Government ‘determined to get that fourth national carrier’

The federal government on Monday announced another auction for wireless spectrum will be held next year and, like previous auctions, it will have rules meant to increase the viability of companies competing against the three incumbents. "They are bound and determined to get that fourth national carrier," Gregory Taylor, principal investigator at Canadian Spectrum Policy Research, said in a phone interview. "This seems like a real effort by the government to make that a reality. Whether or not it will actually happen, we don't know yet." Industry Minister James Moore announced Monday that the AWS-3 auction will be held next year. While he did not specify a date, he said results would be known before the start of the 2500 MHz spectrum auction scheduled to begin April 14. Moore said 30 out of 50 MHz of spectrum in each region would be set aside for “operating new entrants” in the AWS-3 auction. "This set-aside represents over half of the AWS-3 spectrum being made available and is the largest single block ever reserved for a new entrant, new entrants in Canada," Moore said, according to a transcript of his announcement provided by his office. "This will provide a clear pathway for companies looking to expand their wireless network and to deliver fast, reliable services to Canadians." Moore also promised a simpler auction process than previous spectrum sales. In March, the U.S. Federal Communications Commission (FCC) announced its own AWS-3 auction is scheduled for November. AWS-3, which Industry Canada defines as paired spectrum on the 1755-1780 MHz and 2155-2180 MHz frequency bands, is “very valuable in the delivery of mobile broadband services to consumers,” the department said in its 2013 Commercial Mobile Spectrum Outlook. The set-aside spectrum is for carriers with less than a 10 per cent share of the national market share and less than 20 per cent in the region they are seeking spectrum, according to a backgrounder from Industry Canada. Industry Canada spokeswoman Lauren Hébert said the set-aside will be reserved for those operating in the regions for which the spectrum licences are designated, while the remaining spectrum will be available to any other bidder, including incumbents. "These operating new entrants have the existing infrastructure required to facilitate timely deployment and the delivery of next-generation services," Hébert said in an email. Much attention is focused on what the upcoming sale of spectrum means for Quebecor Inc. It spent $233.3 million in this year's 700 MHz spectrum auction, securing bandwidth throughout British Columbia, Alberta, and southern and eastern Ontario. CEO Pierre Dion said at the Canadian Telecom Summit last month that it intends to take its wireless service beyond its current footprint of Quebec and the Ottawa area, though it first needs "a fair and competitive federally regulated roaming policy." Luc Lavoie, a spokesman for Quebecor, said in an email that the company "will study announcement carefully before going any further. For now, all we will say is that under the right conditions, we remain committed to developing a national, low cost, high-quality wireless ." Jeff Fan, telecom analyst with Scotia Capital, said in a research note Monday that the set-aside rules announced Monday are likely among "several requirements" Quebecor needs in order to move ahead with a national wireless network. Fan said Quebecor is also likely seeking regulations that would ensure domestic wholesale roaming rates for data less than one cent per megabyte, better rules to ensure access to towers, successfully negotiating a combined entity involving Wind Mobile and Mobilicity, access to unused spectrum held by Shaw Communications Inc., and an immediate cash investment of about $1.3 billion from Quebecor and investment partners. Fan said Quebecor is probably "not opposed to taking a non-controlling position in the fourth operator with a path to control," as such an arrangement would reduce risk for the company. Wind CEO Anthony Lacavera welcomed the move by Moore to set aside more than half of the available spectrum in the upcoming AWS-3 auction for smaller carriers, and said his company will participate in the auction if it can secure the necessary financing. “The government's very clear that they're going to ensure that this spectrum goes into the hands of a party that's going to use it, not into speculators' hands,” he said in a phone interview on Monday. In order to raise money after majority owner, Amsterdam-based VimpelCom Ltd., wrote down its investment in Wind in March, the company needs to have “certainty” that it can access spectrum to provide the next generation of wireless access, Lacavera said. “It creates an environment in which you can finance a company like Wind,” he said. “There's all sorts of business risks still, and this is by no means a saving grace for new entrants.” During the Toronto press conference, Moore said asked about the possibility of a foreign player