Incumbents continue push for no set-asides in 700 MHz auction

Debate about the rules for Industry Canada’s upcoming 700 MHz auction is intensifying as Canada’s incumbent telcos continue a vigorous push for an “open auction” that does not set aside spectrum for small players. “Given the very limited amount of 700 MHz spectrum available, a set-aside in the 700 MHz auction will permanently disadvantage at least one of the three national carriers and its millions of Canadian customers,” Bell Canada wrote in its reply comments to the department, dated April 6. “Again, this surely cannot be the cornerstone of Canadian spectrum policy.” In the final reply stage of the department’s consultation on a policy framework to auction off the 700 MHz band, Bell, Rogers Communications Inc., and Telus Corp. have filed comments of about 50 to 70 pages each. The companies argue that the department should not set aside 700 MHz spectrum for small players and new entrants in the wireless market as it did during the 2008 AWS spectrum auction. Pressure from the incumbent telcos comes as Industry Canada is consulting on a policy framework for the 700 MHz auction. The deadline for reply comments was April 6. Rogers, Bell and Telus say they are steadfastly against the proposal for set-asides, arguing that the Canadian wireless market is competitive, that they need much of the 700 MHz band to roll out national next-generation, LTE wireless services, and that regulations should not limit their access to the valuable spectrum. Bell wrote that, unlike the 2008 AWS spectrum, “there simply is not enough available 700 MHz spectrum to make a set-aside workable.” “The only measure the Department should consider is a roll out requirement, particularly one that ensures deployment outside the major urban centres, to ensure the full potential of the 700 MHz spectrum is not wasted,” Rogers said in its reply comments, also filed April 6. The company argued that the “use of a set-aside can also impair the auction process.” Rogers said the set-aside policy in the 2008 wireless auction “created gaming opportunities that were exploited by almost all the new entrants, removing hundreds of millions of dollars from the wireless industry.” Telus, in its reply comment, also called set-aside policies “distortive in terms of fair allocation and an equitable bidding process,” noting that the 2008 auction set-aside policy “combined with poor auction design resulted in overpayments of as much as $1.5 billion.” Ken Engelhart, Rogers’ senior vice-president of regulatory affairs, said in an interview that, during the 2008 auction, new entrants bid on the open spectrum—as opposed to the spectrum set aside for them—to drive up the price. “The end result was that the incumbents paid a billion or two billion more for their spectrum than they should have,” he said. In its consultation, Industry Canada has asked whether it should introduce set-asides for new entrants, and if it does, “Who should be entitled to bid in the set-aside block(s) and should the entitled bidders be restricted to bidding on the set-aside only?” Although Rogers argues for an open auction, it says that if a set-aside policy is implemented, new entrants should be permitted to bid on set-aside spectrum only. Industry Canada says mechanisms such as set-asides can be used to foster competition. The department’s 2008 auction sold off 90 MHz of AWS spectrum. A set-aside policy led new wireless entrants to take 45 per cent (weighted by population) of the spectrum; Rogers, Bell and Telus took the remaining 55 per cent. The 2008 auction defined new entrants as auction participants that held 10 per cent of the national wireless market. They were permitted to bid on three of eight available blocks of spectrum. In the 2008 auction, the department also imposed restrictions to ensure that the set-aside spectrum could not be transferred to companies that did not meet the new entrant definition for five years from the time the spectrum was licensed. New wireless entrant Globalive Wireless Management Corp. has said that “all or substantially all” of the newly available 700 MHz spectrum should be set aside for new entrants. But Anthony Lacavera, chairman of Globalive, said in an interview that the auction rules in 2008 were fair. “The government did a great job in the last auction. Taxpayers got a windfall, consumers are benefiting from competition, and the incumbents got the spectrum they needed in AWS. It was a win-win-win,” he said. He said the new entrants should get set-asides for all of the 700 MHz spectrum with roll out requirements and minimum spectrum prices to ensure good value. But Lacavera added: “The other bookend would be, you had a formula that worked , let’s just stick with it.” He also said that new entrants did not bid on open spectrum in the 2008 auction to drive up the price. He said they bid on it in an effort to acquire it. “Isn’t it a little bit arrogant for the incumbents to say, ‘The new entrants went ahead and bid on our spectrum’?” he said. “Yes, we bid on it. We were trying to get more frequencies.” Lacavera said the incumbents don’t need more spectrum, and that they have “three, four, fives times more spectrum than their counterparts in the U.S. or oversees, per population served.” New entrant Public Mobile similarly wrote in its reply comment that the incumbents should not be “propped up,” and that an open auction would “preclude fair and reasonable access to spectrum by new entrant companies …” But Telus, like other incumbents, argues that it is running out of spectrum as wireless devices and data usage put new strains on its network. The company said any set-aside policy should not include regional cable providers like Shaw Communications Inc. (a top competitor) and Videotron Ltée., “since these operators are able to compete without support given their dominance in core markets and the free cash flow that such dominance produces.” The Industry Department is expected to set the rules for the auction this year. The policy framework will also decide chief issues such as whether to implement caps on the amounts companies can hold and whether it should license the 700 MHz and 2500 MHz bands in a single auction. Telus added that the Industry Department should be wary of possible consolidation among new entrants as it plans the 700 MHz auction policy. “In this respect Industry Canada should consider that there is a high degree of probability that some operators seeking a set aside of more spectrum may have substantially increased their holdings pre- or post-auction by merger or acquisition,” Telus wrote. “Consolidation in terms of spectrum holdings means that two things are likely to occur. First, the number of new entrants will have shrunk as a result of consolidation and second, as a consequence of that, the spectrum holdings of the remaining entrants will have increased materially.” Although the former Conservative government said it intended to hold the auction in 2012, industry insiders say they will not be surprised if it does not happen until 2013. sdoyle@thewirereport.ca

Incumbents continue push for no set-asides in 700 MHz auction

News | April 12, 2011

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