Judge zeroes in on the term “wholesale” for Quebecor subsidiary Fibernoire
By Ahmad Hathout
TORONTO – Arguments before the Federal Court on Tuesday about whether Videotron correctly qualified for 3.5 GHz spectrum for wireless services in western Canada pivoted on what kind of impact this decision could have on the market – and whether unfair advantages would be given based on a specific interpretation of the auction rules.
In July, Quebecor’s Videotron was awarded 294 licences for nearly $830 million in the set-aside portion of the 3.5 GHz auction that began in June. This includes licences in Manitoba, Alberta and British Columbia, which Telus is now disputing.
Counsel for the Vancouver-based company, which is staring down a major competitive threat on its home turf from a possible Rogers-Shaw merger, said Tuesday ISED specifically declared in the spectrum auction rules carriers that do not have infrastructure and do not provide retail services to the “general public” cannot be winners in the June auction.
And as a result, Telus argued Videotron has market distorting power if it is allowed to use the licenses, on which it spent a claimed $1.1 billion less than it would have otherwise been disqualified for.
That distortion, Telus alleged, will show itself to be harmful to some smaller providers named in the case, as Videotron has strong existing wireless brands, an ability to quickly deploy a mobile virtual network operator (MVNO) that rides on another provider’s infrastructure, and has made such overtures about the company’s ability to strike soon.
Telus brought up instances in which Videotron has recently advertised its western Canadian ambitions and alleged that the company has already had discussions with the larger providers about setting up an MVNO. (The CRTC ruled earlier this year that regional carriers like Videotron can force negotiations to rent wireless capacity from the big network providers provided they have facilities and spectrum in the area in which they want to set up the MVNO.)
“This case is not about preventing fair competition; it is about preventing an unfair cost advantage resulting from the auction rules not being applied as announced to bidders,” Telus counsel Catherine Beagan Flood said Tuesday. (Bell filed with the court a similar submission against Videotron’s eligibility.)
Telus’ and Bell’s cases ultimately hinge on wording in section 6.1 of the auction framework, which states that eligible set-aside spectrum winners are those that are facilities-based providers that are not national, but actively provide telecommunications services to the general public in the areas in which they bid. They focus much of the legal argument on “actively provides” and “to the general public.”
During the hearing, a back and forth between Telus counsel and the judge turned on this interpretation. The judge questions whether Telus’ and Bell’s entire case leans on the interpretation of “wholesale” services and whether Videotron qualified based on the activities of its subsidiary, Fibernoire, which exclusively provides businesses with fibre backhaul services.
Telus first argued that those wholesale services – essentially bulk product sales – to businesses do not qualify as actively providing telecommunications services to the general public. When faced with a retort from the judge that businesses are considered under ISED criteria as the “general public,” Telus said it believes the federal ministry limited the definition to retail services to businesses, not wholesale services.
“Our argument hangs not only on the word wholesaler,” Flood said, “but also that no retail distribution network had been demonstrated.
“So there was a requirement to provide documentation of a retail distribution network, and we understand that the requirement for that documentation was to show that there was active provision of retail services in those communities, because the intention of the spectrum was for [people who were] already providing services in those provinces to expand what they were providing, not to allow some completely new provider [to enter a new province].”
Telus, in fact, put before the court that it had initially proposed to ISED a broad position in which set-aside eligible bidders – those that compete for dedicated slices of the spectrum so as to avoid competing against the large carriers for the airwaves – could bid nationally for the spectrum. Had ISED adopted this approach, Telus argued, it said Videotron would have qualified for those western Canadian slices.
Telus further argued its argument is not frivolous because it is not challenging any of the other spectrum slices Quebecor won.
Counsel for Videotron said Tuesday what Telus is doing is effectively delaying inevitable competition it did not see coming, and that if the Montreal-based company is denied the licenses, the other carriers will have a market head start to deploy the spectrum blocks. In other words, Videotron alleges Telus is trying to maintain price inflation that comes with market oligopolies.
Meanwhile, counsel to the attorney general of Canada argued that Telus’ and Bell’s success in this case means the status quo will be altered – the status quo being all winning bidders getting their licenses at the same time so as to even the playing field. With Videotron not getting licenses at the same time, it will be left behind, thus impacting the public interest, the lawyers argued.
So, the court Tuesday was ultimately faced with legal wrangling over terms in a paragraph in the auction rules, was pelted with market advantages and disadvantages if licenses are divvied asymmetrically, and yet still does not have a full picture of what ISED was looking at when it approved Videotron’s bids.
That is because a chunk of the information on which this case is based is hidden from view, under the guise of commercial confidence. Bell and Telus asked in their initial applications to force those documents out so they can examine the reasoning of the federal minister.
Ultimately, the decision has major consequences for Telus. If its application is dismissed –provided it exhausts all appeals – then it not only faces potential competition from a Rogers-Shaw combination, but it may also be looking at a potentially aggressive new western player in Videotron and its penchant for lower-cost mobile offerings.