such as Verizon Communications Inc. using the AWS-3 auction as an opportunity to enter Canada. He replied: "Our policy is to reserve spectrum capacity for there to be more competition within Canada,” he said. “It’s frankly that simple. ... We welcome competition." Verizon spokesman Bob Verettoni said in an email that his company "declines comment" when asked about whether it will participate in Canada's AWS-3 auction. Moore said he would not speculate on how the coming spectrum availability might play out in terms of consolidation and/or expansion within the mobile industry. "We don’t speculate about individual companies and what the ultimate outcome may be. ... Time will tell," he said. Spectrum researcher Taylor said the extent of the set-aside was a surprise. "This seems to be like almost the last effort of the government to really offer a lifeline to the remaining small carriers," he said Taylor said AWS-3 has several attractive features for carriers, including good performance in urban areas, compatibility with the latest LTE technology and existing compatibility with smartphones including the iPhone 5S. He noted that, so far, there is a lack of mandatory build-out provisions spelled out, though Industry Canada said it is seeking input on such rules during its conultations this summer. Taylor said build-out rules "scare away a lot of these smaller players" who would prefer to spend money building infrastructure in urban areas and rely on domestic roaming agreements to cover more sparsely populated areas. Iain Grant, a telecom analyst with the SeaBoard Group, said in a phone interview that the small wireless carriers should take the government’s announcement as a “vote of confidence.” “The government would like to give as much support as they can to the business propositions of Videotron, Wind, and any other new entrant that might be ambitious,” he said. "They're doing what they can with the policy levers at their command.” Grant said he expects the process to be more open than previous auctions, where information and bidding was closely guarded and held behind closed doors. “The wink and the nod they've given is that it will be simpler, easier to find out who's doing what,” he said. “Before, it's all been masked in mystery.” In the time between now and the auction, Grant said, the most important issue is how CRTC chair Jean-Pierre Blais handles two ongoing reviews of domestic roaming. “The major constraint on competitive non-incumbents has been the roaming regulations,” he said. “That's been addressed by the minister and is now in the hands of the CRTC to review, with a view that roaming for clients of non-incumbents will be easier, faster, more elegant and cheaper. All of those things are the ingredients that the challengers have been looking for.” Canaccord Genuity telecom analyst Dvai Ghose said in a Monday research note that the government’s continuing efforts to support a fourth national wireless carrier through spectrum auction rules was strange considering the apparent failure of past efforts. “The majority of new entrant owned AWS and 700 MHz spectrum is not being utilized,” he said. “We wonder why the Government believes that following the same strategy that has failed to date would have a different outcome this time around.” In 2008, the government set aside 40 MHz of the 90 MHz of AWS in each region for new entrants. Of the new companies that emerged from the 2008 auction, Wind is still around, Public Mobile has been bought by Telus Corp. and Mobilicity is in bankruptcy protection. Quebecor also bought spectrum in the 2008 auction and began providing wireless services in 2010. In this year's 700 MHz auction, the government restricted incumbents BCE Inc., Roger Communications Inc. and Telusto purchasing just one each out of four so-called prime blocks of spectrum in each region of the country. Bell spokeswoman Jacqueline Michelis said in an email that her company has always asked for “a level playing field in Canadian wireless.” “We welcome competition, but all competitors, new or old, should follow the same rules,” she said. “Spectrum is a valuable national resource owned by taxpayers and shouldn’t be given to selected companies at a bargain.” In an email, Rogers spokeswoman Jennifer Kett said the company was reviewing the announcement. “We look forward to participating in the auction consultation process this summer and putting forward our views, including the importance of rollout requirements so that this spectrum will benefit all Canadian consumers,” she said. Inquiries to Telus were not returned as of press time. Moore would not comment on how much money the AWS-3 auction might raise. The 700 MHz auction brought in $5.27 billion for the government, while the AWS auction in 2008 raised $4.25 billion. — With reporting and editing by Peter Henderson at phenderson@thewirereport.ca and Derek Abma at dabma@thewirereport.ca

Government ‘determined to get that fourth national carrier’

News | July 7, 2014

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