Verizon entry would put rural markets at risk, BCE says

Share

BCE Inc. says it is likely to scale back efforts to bring advanced cellphone services to rural Canada if large foreign telecoms like Verizon Communications Inc. are allowed to enter the Canadian market under preferential rules.

Chief executive officer George Cope warned Thursday that rural Canadians would suffer if incumbent wireless carriers are forced to focus on fighting a new, well-financed foreign rival in urban markets – especially if Verizon is able to capitalize on what he calls "loopholes" in the federal government's wireless strategy.

Verizon is considering the purchase of Wind Mobile and Mobilicity – two urban-focused start-up carriers that are for sale, but cannot be acquired by the Big Three incumbents due to rules surrounding the wireless spectrum they own. The U.S. telecom giant is also assessing whether to participate in an upcoming auction of 700 megahertz spectrum, in which it would qualify as a "new entrant" carrier. That means it would be able to buy more spectrum than the incumbents.

The stakes are high. Incumbents say the 700 MHz spectrum is the most valuable ever auctioned because of its ability to travel long distances with fewer cell towers and carry data traffic to devices like smartphones and tablet computers. Since only a finite amount of this spectrum exists, the auction rules could shape the competitive landscape for decades to come.

Should Verizon be allowed into Canada under new-entrant rules, "we will focus in urban [markets]...and rural markets will suffer," Mr. Cope said. "Because the newest competitor will have no obligation to build out rural, so we are going to know that we are going to have to take our focus to urban."

Mr. Cope's comments underscore the intense lobbying effort the three major telecom companies are now engaged in to influence those rules. Time is short to sway the government's opinion: all companies that want to bid on spectrum must apply by Sept. 17.

Prime Minister Stephen Harper's government has made the "timely availability" of advanced services for rural Canadians a key plank of its wireless policy in recent years – even using Russell, Ont., as the backdrop for its 700 Megahertz auction policy announcement in 2012. At the time, the government emphasized that the sale of this spectrum would improve the networks in under-served regions. The Conservative government draws much political support from rural areas.

BCE took its message directly to rural Canadians on Thursday, blanketing many local newspapers, including those in the Far North, with advertisements highlighting its concerns with the government's wireless policy. With the Sept. 17 application deadline for the auction fast approaching, carriers are ramping up their criticisms.

Last week, Telus Corp.'s top executive also said that Verizon's entry in urban markets could hurt rural Canadians. "So you are going to create these advantages for Verizon to come to Canada. Where are they going to invest? Toronto, Montreal, Vancouver maybe," Telus CEO Darren Entwistle said. "Is that going to help bridge the digital divide in Canada?"

Some of Canada's regional carriers weighed in on the issue Thursday, arguing they are best suited to make use of the 700 MHz spectrum in rural areas.

"We share the feeling of virtually all Canadians in wanting more real competition in the wireless industry," Eastlink CEO Lee Bragg said in an emailed statement. "The government of Canada can play a key role in ensuring that true competition is enabled to drive both innovation and value to benefit all Canadians."

Eastlink argues the auction rules favour large bidders who will not be motivated to build into rural areas. Moreover, it contends the Big Three don't need more spectrum and only want more to "stifle" competition.

"We may find that all the regional fourth carriers end up being losers in this whole thing," said John Meldrum, vice-president corporate counsel and regulatory affairs at Saskatchewan Telecommunications Holding Corp. SaskTel, as the company is known, believes that all carriers should be capped at one block of prime spectrum for the 700 MHz frequency so that rural Canadians have the best shot at benefiting from advanced wireless services.

"To take two of these valuable blocks of 700 spectrum and give them to Verizon with no requirement for them to roll it out to rural Canada – that can't be good policy and it is certainly not good for rural Canada."

_____________________

UNUSED SPECTRUM

Shaw Communications Inc. should be required to return its unused wireless spectrum and Ottawa should then allow all carriers an equal chance of bidding, says BCE Inc.'s CEO.

"If you acquired spectrum at a discount, which is what Shaw received, and you didn't deploy, you shouldn't be able to sell it. You should probably just return it to the government and there should be an open auction," George Cope said.

Calgary-based Shaw had spent $189.5-million on wireless licences in 2008, but later decided to nix its plans for a traditional cellular network. It has instead opted to pursue a less costly WiFi strategy.

In January, Rogers Communications Inc. struck an "option deal" with Shaw that will allow it to acquire Shaw's un-deployed spectrum after a federal ban on incumbents purchasing new-entrant wireless licences expires next year. The deal has been criticized by consumer advocates as an end-run around the 2008 auction rules, which were designed to promote wireless competition.

Last month, the government said it plans to review all applications for spectrum-licence transfers on a "case-by-case" basis, making the fate of that option deal unclear.

Mr. Cope said other carriers should have a chance to bid on Shaw's assets: "So, let Rogers, Bell and Telus and Verizon bid for that spectrum, too, or build out and meet your requirements."

Last week, Telus CEO Darren Entwistle also said that carriers should not be able to monetize unused spectrum for "significant profit gain when that wasn't the thesis of the auction in the first place."

Rita Trichur