At the end of last year, Toronto Hydro Telecom Inc. knocked on the doors at two major cellphone carriers, hoping to strike a deal that would let it pay them to use their networks in Ontario in order to offer a new kind of wireless service.
Such an agreement would have let the Internet services company enter the cellphone market even though it didn't have the rights to spectrum, or airwaves, not to mention towers and other costly equipment that make up a wireless network.
But it was turned away, the company revealed yesterday. One carrier said it would only agree to such a deal if it added value to its existing service, according to David Dobbin, president of Toronto Hydro Telecom. The other told him it could lead to "irrational pricing." He would not identify the carriers.
That experience taught the operator of the One Zone WiFi network in Toronto how critical spectrum is for those with wireless ambitions.
"Anybody trying to get into this business, you have to have the spectrum unless you're willing to play by rules set down by incumbents," Mr. Dobbin explained yesterday in a phone interview.
As Ottawa prepares to auction off more wireless spectrum next year, a debate is raging about who gets to set the rules. The deadline for airing those views is today.
Industry Canada, which is in charge of the auction, may be leaning toward relying on market forces. It recently issued a request for a contractor to study market-based spectrum rights around the world.
The proposed study appears primarily geared to drumming up justifications for a market-based approach, asking bidders to deliver "a summary of the rationale behind the adoption of more market-based approaches to spectrum management and ... a summary of any available studies of the potential or realized welfare gains associated with such liberalization."
There was no mention of the breaks that wireless hopefuls like Toronto Hydro Telecom argue they need to make a go of it in this area. But it is the kind of process that cellphone giants such as Telus Corp. would like to see.
"Telus' success in creating a competitive and sustainable third national network must not be undermined by either uneconomic or unfair initiatives to support potential 'competitors' who are unwilling to undertake the same risks that Telus undertook to achieve its success," Telus said in a summary of its submission to Industry Canada.
In the past, spectrum auctions have helped open up the wireless market to new rivals.
In 1995, for example, the government put a cap on the amount of spectrum that companies could hold so existing carriers with deep pockets couldn't hog it all. That paved the way for the entry of Clearnet Communications and Microcell Telecommunications, wireless carriers that have since been snapped up by Telus and Rogers Communications Inc., respectively, to expand their cellphone businesses.
A key factor in determining the latest auction's rules will be whether Industry Canada believes there is enough competition in Canada's wireless market, which is ruled by Telus, Bell Canada and Rogers. Telus called it "highly competitive," citing five financial and industry analysts.
However, competition is fiercer and cellphone service more affordable in the United States for those who talk a lot, make long-distance calls and use data services such as picture messaging.
New entrants would likely lead to greater rivalry as prices decline and new services emerge.
Toronto Hydro Telecom wanted to sell a cellphone service that would let users make calls on both WiFi and wireless networks. There are already cellphones on the market that switch between the two technologies and similar services are offered in other countries, but despite lots of talk they haven't appeared in Canada.
Still, Mr. Dobbin will only enter the wireless game if the right rules are in place. He believes blocks of spectrum should be set aside for new entrants, and the big carriers should also be forced to share towers and allow the new guys' customers to roam onto their networks when travelling at regulated rates.
"Then somebody could get out there and build strong regional players," he said.
Vancouver-based Telus, though, said such measures have led to "uneconomic entry" in the past - even though its own wireless business benefited from a spectrum cap, and an agreement between Telus and Bell spared them both from building expensive wireless networks in each other's territories.
