TORONTO – Wind Mobile has taken issue with the wireless spectrum auction caps proposal put forward by Telus, saying there is nothing fair about it. “Caps are no different than an open auction,” Simon Lockie, chief regulatory officer at Wind, told Cartt.ca in an interview.
The fact that Telus is advocating for caps should speak volumes to their true position, Lockie says. Since the Big Three (Rogers, Bell and Telus) don’t really compete with each other and stand to lose hundreds of millions of dollars in enterprise value (based on analysis from the investment banking community) as a result of continued competition, an auction cap proposal will only serve to ensure the status quo, which is a wireless industry controlled by a cozy oligopoly, he adds.
“It is laughable for Telus to be recommending what it characterizes as fair to new entrants. I think it is actually ridiculous and (Industry) Minister (Christian) Paradis, I think, should be recognizing that if Telus is advocating a position as being pro-competition, it is all the evidence he should need that it is not pro-competition because… it defies logic to believe that Telus would be advocating contrary to its commercial interests,” says Lockie.
While Bell Canada and Rogers Communications have argued for an open auction as the best way for Industry Canada to proceed in the upcoming 700 MHz auction, Telus executives say their company’s proposal, where the amount of spectrum any company could purchase would be capped, is a win-win by both meeting the government’s competition agenda and giving companies other than the incumbent wireless players an opportunity to secure prime wireless real estate. Telus adds that contrary to statements from the new entrants regarding the amount of spectrum available, Telus says there is plenty to go around.
Wind, which advocates a spectrum set-aside for wireless newcomers like itself and Mobilicity, doesn’t buy that argument, noting that Telus is playing fast and loose with its determination of useable spectrum. According to the upstart wireless company, there are only two blocks of useable spectrum in the 700 MHz band. The same blocks in the U.S. are controlled by AT&T and Verizon. The other blocks Telus spoke about are inconsequential and won’t allow for the launch of a competitive Long Term Evolution (LTE) product offering, explains Lockie. He notes that the A block isn’t big enough and the upper D block (Michael Hennessy, senior VP of regulatory and government affairs at Telus, referred to this as the second public safety band) is equally small and wasn’t even licensed in the U.S.
“[The A block] is a small sliver. It is only 5 MHz paired which is about half the size that is necessary… for a competitive LTE product,” Lockie says, adding that the best speeds in 5 MHz is HSPA+ or 3G. “So it defeats the entire purpose of what LTE is about. You need at least 10 MHz paired to do that and the lower A block is not big enough to do it.”
Lockie contends that within the 700 MHz band that there is only a small portion which is useable and by adopting an auction cap as suggested by Telus won’t give new entrants a chance to win a piece of it. “There are only two useful blocks to mount a competitive alternative to the incumbents’ long term and there are three members of the cozy oligopoly. It’s very simple math. If you have a cap, they will take the useful 700 MHz spectrum and allocate it amongst themselves,” he says.
Hennessy also pointed to the 2500 MHz band as an option for LTE in the future. Lockie counters that by noting that the incumbents actually don’t need 700 MHz spectrum. They have lots of similar spectrum at 850 MHz.
For Wind, the only way to ensure there will be competition to the incumbents and achieve the federal government’s policy of ensuring competition for consumers in the future is by instituting a set aside for new entrants. Without such a measure, there is simply no likelihood of new entrants acquiring any part of the useable 700 MHz band, says Lockie. He explains that the incumbent wireless companies will pay an irrational amount of money to foreclose future competition because they can make a lot more money by getting rid of the competition than competing against them.
“Whether you’re Bill Gates, or Google or Apple or AT&T or Wind Mobile or Mobilicity, no matter how much money you have you will not deploy that capital irrationally whereas it’s not that irrational to pay that much more if you’re an incumbent,” says Lockie.
Asked whether a set aside would drive up the eventual prices paid for the 700 MHz bands as the incumbents said happened in the 2008 Advanced Wireless Services (AWS) auction, Lockie responded by describing this as “silliness” and that the incumbents were the ones who drove up the prices on AWS spectrum.
“We were very serious as were other parties in acquiring spectrum as much as possible across Canada, [but] Rogers, Bell and Telus made it 100% clear that no matter how much we bid, they would always bid more,” says Lockie. “The lesson learned [from AWS] is precisely why we need a set aside because we know it is completely impossible to bid against the Big Three oligopoly and win.”
The bottom line for Wind on an auction cap is that if implemented it will produce the same results as an open auction.
“If there are caps, what will happen? No one but the Big Three will acquire the good blocks of 700 MHz, which means they will be the only companies in Canada offering an LTE product. This ultimately means that if there is no set aside of those blocks then competition will be dead in Canada and the government’s policy will have failed.”
