“WE’RE AT SUCH A significant spectrum disadvantage, we think government should level the playing field,” says Globalive CEO Tony Lacavera about the wireless auction of 700 MHz spectrum, expected in late 2012.
So significant is that disadvantage, the federal government should set aside all of the spectrum and bar any wireless company which holds 800 MHz spectrum (each of the big incumbents, that is) from participating in the 700 auction.
“We know we’re making a pretty significant ask here, but on the other hand, the incumbents have incredible swaths of spectrum,” added Lacavera (whose wireless company operates as Wind, of course) in an interview with Cartt.ca earlier this week. Submissions to Industry Canada on its policy consultations and technical framework for the auction were due Monday.
Auction unlikely to be wide open
SINCE THE NEW WIRELESS players believe the big three incumbents (Rogers, Bell and Telus) have not played fair when negotiating tower sharing or roaming agreements, “and given our experience in the way the incumbents drove up the AWS auction, we think (a full set-aside) is justified,” said Lacavera.
No way, say the incumbents. (Or, to paraphrase more accurately, no bloody way.) This auction, given the quality and properties of the spectrum at stake means there must be a simple, open auction with minimal rules.
Besides, they say the new wireless companies are the ones who actually gamed the last auction, which went on for weeks and pulled in at least $1 billion more than anyone was expecting. “If there ever was another set aside in Canada, Telus is adamant that to eliminate gaming, bidders be forced to enter only one auction – either the set aside auction or the unrestricted auction – or, failing this, that the two auctions not be run concurrently,” reads the Telus submission. “In the AWS auction, distortions caused by ‘game bidding’ in the open auction due to running the two auction segments concurrently resulted to hundreds of millions of dollars of bid inflation for national incumbent carriers.”
All agree the 700 MHz spectrum auction is too important to get wrong. The uses for the spectrum are too enticing – and it is sure to enrich the federal government – to the tune of several billion dollars more than the AWS auction, which finally topped $4.2 billion in 2008. (And this is as good a reason as any for the feds to discount the full set-aside idea: Fewer bidders means less cash.)
“700 is critical to providing LTE, both in terms of its in-building capabilities in urban locations and just as critically in terms of meeting the economics of rolling out LTE in rural locations,” said Michael Hennessy, SVP policy and government relations at Telus. Transmissions on the 700 band travel far and strong and is a far more efficient way of driving multimedia wireless broadband capabilities beyond the urban regions. Plus, with the U.S. already deploying the spectrum, the handset and other tech ecosystem is developing rapidly and all Canadian companies should be able to benefit from following the market leaders there.
That’s all very nice, say the upstarts, but the three large incumbents have all the spectrum they need already (despite Bell, Rogers’ and Telus’ protestations to the contrary).
“The notion that the big three needs more spectrum is a joke but it’s no laughing matter,” said Stewart Lyons, COO, Mobilicity. “They have almost five times the spectrum of AT&T in the U.S. yet they have only a third of AT&T’s customer base. They keep buying up and hoarding spectrum, using it like a stone wall to protect their billion-dollar fortresses and keep new competitors out of the market at the expense of the Canadian consumer.”
While the 800 MHz band can perform similarly to 700, there are already millions of legacy customers using it on those more mature incumbent networks. A switchover wouldn’t be easy or inexpensive. As for the higher frequency spectrum blocks such as the AWS spectrum which the big players and the newcomers Wind (Globalive), Mobilicity, Public Mobile, Videotron and Shaw purchased? It doesn’t penetrate buildings like 700 does and it is too costly to use in rural areas.
Perhaps the most truthful bit of writing on the auction structure came from the Public Interest Advocacy Centre which, while calling for a 25% set aside for new entrants, said: “It is trite to point out that no auction process is neutral. The structure of the auction will either facilitate the participation of only the highest bidders, or it will facilitate the participation of all important stakeholders,” reads its submission. “Because structuring the auction process is itself a value-laden exercise, the structure of the auction itself must be carefully chosen to reflect the values of all stakeholders – the public, the government, and large and small players – and must provide all stakeholders the ability to access this important public resource.”
Rural focus, finally, maybe
THE SUBMISSIONS TO Industry Canada talk a lot about bringing next generation wireless to outlying areas and how 700 MHz is absolutely necessary to do that (this could be good news to anyone – using any carrier really – who has gone an hour outside a big city only to see “SOS” on their smart phone screen as the device vainly searches for a network that isn’t there, despite the relative proximity to an urban centre).
However, the incumbents are the only ones who have built wireless into what can be termed rural areas across the country, covering 95% or more of the population with their networks. A lot of that is not 3G and best of luck watching a YouTube video via wireless internet in most places in farm country but nonetheless, Bell, Telus, Rogers and the other regional incumbents like MTS Allstream and SaskTel have spent large to deliver wireless to some of the farthest flung corners of the country – and the newcomers don’t have any plans yet to extend their networks very far beyond the suburbs.
Besides, the AWS spectrum used by the newcomers licensed in 2008-09 is a poor option for a rural rollout. “Our estimates are that is anywhere between 50 to 100% more expensive to roll out AWS in suburban and rural areas, depending on how you define it,” said Lacavera.
