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Report On Business Federal government to limit large carriers in wireless spectrum auction

The federal government hopes to tackle high wireless prices and spur competition by barring the country’s large national carriers from bidding on more than 40 per cent of the licences in an upcoming auction of valuable airwaves.

The department of Innovation, Science and Economic Development (ISED) published the final rules on Wednesday for a public auction of 600-megahertz spectrum – the airwaves used to carry cellular signals – and said it will be held in March, 2019.

In line with a proposed framework ISED released last summer, the auction rules will not permit Rogers Communications Inc., BCE Inc. or Telus Corp. to bid on 43 per cent of the available spectrum. Airwaves in the 600-MHz frequency are prized because they can travel long distances and offer good penetration into buildings.

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Regional players that have been in business less than a decade, such as Quebec-based Videotron Ltd.’s wireless division and Shaw Communications Inc.’s Freedom Mobile (which operates in British Columbia, Alberta and Ontario and was formerly called Wind Mobile), do not own much low-band spectrum and could use such airwaves to improve coverage on their networks.

Federal Innovation Minister Navdeep Bains said imposing a set-aside to help such players will lead to more competition, lower prices and better service.

“The fact that we have an auction that will set aside 43 per cent of the spectrum demonstrates our commitment to competition, which will provide more options to consumers which ultimately means better price points,” he said in an interview Wednesday evening.

The final auction rules will allow only regional wireless players or “potential new entrants” to bid on the set-aside airwaves, according to the statement. A spokesman for the minister said that will include those already offering other telecom services, such as internet.

This suggests that established telecom players without wireless operations, such as cable company Cogeco Communications Inc., could also take advantage of the set aside and purchase spectrum.

The minister’s comments on the auction come less than a week after Canada’s telecom regulator said it would not introduce new rules to help encourage a business model popular in the United States and Europe to grow here. Mobile virtual network operators (MVNOs) do not buy spectrum or build their own networks, but instead pay wholesale rates to use other carriers’ networks and offer discount services to their customers.

The decision by the Canadian Radio-television and Telecommunications Commission (CRTC) came as a surprise to those who expected it to take steps to increase competition by allowing MVNOs that use WiFi as their primary means of connecting customers to access roaming services at regulated rates. Many expected the regulator would move on that front because Mr. Bains ordered the CRTC last June to review the possibility of “WiFi-first” options.

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Following last week’s CRTC rulings, Mr. Bains said “more can and will be done,” and on Wednesday he said the auction rules “send a very clear signal.”

“We send a message that we still have many different options,” he said, adding, “This is a concrete example of what we’re doing to drive competition to deal with that issue around affordability.”

The auction set-aside rules mean Freedom Mobile and Videotron will not have to bid against the Big Three for the airwaves, meaning they could acquire the licences for a much cheaper price. The rules could also benefit other regional players such as Atlantic Canada carrier Eastlink, and Saskatchewan crown corporation SaskTel.

The national carriers argued against a set-aside, saying they would make better use of the airwaves and build networks in rural areas at a faster pace.

Critics of the use of set-asides in spectrum auctions have also argued that they deprive taxpayers of additional revenue while propping up weak new entrants to the market.

In a comment on the proposed auction framework, the Montreal Economic Institute, a free-market-oriented think tank, said the biggest beneficiaries of spectrum set-asides in auctions over the past decade have been the shareholders of Wind Mobile (now Freedom), Public Mobile (which was sold to Telus) and Videotron.

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Low-band spectrum can draw high bids from carriers – Rogers spent $3.3-billion on airwaves in the 700-MHz auction in 2014.

The 600-MHz spectrum to be auctioned next year will also be one of the first bands to be deployed for 5G (fifth-generation) networks in Canada. 5G is expected to offer faster speeds and support a new range of applications such as driverless cars, remote surgery and smart cities.

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