WIND MOBILE WANTS THE federal government to throw whatever book it can at Rogers Communications and Shaw Communications over their recent spectrum deal.
Last week – as part of a multi-faceted $700 million transaction – Rogers Communications paid $50 million to Shaw Communications for an option which assures Rogers will purchase Shaw’s AWS spectrum when it is allowed to come on the open market in late 2014.
As a new entrant to the wireless game, Shaw paid $190 million for spectrum in the 2008 auction that was set aside just for wireless newcomers. Wind Mobile, Videotron, Shaw, EastLink and others purchased that spectrum in various regions. However, the rules governing the set aside blocks say that it can not be sold to any of the big incumbents (Rogers, Bell and Telus) for at least five years. For Shaw, which took ownership of its spectrum in late 2009, that period comes to a close in the fall of 2014. (For Wind, Videotron and Mobilicity, that moratorium is complete at the end of this year.)
The option Rogers has chosen to pay Shaw for is a wrinkle that may or may not be against the rules because while Shaw says it won’t sell the spectrum to Rogers until 2014, the option means it is now effectively spoken for and will be in Rogers’ hands assuming Industry Canada approves the transaction when an application arrives in about 19 months.
“THIS IS A CLEAR VIOLATION and we do expect that the government will deal with it firmly. This is a breach today and has to be addressed,” Wind Mobile chief regulatory officer Simon Lockie told Cartt.ca in an interview. Some consumer groups have also denounced the deal.
“The set aside period is five years – and that’s from license issuance. Throughout the set aside period you have to maintain your designation as a new entrant so you qualify to buy the spectrum and you qualify to own the spectrum – only if, together with your affiliate and associated entities, you don’t comprise more than 10% of the telecom market.
“It includes any agreement, or arrangement of any kind, explicit or implicit, relating to the acquisition of set aside licenses or post-auction market structure – and this (Rogers-Shaw deal) is very clearly an agreement relating to the acquisition of licenses and you can’t just say ‘well it doesn’t take effect until after the set aside period’ and think the problem goes away. This is a current understanding that now disqualifies Shaw from holding those licenses,” explained Lockie.
He is referring to the Policy Framework for that 2008 auction, which was released in November of 2007. The framework does contain wording that can be read that way where it says:
“An associated entity is defined as:
Any entities who enter into any partnerships, joint ventures, agreements (including agreements in principle) to merge, consortia or any arrangements, agreements or understandings of any kind, either explicit or implicit, relating to the acquisition of the licences being auctioned or relating to the post-auction market structure, will be treated as Associated Entities. The existence of such agreements, arrangements or understandings must be disclosed in writing to the department at the time of application and this information will be disclosed to other bidders and to the public. Changes made after the application deadline which create an Association with another applicant are not permitted, and any applicant who has formed such an Association will be disqualified from participating in the auction.
Should an entity qualify as a new entrant at the time of licensing, this designation would remain valid throughout the term of its licence even if the entity is successful in growing its market share beyond 10 percent of the national market share based on revenue.”
Rogers, on the other hand, has a much different opinion on what the policy means, saying it was meant to cover only the period of the auction and has no bearing on its new agreement with Shaw. “The associated entity rule says that if you had a deal with someone to go into business with them or to share their spectrum with them after the auction then the two of you can’t bid in the auction separately. But, it has nothing to do with this,” insisted Ken Engelhart, Rogers’ EVP regulatory affairs.
“They said that you couldn’t sell the spectrum for five years. We’re not taking ownership of the spectrum until the five years are up, so we’re not violating the policy. We have conditions in the AWS licenses (which) prevent Shaw from selling the spectrum within five years – but we have a legal opinion those conditions of license don’t prevent Shaw from selling the option, so there’s nothing in the policy or in the conditions of license to prevent this.”
That also means there is no application on its way to Industry Canada for approval of the option because Rogers doesn’t have to seek approval for that, which means there is nothing now for the federal government to rule on, according to Rogers. “We haven’t submitted an application to Industry Canada,” explained Engelhart. “We can’t even apply (for the spectrum itself) until very close to September of 2014.”
Lockie vehemently disagrees. “You weren’t allowed to have such a deal in place before the auction and you’re not allowed to have it now,” he said. “This is a clear violation of the policy and I expect it to be dealt with appropriately and in a timely fashion by Industry Canada.”
The only agency which can look into this right away? The Competition Bureau. “We gave the Competition Bureau a heads up and I understand they are starting their investigation now, which is good. I’m pleased they are looking at it,” said Engelhart.
The Competition Bureau won’t be the only ones examining this as you can bet other companies which purchased set aside spectrum, from Quebecor for its Ontario block of spectrum to EastLink and Mobilicity are also thinking about the option option.
