Challenge to spectrum regulations ‘not ruled out,’ Telus chief says

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Telus Corp. is warning that it could challenge the government in court if Ottawa extends its moratorium on large wireless companies acquiring spectrum from smaller rivals past 2014.

Wireless spectrum refers to the radio waves used to provide cellphone service. Since spectrum is a scarce public resource, the major carriers are trying to secure as much of it as possible, especially now that consumers are using ever-increasing amounts of data on devices like smartphones and tablet computers.

In order to limit the market power of players like Telus, BCE Inc. and Rogers Communications Inc., Ottawa instituted a five-year ban on incumbent carriers acquiring spectrum that was specifically set aside for new entrants during the last auction in 2008. That ban expires at various points in 2014, depending on when respective start-up carriers took possession of their spectrum licences.

The Big Three carriers are eager to have a shot at acquiring those valuable radio waves, especially now that Verizon Communications Inc. is mulling a potential entry into Canada's wireless market. The U.S. telecom giant has made a preliminary $700-million offer to purchase Wind Mobile and is in acquisition talks with Mobilicity – two struggling small carriers whose spectrum assets remain off-limits to major Canadian players for now.

Last month, as it introduced new rules that will govern any future spectrum-licence transfers between telecom carriers, the government also said it would "use any and every tool at its disposal" to promote competition – leaving uncertainty about what would happen after 2014. Telus chief executive Darren Entwistle told The Globe and Mail that Telus is prepared to explore legal options should Ottawa tie its hands and prevent it from competing with Verizon for new-entrant spectrum assets at that time.

"We haven't ruled out legal challenges," Mr. Entwistle said, adding that he would be willing to fight any eleventh-hour move by the government to block incumbents from purchasing set-aside spectrum beyond the current standstill period.

"Let's say we find ourselves in a battle with Verizon for a particular asset – why are we being stopped from participating in an acquisition process?" Mr. Entwistle said. He later added: "So when you think about legal challenges, that is where legal challenges emanate from."

Telus, he said, has not ruled out making another bid for Mobilicity once its moratorium expires next Feburary – especially if Verizon also decides to bid for that carrier. The Vancouver-based company struck a deal this spring to buy Mobilicity for $380-million, but the government rejected it.

Mr. Entwistle would also be interested in buying Wind, which, according to its current licence conditions, could be clear to strike a deal with an incumbent as early as March.

The government's apparent willingness to consider a purchase of those assets by Verizon has raised the ire of some executives in the Canadian industry. Verizon is one of the world's largest telecommunications companies; its $116-billion (U.S.) in revenue last year was more than twice that of BCE, Telus and Rogers combined.

"Imagine the analogy in other industries," said Joe Natale, Telus's chief commerical officer. "Imagine in the oil and gas sector or the mining industry a situation where land rights, oil rights, mineral rights are being held in abeyance for a foreign player … I mean, all hell would break loose."

The new independent carriers, all of which have struggled financially, also have an interest in seeing the government allow bids from their larger domestic rivals.

Earlier this year, Jeff Fan, who covers the telecom industry for Scotia Capital Inc., warned that legal battles would ensue if carriers feel their contract rights are violated. "Remember, if new entrants can't sell to the incumbents, they lose on how much they would get back. We estimate this could be up to hundreds of millions of dollars, which would be very material."

(BCE holds a 15-per-cent stake in The Globe and Mail.)