OTTAWA – Reaction was predictably mixed when Industry Canada Minister Christian Paradis released the 700 MHz spectrum auction policy Wednesday, with some saying that it struck the right balance, while others describing the rules as devastating to new entrants.
Mobilicity, which had asked for the entire 700 MHz band to be set aside for new entrants, still saw the decision as a positive step for competition and support for the upstart wireless companies.
“I think Industry Canada had a tough decision to make and it tried to make all sides happy to some extent. So I thought it was a reasonable compromise, given the circumstances”, Mobilicity president and COO, Stewart Lyons, told Cartt.ca.
“I think it was definitely more in favour of competition and support of the new entrants than not.
Incumbent Telus Corp. concurred with Mobilicity, and also described the decision as balanced.
“We recognize the Minister had to make tradeoffs in this decision and we felt he did so in a fair and transparent manner”, said Michael Hennessy, SVP of regulatory and government affairs at Telus, in a statement.
Fellow incumbents Rogers Communications and Bell Canada were unavailable to comment by press time.
This policy stacks the cards against new entrants, according to Wind Mobile’s chair and CEO Anthony Lacavera, who added that his company is not planning to participate in the spectrum auction.
“As it’s structured right now, there is no point in us showing up to bid because we can’t get enough spectrum to offer a robust LTE service that will put us on par with the big national carriers”, he told Cartt.ca.
“That’s the reality. Something may change with respect to Bell and Telus (there will be a future consultation on affiliated entities), but the way it’s written right now, there’s no point for any new entrant to show up individually and I think this is a catalyst for new entrant consolidation.”
While acknowledging that a plan to lift foreign ownership rules for small telecom carriers and a future consolidation to improve tower sharing and roaming are a boost to new entrants, Lacavera called the decisions “one step forward and two steps back.”
“Then we take two steps back by creating a spectrum auction policy that doesn’t permit Wind to be out there with an LTE offering that’s comparable to the big guys”, he reiterated. “We need to be out there with a product that Canadian businesses and consumers see as on par, if not better, than Bell, Telus and Rogers. And we don’t have that opportunity with the amount of spectrum we’re able to get in this auction.”
Lacavera suggested that the 'Big Three' incumbents will reap a windfall as a result of the new auction policy.
“I understand what the government was trying to do here, it gives everyone a little bit, but doesn’t give anyone everything they want and unfortunately, they achieved the opposite”, he argued. “Now the spectrum is going to be so divided up and fragmented that it’s not useable to anyone. And Bell, Telus and Rogers are the winners in that scenario because they already have enough to offer LTE”.
The government’s plan to lift foreign ownership restrictions from carriers with less than 10% share of the national telecom market revenue was also welcome news to the new wireless entrants.
Mobilicity’s Lyons noted that while this wasn’t something that his company needed at the moment, it’s certainly nice to be able to take advantage of. “We’re happy they made that decision because it makes the pool of available capital that much bigger,” he said.
Telus said that it hoped that this was just the first step in a broader relaxation of foreign investment rules.
“We would encourage the government to work towards further liberalization that would put us on an equal footing to our global trading partners and lead to even more innovation,” said Hennessy.
While much of the 700 MHz auction policy is set, there are still some undecided matters that Industry Canada will deal with in future consultations. As Cartt.ca reported, the department will hold a consultation on improving the transparency and shortening the timelines associated with mandated tower sharing and roaming.
The government will also delve into the affiliated entities issue, which will likely include a decision on whether Bell and Telus should fall into this category. Many maintain that they are already sharing spectrum, which means they should be considered an affiliated entity and therefore only one of them should be allowed to bid in the upcoming 700 MHz auction.
Financial analysts noted that while this auction policy isn’t as pro-competition as the AWS one was, the new entrants will still benefit from being able to acquire at least one of the prime 700 MHz blocks in each territory.
According to Dvai Ghose from Genuity Capital Markets, Rogers may suffer the most under the new auction policy. He pointed to the decision’s language on spectrum sharing as proof that the Toronto-based incumbent could be disadvantaged.
“This would appear to be negative for Rogers who asked for Bell and Telus to be considered a single entity because they share spectrum and networks”, he wrote in a note to clients. “In addition, we assume that Bell and Telus are much better positioned to win contiguous spectrum bands across Canada than Rogers because they share spectrum.”
Jeff Fan from Scotia Captial Inc. suggested that depending on how Industry Canada rules on the affiliated entities matter, Bell, Rogers, Telus and MTS Allstream could all benefit.
“Rogers would be disadvantaged across the country against Bell/Telus except for Manitoba, where it has a 3G network sharing agreement with MBT (MTS),” he wrote.
Fan said that an elimination of foreign investment restrictions for small telcos could be a boon to the new entrants and MTS. “The relaxation of foreign ownership limits should provide MBT and the wireless new entrants opportunities to seek strategic opportunities with foreign operators or investors,” his note continued.
Ghose disagreed, questioning whether foreign investors would even be interested in MTS. “We wonder why foreigners would be interested when Canadian carriers would seem to enjoy far greater synergies by taking out Allstream.”
He also expressed skepticism at the idea of a foreign takeover of either Wind or Mobilicity, but added that the two companies combined could generate international interest. “Perhaps a merged Wind and Mobilicity would become a more attractive vehicle for a foreign backer, as such a merger could accelerate growth and ARPU and reduce churn,” Ghose speculated.
