in the public interest. An auction was therefore selected as the most appropriate licensing process for these two bands," the Gazette notice states. Industry Canada recommends that the auction format be similar to the one held earlier this year for PCS licences (RoW, Sept. 5/00), and that licences be awarded based on small geographic markets, rather than regional areas. Under the proposed policy, licensees would be required to make coverage available to at least 50 per cent of the population in a licensed area within five years. The policy also suggests that opening auction bids be kept low for less-populated areas, in an attempt to entice companies to move into smaller markets (see chart). The department proposes a three-level schedule, linking the number of people in a service area to the amount of the opening bid per point: $625 per point for service areas with a population of less than 300,000; $2,125 per point for service areas with a population of 300,000 to 2,000,000; and $3,750 per point for service areas with a population of over 2,000,000. Written responses to the proposed policy are due Oct. 15. The deadline for reply comments is Nov. 1.

Incumbents could be big winners in auction for high-speed Internet spectrum

News | August 21, 2001

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