Canadian Wireless Sparring over 700 MHz Auction Rules

Particularly rejecting the notion of set-asides, George Cope, CEO of Bell Canada, said they would prevent one of the big three incumbent wireless carriers -- Bell Canada, Rogers & Telus -- from participating fully in the 700 MHz auction. As a result, he said, one of the Big Three would not get the spectrum needed for migrating to the next level of wireless technology, LTE. All three big carriers have been touting LTE as the future of wireless broadband in Canada.

Cope questioned why the Canadian government would set rules that would hold the carriers back, saying LTE will be especially crucial to serving consumers in rural areas. “One of the big problems we had a couple of years ago was the digital divide -- how were we going to get high-speed to rural communities?” he said, saying the rollout of HSPA+ technology by Bell Canada and other carriers has dealt effectively with that problem. “LTE’s future hinges on the auction rules. If you separate that spectrum (700MHz), you run the risk … of a rural divide again.”

Cope acknowledged that set-asides in Canada’s Advanced Wireless Spectrum (AWS) auction three years ago allowed new entrants into the mobile market. But he termed the 700MHz spectrum auction “a different game. … It’s really important that everybody understands there’s 50% less spectrum available this time than last time.”

Telus CFO Robert McFarlane also criticized spectrum set-asides. He argued that the AWS set-asides in 2008 led to wireless carriers collectively paying $2 billion more than they would have paid in an open auction. “We found ourselves having to pay a significant premium to what was paid in the U.S. for the same spectrum because of auction design … that was a made-in-Canada disadvantage,” he said.

In questioning after his speech, McFarlane also addressed spectrum caps, which Videotron CEO Robert Depatie proposed earlier in the conference. Under the Videotron plan, companies that already own low-frequency spectrum in the 800 MHz band would be able to bid on only one block of 700 spectrum, while those not owning 800 MHz blocks in a certain region would be able to pursue up to two. For Telus, that would mean it could buy two blocks of 700 MHz spectrum everywhere but in British Columbia and Alberta, where it has used 800 MHz spectrum since launch.

"In Western Canada, we would be completely disadvantaged relative to Rogers and Bell, if that type of policy was implemented,” McFarlane said. “What it means is you're entrenching an advantage to Rogers and Bell (and other wireless companies). … So shouldn’t we also have the opportunity to get two blocks in our western areas because they have more spectrum than we do in their incumbent areas?” McFarlane cited recent Canadian telecom history in dismissing the idea, saying spectrum caps thwarted Telus’ attempts to buy Clearnet in 2000 and then Microcell in 2004. As a result, Bell ended up gaining 20 MHz of PCS spectrum in the first case while Rogers wound up with Microcell in the second case.

Making a case for more government support of wireless competition, Globalive Chairman Anthony Lacavera lambasted the nation’s three incumbent mobile providers, called for a full set-aside of 700 MHz spectrum for newer entrants and urged that the government ease its current restrictions on foreign investment in Canadian telecom providers. Lacavera also lit into Rogers, Bell Canada and Telus for raising legal and regulatory challenges to Globalive’s entry into the Canadian market because of its international investors. Further, he knocked Rogers, Bell and Shaw Communications for gobbling up media properties and called on the federal government to encourage more sharing of cell towers and police wireless roaming fees more aggressively.

"I can agree with my friends at Rogers when they say that it is time to level the playing field,” Lacavera said, referring to an earlier call by Rob Bruce, president of the cable and wireless arm of Rogers, for an open auction. “But leveling the playing field does not mean entrenching the competitive advantages already enjoyed by a few very dominant players."

Arguing that the partial set-asides for new entrants like Globalive “worked very well” in the AWS auction three years ago, Lacavera pressed for a full set-aside for newer players in next year’s expected 700 MHz spectrum auction. He said the government should create rules insuring that “incumbents do not acquire it [spectrum] at any price to stave off further competition,” especially when they already “control a whack of sub-1 GHz spectrum” that they haven’t used. “There’s a very simple principle we learn as children,” he said. “If you can’t eat what’s on your plate, don’t ask for more."

Canadian Radio-TV and Telecom Commission (CRTC) Chairman Konrad von Finckenstein, also speaking at the conference, declined to endorse any of the proposals. But, in one session that featured representatives from Bell Canada, Rogers, Telus, Globalive and MTS Allstream, von Finckenstein indicated interest in Videotron’s spectrum cap proposal, calling it “beguilingly simple.” John Lawford, counsel for the Public Interest Advocacy Centre (PIAC), argued that if the government wishes to keep fostering wireless competition, it must include set-asides again in the upcoming auction.