OTTAWA – As could be expected, no one is completely satisfied with Industry Canada’s proposed 700 MHz auction rules, which were unveiled in April.
Some are suggesting a complete format change, while others are requesting modifications to specific aspects of the combinatorial clock auction (CCA). Still some say in comments to the department’s consultation it must consider a number of elements in the proposed auction framework under a single lens. Rogers Communications Inc. and Bell Canada are two who share this view, but for different reasons.
Rogers, while satisfied with the proposal to use a CCA format, wants the government to reconsider rules around the spectrum caps. The company says that under the proposed rules, Bell and Telus, being associated entities (they currently share their national wireless network), will have an advantage over Rogers by being able to acquire two prime blocks in the band. But because of the spectrum cap and the need for contiguous spectrum, Rogers will be forced to bid on lower blocks in the prime 700 MHz band and then will have to combine with a less than desirable A block or unpaired D or E blocks.
“The detailed auctions rules proposed by Industry Canada exacerbate this situation, as the limited options available for the packages for which Rogers can sensibly bid leave it exposed to vexatious and predatory bidding by other parties and the auction rules facilitate such behaviour,” the company writes in its June 25 comments.
Rogers suggests the rules can be fixed. Permit the incumbents to bid on up to 20 MHz of spectrum in the upper blocks (C1 and C2 licences), but only 10 MHz in the lower blocks (B/C licences). And then limit associated entities (Bell and Telus) to bidding on a single lower block.
The decision by the government to raise foreign investment restrictions for carriers with less than 10% national market share could also have unintended consequences, says Bell. The company argues that when combined with the proposed spectrum caps, large Canadian wireless carriers are at a disadvantage, particularly if a deep-pocketed foreign company puts Canada on its radar.
“As a matter of common sense, there can be no economic rationale, let alone a public policy rationale, for restricting a Canadian carrier… to the acquisition of one block of 700 MHz spectrum while allowing AT&T, for example, to claim two blocks when AT&T with a market capitalization of approximately US$ 205.76 billion [is] more than 6.5 times the market capitalization of BCE Inc.,” Bell argues.
The media and communications conglomerate is also requesting some changes to the auction format so as to minimize potential gaming opportunities. Because some auction participants may want to disguise their bidding strategies even further (under the proposed CCA, identities of bidders is not known) by placing bids on packages they aren’t interested in and thus raising the price, Bell says all participants should have to prove they can pay for the package on which they are bidding. This could be done through a letter of credit for 100% of the value of the previous day’s bids.
“This measure will also provide a strong market disincentive to discourage bidders from engaging in gamed bidding designed solely to drive up the price of spectrum that they have no meaningful interest in acquiring,” argues Bell.
SaskTel and Videotron are worried the CCA approach is designed to attract national bids to the detriment of regional players. They say some specific aspects of the supplementary stage make it difficult financially for the regional companies.
As proposed, the rules have adopted prohibitively high minimal incremental bids (minimal safety increments), according to Videotron. “The result is a structural deficiency in the proposed CCA format whereby large national bidders can easily confer upon themselves the certainty of winning their final clock package while small regional bidders must risk placing potentially prohibitive end-of-auction jump bids to do the same,” says the Quebec wireless operator.
SaskTel would have preferred a simultaneous multiple round ascending (AMRS) auction format with packages of licences rather than the CCA. It notes, as did Videotron, that as designed regional companies will be a disadvantage compared to the national operators. Rather than being able to buy a pair of shoes – this analogy was made during an auction information session in May – the regional wireless companies would be stuck with either a left or a right shoe, but not both, argues SaskTel.
“Unfortunately, this leaves Canada’s regional wireless providers – the one-legged shoppers – with little hope of fulfilling their own needs,” the company writes in its comments.
For Mobilicity, the company argues there was no policy rationale to justify a switch to the new proposed associated entities rules. The existing rules served the industry well in preserving the integrity of the auctions and there is “no countervailing policy justification” to adopt the rules as proposed by Industry Canada, the company says.
“If the department believes that sharing a network is a worthwhile objective in the best interest of Canadians, then the department should encourage Bell and Telus to bid as one entity, not two, because doing so would best serve to force them to share a network since they would own underlying spectrum effectively together,” argues Mobilicity. “
Reply comments are due July 25.
