OTTAWA – Competition in Canada’s wireless industry could be hampered by more stringent spectrum licence transfer regulation, new entrants and incumbents alike are telling Industry Canada.
Rogers Communications warns the department that its proposal will lead to an inefficient market where the existing secondary trading market for spectrum licences will become limited as some operators will see their options to sell spectrum holdings constrained. These new rules could “dampen new entry by increasing the risks associated with selling their business to the highest bidder if they fail to establish a viable wireless business” and “possibly result in lawsuits by aggrieved new entrants whose rights to sell to incumbents after five years will have been seriously diminished,” the company argues in its comments to the proposed changes.
Industry Canada has proposed new rules in DGSO-002-13 that would make it more difficult to sell spectrum licences. The government says these rule changes are needed to ensure that there are four wireless carriers in every market across the country. The rules would change current spectrum licence transfer provisions contained in the Advanced Wireless Services (AWS) conditions of licence potentially preventing the sale of new entrant AWS spectrum to the incumbents within five years of receiving the licence.
For simple transactions that involve internal reorganizations, to fill in coverage gaps or involve small amounts of spectrum a detailed review wouldn’t be required. However, if a proposed transfer involves significant amounts of spectrum and increases the concentration of holdings a detailed review would be used. The department is concerned that a strong fourth wireless company has not yet been able to establish itself and that Shaw Communications has decided to sell its AWS spectrum holdings to Rogers, rather than launch a wireless business (something which concerns those new entrants greatly).
New entrants Mobilicity and Wind Mobile agree with Rogers that Industry Canada’s proposed rules could actually be detrimental to competition in the wireless sector. Wind argues the department’s new provision for spectrum transfers could have the opposite effect on competition.
“Concomitantly imposing blanket limits on spectrum transfer, not only will not increase competition in this country, but will have the opposite effect, by reducing the value of the spectrum held by non-incumbents, and thereby hampering access to, and increasing the cost of, capital that is needed to invest in these operations. This will reinforce the dominance of the incumbents to the detriment of the Canadian consumer,” says the upstart wireless operator.
Mobilicity says in its April 3 submission that for new entrants to contribute to the creation of a competitive market, they need financing and spectrum is an asset from which they can secure investment. “A transfer process whereby spectrum cannot be transferred to certain entities replete with non-specific, somewhat subjective criteria will undoubtedly make the hill currently being climbed by new entrants all the more steeper,” it writes.
The company argues that if Industry Canada is going to “rewrite the rules” and make it increasingly difficult and complicated for spectrum licence transfers, while at the same time trying to ensure sustainable competition, then the department should move to ensure new entrants can finance their operations. This can be done, first, by allowing new entrants to pay spectrum auction fees in installments for all new spectrum acquired. Secondly, all AWS auction proceeds should be returned to new entrants so they can use the money for building out their networks. This money would be repaid to the department in installments with a low interest rate.
Bell Mobility tells Industry Canada that there is no need to return to the old “command and control” approach of spectrum regulation. It notes that the current ministerial review combined with the Competition Bureau’s oversight of mergers and acquisitions works well. Existing processes provide Canada “with more than sufficient powers to address any resulting concerns related to spectrum concentration and/or competition that might arise.”
The department has received some support for its proposed spectrum licence transfer provisions. Public Mobile acknowledges that the AWS spectrum licences can’t be transferred for five years as a condition of licence, but even in this instance, Industry Canada should conduct a detailed review to ensure that any spectrum transfer wouldn’t “exacerbate the spectrum imbalance.”
The company suggests that any transaction involving an entity that already holds more than 25% of spectrum in that region should be subject to a detailed review. It adds though that if the government is committed to ensuring a fourth wireless carrier in every region, then “any entity that holds more than a quarter of the spectrum in any specific region should not be able to acquire additional spectrum via a transfer without a detailed review of that transfer in order to prevent wireless market reconsolidation and encourage sustainable competition.”
For a regional operator like SaskTel, it’s important to ensure that spectrum licence transfer arrangements can be beneficial for rural mobile wireless. The provincially owned telco says the proposed rules should be modified to ensure that unused rural spectrum is put to use. “This includes the sub-division of current spectrum licences into used and unused portions so that the unused sub-divided portions of the spectrum can be returned to Industry Canada,” the company writes.
There were a number of suggestions from wireless operators regarding the trigger point for detailed reviews. SaskTel noted that a detailed review wouldn’t be required for licences involving 500,000 people or fewer and MTS Allstream also presented what appears to be a simple and straightforward approach.
Where a transaction would see a single incumbent carrier hold more than 50% of the usable spectrum in a licence area, a detailed review would be needed. Equally, if all of the Big Three collectively would hold more than 80% of the usable spectrum in a market as a result of a transaction, Industry Canada would have to conduct a detailed review.
The company says that these thresholds would “ensure there is sufficient spectrum for alternative carriers to provide competitive service.”
Rogers, while arguing against the proposed rule changes, notes that if they do come into force, then they should only be applicable to new licences, not those already purchased through an auction. When entering an auction, the bidder signs a contract with the government, acknowledging and understanding the terms of this contract and the suggested change “flies in the face of the principles of contractual certainty that the department strives to attain in its spectrum auctions.”
