Originally posted by the Financial Post
Author: Emily Jackson
The federal government wants to give new entrants to Canada’s wireless market a leg up against the Big Three providers when it auctions off the next block of wireless spectrum.
On Friday, Innovation, Science and Economic Development Canada launched a consultation on the framework to auction spectrum licences in the 600 MHz band, a particularly valuable block of radio frequencies needed to power the growing demand for mobile communications.
Of the 70 MHz of spectrum available, the ministry proposed setting aside 30 MHz –43 per cent – for facilities-based wireless providers that have less than 10 per cent of the national wireless subscriber market share.
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That includes regional carriers Shaw Communications Inc.’s Freedom Mobile and Quebecor Inc.’s Videotron. But it excludes incumbents BCE Inc., Rogers Communications Inc. and Telus Corp., which each serve roughly 30 per cent of Canada’s approximately 30 million wireless subscribers.
Set-asides are “used to address issues of market power,” the ministry stated.
“There is a risk that competition in the post auction marketplace could suffer without measures to facilitate regional carrier’s access to spectrum,” it stated, noting the Competition Bureau’s recent conclusion that the presence of regional carriers results in lower prices.
“ISED is of the view that these incumbent entities likely have the means and ability to prevent other service providers from acquiring spectrum licences in an open auction.”
The ministry proposed making the licenses non-transferable for five years in order to deter speculation. Videotron recently made millions selling set-aside spectrum that it never used to Rogers and Shaw.
The auction for the remaining 40 MHz would be open to all bidders. The ministry, which is seeking comments on its proposed auction rules and format, proposed kicking off the bids at $1.537 billion or $219.5 million per 10 MHz block. The U.S. auction of spectrum in the same band yielded $19.8 billion in revenue for 84 MHz.
Should the ministry proceed with its proposed process, new entrants will have preferred access to slightly more spectrum than they did in the 2008 auction that ushered in new competitors Wind Mobile (now Freedom), Mobilicity (purchased by Rogers) and Public Mobile (bought by Telus). That year, 40 per cent of the spectrum was set aside for new entrants as part of the Conservative government’s push to increase competition in the mobile industry.
The government first announced plans to auction the 600 MHz spectrum band two years ago. It will take at least two years from the launch of the consultation to actually auction the low-band spectrum, which is particularly useful in tough spots such as elevators and basements. Its deployment is anticipated to be critical for next generation 5G networks and the ever-expanding demand for mobile data.
RBC analyst Drew McReynolds believes the proposed framework is largely consistent with investor expectations.
“Importantly, the proposed 30 MHz set-aside for regional wireless players is undoubtedly a positive for both Quebecor and Shaw,” McReynolds wrote in a note to clients.
Interested parties have until Oct. 2 to submit comments to the ministry.
In a statement, Rogers said it looks forward to comment “on the need for fair and balanced auction rules that provide incentives for continued network investments to maintain our world-class networks.”
Bell, Shaw and Videotron declined to comment and Telus did not respond to a request for comment on Friday afternoon.