OTTAWA – If 2006 was the year of local forbearance and the fight over deregulating the wireline phone market, 2007 will be the year newcomers and incumbents wrestle over wireless.
In fact, the lobbying has already begun. Last week, as reported by Cartt.ca, Quebecor Media CEO Pierre Karl Peladeau told Ottawa’s Canadian Club that the cozy oligopoly of existing players keeps prices high, stifles innovation and ensures new wireless applications already available in other countries are slow to market in Canada.
On Monday at the Chateau Laurier Hotel in Ottawa, a large roomful of wireless regulatory lawyers, financial analysts, government bureaucrats, potential players and other executives involved one way or another with wireless, gathered to discuss the impending Advanced Wireless Services spectrum auction.
It’s estimated the auction, depending on its structure, could fetch between $1.1 billion and $1.4 billion for the federal government.
Industry Canada’s assistant deputy minister Michael Binder and telecom policy director general Len St-Aubin reassured the crowd filling the conference room that neither the minister nor the ministry has any preconceived notions on how the auction will be carried out but it is going to consider whether or not to make it a wide open one, or create conditions that would aid the entry of other national wireless players.
Such conditions could involve holding back the established companies from using their financial might to buy up all available spectrum, to forcing tower sharing and mandating roaming agreements across the country.
Suggestions are due in to Industry Canada on May 25th.
The existing “Big Three” – Rogers Wireless, Telus Mobility and Bell Mobility – insist the market is very competitive already and that any new auction should be free and unfettered. They point to the myriad wireless brands available in Canada, from regional facilities-based competitors like MTS Mobility and SaskTel to MVNO brands like Amp’d, Virgin, President’s Choice and Videotron, which currently offer services using one of the three incumbents’ networks.
The language in use is already set. The incumbents use phrases like “spectrum lobbyists” and “subsidies” paid to large corporations on the backs of Canadian taxpayers.
The ones who want to bid on spectrum and move towards becoming larger wireless companies (MTS Allstream and Videotron, primarily, so far) point to Canada’s supposedly lagging wireless penetration rate of 58% as clear evidence the Big Three “oligopoly” aren’t pushing each other hard enough to cut prices and add more services.
The incumbents, on the other hand say penetration “is a stupid metric,” Rogers Communiucations vice-president regulatory Ken Englehart told the crowd Monday. They would rather point out minutes of usage and other measurements which say that the market is plenty competitive and comparable to the United States and European countries. For example, when it comes to average wireless minutes used per capita, Canada ranks second among G7 nations and fifth among OECD countries.
As for the financial analysts, they like the market the way it is with healthy, growing margins and profitability, low churn and disciplined pricing strategies.
Dvai Ghose, the telecom analyst with Genuity Capital Markets, pointed out that Canada is not alone with just three big players as each of Japan, Finland and Korea have three main companies. In Canada, the top two carriers have 69% of the market while in France, the top two have over 82% he explained.
“Canada is much less of an oligoloply than many other markets,” he said.
And by the time any new entrant gets approvals and a network built and handsets into Canadian hands (which will likely take into 2009), the incumbent brands will have about 70% of the market, estimated TD Newcrest’s Vince Valentini. A fourth carrier “doesn’t look overly attractive to me,” he said.
However, if the government wants to create an auction that benefits potential newcomers at the expense of the existing operators, watch out for the spectrum grabbers. “Jim Shaw said ‘we’ll be there with our hand out if government is going to give something away for free,’” noted Valentini.
The existing wireless carriers shouldn’t be punished for spending billions on their networks – and now wanting AWS spectrum so that their services – especially video – can be expanded.
“We need more bandwidth to compete in a global; market for content,” said Telus vice-president wireless, broadband and content policy Michael Hennessy. “Video is going to eat up a lot of bandwidth.”
He then turned to the much talked about potential sale of BCE that could be sold for around $35 billion or so. “If people can talk $40 a share for that, don’t you think it’s possible the private equity companies might be able to scrape together a billion dollars for spectrum if they think it’s worthwhile?”
“I don’t think that taxpayers need to subsidize this.”
That was another prevailing theme of the day from the incumbents – that if the government t doesn’t just simply take the biggest cheque for the spectrum, they are somehow cheating Canadians.
“Wireless spectrum is a valuable public asset and is owned by the people of Canada,” insisted Lawson Hunter, EVP and chief corporate officer, Bell Canada. He exhorted government to get the “best value possible for that asset. That is what good stewards do.”
Earlier in the day, however, IC’s St-Aubin made sure the group was aware that government has a duty to look beyond the wheelbarrows full of cash and towards public policy goals and that the highest bidder may – or may not – win the spectrum.
“Industry Canada gets nothing out of this. (The spectrum auction money) all goes to the CRF (consolidated revenue fund). It all goes to reduce the debt… It’s not our primary objective to maximize return and if it was, we would sell it all to one provider,” said St-Aubin.
The day ended with an interesting question to Quebecor EVP corporate affairs Luc Lavoie – that if Quebecor is in favour of mandated roaming so that a new Videotron facilities-based wireless service could gain a foothold, is he in favour then of opening up Videotron’s cable system to additional video distributors – since there are even fewer video competitors than wireless.
Hunter praised Lavoie’s political know-how (he worked in the PMO under Brian Mulroney) in dancing around the question as Lavoie insisted there would be more competition in Montreal if Bell had not purchased a competitor in the market Videotron “feared”, he said: The 13,000-customer Cable VDN, which Bell purchased in 2005.
The rhetorical row is just getting warmed up.
