Criticisms that Ottawa’s wireless policies are creating a playing field tilted in favour of foreign telecoms such as Verizon Communications Inc. are “completely unfounded,” says Wind Mobile’s top executive.
Chief executive officer Anthony Lacavera, who runs one of the companies Verizon is said to be interested in acquiring, says the Big Three Canadian incumbents are being “disingenuous” when they claim current regulations put them at a disadvantage. The big telecom companies received more than their fair share of assistance from the federal government when establishing their wireless businesses, he said. In particular, he said, Ottawa’s “spectrum gifts” to large carriers in the 1980s and 1990s have created a “substantial spectrum imbalance” – a key disadvantage for all new-entrant carriers regardless of their size.
Spectrum refers to the radio waves that carriers use to provide cellphone service. It is the very lifeblood of the wireless industry, and access to those air waves has a direct bearing on industry competition and consumer prices.
Rogers Communications Inc., Telus Corp. and BCE Inc. collectively hold licences for about 85 per cent of all “currently usable mobile spectrum” and service roughly 90 per cent of all wireless subscribers, according to Industry Canada. As customers flock to data-hungry smartphones, which use more spectrum than talk-and-text devices, the battle for spectrum has intensified.
“Spectrum is a national asset and it was allocated to incumbents in the mid-eighties and the mid-nineties on a beauty contest basis – a free basis. And that spectrum today has very high value,” Mr. Lacavera said in an interview on Friday.
He argues that government rules for the coming auction of the 700 megahertz frequency were an attempt to rectify some of the long-term structural challenges that new entrants face. Those hurdles go beyond spectrum, and include some incumbents’ concentration of media assets, the use of telecom service bundles, long-term wireless contracts and their decades long head start in building wire-line assets, which remain key to the delivery of wireless services.
As a result, Mr. Lacavera dismisses suggestions that the government’s policy is ripe for exploitation by large foreign telecoms. “A U.S. major assessing the market is clear evidence that the government policy to foster more competition in wireless is working. And the frantic reaction from all three incumbents is all the evidence one should need to assess the need for more competition to disrupt the entrenched and cozy oligopoly.”
If Verizon opts to bid in the January auction, it would qualify as a new entrant carrier. As such it would be able to purchase two out of four blocks of the best spectrum, whereas incumbent carriers are limited to one block each. As a result, there is a risk that an incumbent carrier could be left empty handed.
Incumbents, however, are also crying foul because Verizon is mulling purchases of Wind and Mobilicity, two small carriers that the incumbents are barred from buying. Earlier this year, Ottawa rejected Telus’s offer to buy Mobilicity.
Other telecom providers, meanwhile, are also critical of the Big Three’s stance on government policy. “While we agree companies the size of Verizon should not be given any advantages, this is not a Verizon issue. It is about how we create the right structure to ensure stable completion in all areas of rural and urban Canada,” said Eastlink CEO Lee Bragg in an e-mailed statement.
Earlier this week, incumbents dismissed suggestions that they received any handouts from government.
“I think if you study the financials from 1985 to 2000, you’ll find that no one who owned a wireless company in Canada made any money,” said BCE chief executive George Cope. Although BCE played a pivotal role in building Canada’s early telecom infrastructure, “since 1985 when the industry became competitive in wireless, we had to compete like everyone else. We’ve had no special privileges granted.”
Rogers CEO Nadir Mohamed also said it is problematic to compare previous auction periods to Verizon’s potential entry on privilege terms.
“When we started in ’84, there weren’t very many people talking about wireless the way we are today. It was very much a bet on something that hadn’t happened. We built the networks in Canada,” said Mr. Mohamed. “I think today looking at a company like Verizon or a large U.S. incumbent, it is a very different picture. … We are not saying anything that would suggest we’re not open for competition. All we’re saying is we should have the same rights.”
1985: Rogers Cantel Inc. and telcos receive licences for the 800 MHz frequency in a comparative review or “beauty contest.”
1995: Industry Canada conducts a “beauty contest” for the PCS band and implements a spectrum cap. Licences given to Clearnet, Microcell, Rogers and telcos.
1996: Federal Budget introduces legislative changes to enable spectrum auctions.
2000: Telus buys Clearnet and returns some spectrum.
2001: Returned spectrum, along with previously reserved PCS licences, are auctioned. Rogers, Bell, Telus win licences.
2004-2005: Auctions of the 2.3 GHz and 3.5 GHz bands; Rogers buys Microcell.
2008: Auction of Advanced Wireless Spectrum licences.
Sources: Oil in the Ether: A Critical History of Spectrum Auctions in Canada By Gregory Taylor of Ryerson University; Industry Canada website