But even when they get 700 MHZ spectrum, the Canadian wireless market’s economics will keep the likes of Wind, Mobilicity and Public firmly in the cities (where the most people, and best opportunities, reside) for some time to come.
“700 MHz spectrum, which is in very limited supply, is ideally suited and absolutely key to enabling national wireless carriers to build-out 4G/LTE in urban and rural areas, due to its propagation and other technical characteristics,” reads Bell Canada’s submission. “Given Bell Mobility’s national focus, our wireless data traffic is growing in rural and remote areas as fast as it is in urban centres. Carriers who operate on a regional or urban basis do not have the same dire need for this spectrum as do the national carriers who have millions of urban subscribers, but also serve most every rural and remote corner of our country.”
No set aside. How about a cap?
KEEPING IN MIND there isn’t a lot of spectrum available – and mindful that it’s pretty unlikely Industry Canada will completely pick one side (a complete set aside) over another (“no set aside, no spectrum cap, no auction cap,” said Rogers SVP regulatory, Ken Engelhart) – is an auction cap, or a limit on how much any individual company can buy, reasonable?
Kinda and sorta – are two pseudo-words that sum up support for the idea (which may well mean this is the way it will go).
“There’s only 58 MHz of it and it’s unfortunate there’s not enough to go around, which is precisely why you need a wide open auction,” added Engelhart. “It’s beyond government, beyond any human being’s ability to figure out who really needs it. You’ve got to have an open auction, that’s the only way to do it.
“But, if you have to do something, do an auction cap.”
“The reason we don’t think (a cap) good enough is because if you look at the AWS auction, they ended up splitting one-third each of the non set-aside spectrum. These guys will find a way to split evenly whatever is available to them and that will be at the expense of the new entrants,” said Lacavera of the big three.
Also – when it comes to special auction rules, large, established companies the size of Shaw, Videotron, EastLink, MTS Allstream and SaskTel need no special favours (and the incumbents include Wind in there as well, given its financial backer is one of the largest global wireless players, Orascom). “People talk about sustaining new entry or sustaining competition, well, I don’t think Shaw or Videotron or Globalive or EastLink need any handouts,” said Engelhart.
The Canadian Cable Systems Alliance, however, insists half of the spectrum on offer should be set aside for newcomers – potentially including its largely small-town cable company members. Its members have wanted to add wireless to the cable, voice and data they already offer, but the wireless players won’t play along.
“Independent cable companies are interested in finding ways to offer wireless services to their customers but they have not been able to find an economical way to do so. This is true, in part, because none of the existing national providers have been willing to partner with CCSA member companies to offer service. Resale of the national services under uneconomic models does nothing for either CCSA Members or their customers,” reads its submission.
“CCSA believes that fully 50% of the 84 MHz made available for the spectrum auction in the 700 MHz band should be set aside for recent new entrants or other participants in this auction who do not currently operate wireless services.”
Telus also adds that no matter the structure of the auction, there should be build conditions requiring the spectrum be deployed within three years of the auction. On the rural side, it needs to be stipulated “service be provided to 50% of the population in each Tier 3 service area within three years of licence issue. Should the build out requirement not be fulfilled, the licence would be automatically forfeited by its owner.”
“If they don’t build it they lose it,” added Engelhart, indicating Rogers’ support.
No crystal ball; who will be who in 2012?
SHAW COMMUNICATIONS – which purchased AWS spectrum in the 2008 auction and will launch next year – said in its submission what many are thinking: Since Bell and Telus have built and are running their new (now 4G) wireless network together – with an eye on co-running future wireless nets, too, they need to be considered as one bidder in the auction.
“Bell and Telus should be considered one bidder for purposes of the 700 MHz auction,” reads the Shaw submission. “The series of arrangements between them have resulted in a completely integrated national wireless network and an understanding between them relating to the post-auction market structure,” reads Shaw’s submission.
Beyond that – “everyone speculates about a Bell-Telus merger,” adds Lacavera. (As many will remember, this was tried before, but competitive questions on the wireless side helped kill the deal.)
Somewhat more likely though, is a merger or takeout or other moves by or among the newcomers that will decrease the number of wireless companies bidding before the 2012 is ready to start. All sorts of theories have bounced around for months, many of which contemplate Wind buying Mobilicity, or Shaw purchasing a newcomer. (The 2008 auction rules prevent the big three from controlling the spectrum bought in the set aside, so Rogers, for example, couldn’t buy Wind.)
The auction rules, said Engelhart, “succeeded too well. We probably have an unsustainably large number of carriers in Canada.”
Lacavera agrees. “I do think there is only room for one more national carrier and I think we’re well positioned to be that,” which is a comment he has uttered in the past.
That uncertainty though should make Industry Canada very cautious in setting up the 700 MHz auction since no one knows what the industry will look like when bidding opens. “We’re pretty sure that long before the auction happens that a lot of the players will have merged, consolidated or shared spectrum in some respects because there’s not enough room in the market for everybody,” added Hennessy.
And this can really complicate setting auction rules because “you don’t really know then what people’s spectrum situation will be by the time the auction comes around.”
Reply comments will be accepted by Industry Canada until March 30th.
