Ottawa stresses competition, consumer prices in new wireless rules

The Conservative government has given itself a new arrow in its regulatory quiver as it tries to salvage sustainable competition in the $19-billion wireless sector.

Industry Minister Christian Paradis unveiled on Friday long-awaited rules that will govern spectrum-licence transfers between telecom carriers – cementing the government's role in shaping the industry's competitive landscape. It was his strongest signal yet that Ottawa has no intention of backing down on its goal of having at least four players in every regional market and stands ready to "use any and every tool at its disposal" to promote competition.

"We are working to provide Canadian families with access to the latest technology at better prices," Mr. Paradis said in a statement.

Spectrum refers to the radio waves that telecom companies use to provide cellular phone service. Those airwaves are a finite public resource, so controlling access to wireless licences can make or break competition. Licence transfer rules are also considered critical to any potential new players, including Verizon Communications Inc., which has made an initial $700-million offer for Wind Mobile and is in talks with Mobilicity.

Although Mr. Paradis has made it clear he will not allow spectrum that was set aside for new players to be transferred to incumbents prior to the expiration of the five-year ban on such deals in 2014, his framework has created some uncertainty in terms of what happens beyond that.

Ottawa plans to review all applications for spectrum-licence transfers on a "case-by-case" basis. And while Mr. Paradis has suggested any proposals that result in "undue spectrum concentration" that "diminish competition" would not be allowed, he stopped short of setting prescriptive thresholds for either criterion.

Specifically, it remains unclear how the new rules would ultimately shape the fate of a pair of deals that were meant to pave the way for Rogers Communications Inc. to eventually acquire unused spectrum from two new-entrant players – moves that consumer advocates argue amount to end-runs around federal rules.

In January, Rogers signed an "option" deal to acquire fallow spectrum from Shaw Communications Inc. during the fall of 2014. Then in May, Rogers signed another deal to purchase un-deployed spectrum in the greater Toronto area from Quebecor Inc.'s Vidéotron Ltée unit as early as next January.

Although the new rules do not appear to apply retroactively to those deals, the government remains the ultimate authority on whether those transfers will ever be approved. In both cases, Rogers would only formally apply to initiate the transfer of licences from those new-entrant carriers upon the expiration of their respective five-year moratoriums – meaning Mr. Paradis is not yet in a position to review those deals because no paperwork will be submitted to the government until next year.

"Spectrum transfers have always been subject to a rigorous review process and ministerial approvals. We think unused spectrum should be put to use for the benefit of consumers. We'll respect the new regulatory framework and provide the government with any information they require as they review Rogers' proposed spectrum transfer agreements with Shaw and Videotron," Rogers said in an e-mailed statement. "We are reviewing the framework in more detail, but we always knew there would be a regulatory review and Ministerial approval process for both agreements."

Steve Wilson, chief financial officer of Shaw, said the company has no intentions of selling the spectrum to any other player at this stage: "Well, first of all, it's our spectrum, and we've got a hard agreement with Rogers, which gives them the right to buy that spectrum. And beyond that, we're not considering any alternatives today."

Carriers participated in the last auction with the understanding the standstill period would only last for five years – a key ground rule that gives investors comfort about the liquidity of spectrum assets and the timing for potential exit strategies.

"Now that this framework exists, I would hope that Shaw, Videotron and Rogers, in the interest of clarity for themselves and the whole industry, would voluntarily seek the minister's guidance on whether these proposed transfers are consistent with the framework, or whether they will inevitably be rejected. I am confident that the review would be conducted expeditiously and then everyone can move forward knowing the landscape," said Simon Lockie, chief regulatory officer of Wind Mobile.

Mr. Paradis said that Ottawa plans to apply the new rules to all licence transfers, including "prospective transfers" that could culminate through "option" deals and other agreements that allow carriers to reserve the right to purchase spectrum at a later date.

A licensee would be required to seek "a review within 15 days of entering into any agreement that could lead to a prospective transfer." Moreover, the announcement stressed that Industry Canada would "review a prospective transfer as though the future licence transfer that could arise from the agreement has been made."

On June 4, Mr. Paradis rejected Telus Corp.'s $380-million deal to buy Mobilicity, stressing he was not prepared to break federal rules. Given Mobilicity's financial problems, Telus had formally asked Ottawa to make an exception to the five-year ban to allow for an expedited transfer of spectrum assets.

Mobilicity's president Stewart Lyons said the rules were in line with expectations, but failed to provide much clarity.