Wireless spectrum is the lifeblood of telecommunications providers – or, more accurately, given the high stakes and vast sums of money involved, the real estate of the airwaves. The various frequencies are carefully regulated, given that emergency responders and the military also use them. In 2008, unhappy with the state of competition, the Conservative government held an auction of a spectrum band called AWS (advanced wireless services) and set aside certain frequencies only for new competitors, netting the feds $4.25-billion. Likely later this year, the government will hold another auction for the much more valuable 700-megahertz frequency. Continuing the real estate analogy, this would be the valuable “beachfront property,” since it penetrates buildings more easily and travels farther, thus requiring fewer cell towers.
1. Fragmentation: If the existing big providers gobble up most of the spectrum, and strong regional cable providers buy up the rest, Macquarie analyst Greg MacDonald suggests new entrants could end up without the wireless licences they need to compete against Bell, Telus and Rogers. In that case, the new entrants could be forced to sell out on the cheap.
2. Consolidation: In this scenario, Mr. MacDonald foresees the new entrants buying into each other to form a near-national telecom carrier that would compete with the Big Three. This might have little effect on the larger providers in the short term, since the combined entity would not need to offer deep discounts. In the long term, however, such a carrier could become a formidable competitor to the Big Three.
3. Foreign interference: If the government removes the harsh foreign ownership restrictions in the sector before the auction, the new entrants could consolidate and obtain backing from a huge foreign player – such as Vodafone, Mexico’s America Movil or a U.S. carrier – to bid on the spectrum. Though unlikely, this would be a worst-case scenario for the Canadian telecom giants, Mr. MacDonald says, and could prompt a merger, like the oft-discussed “Belus” merger of Bell and Telus.