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BCE Inc.’s Bell Canada and Telus Corp. are among a group of telecoms pressing Ottawa to bar Shaw Communications Inc. from participating separately from Rogers Communications Inc. in an impending auction of airwaves critical for 5G.

The rival telecoms argue that the integrity of the June auction of 3,500-megahertz spectrum – airwaves used to transmit wireless signals – will be compromised if Rogers and Shaw, who have entered into a $20.4-billion merger agreement, are permitted to bid independently, according to six sources familiar with the matter and documents viewed by The Globe and Mail. The Globe is not identifying the sources because they are not authorized to speak publicly about the auction.

Bell, Telus and at least two other telecoms are raising concerns about Shaw’s participation ahead of an April 6 deadline for telecoms to submit their applications and pay their deposits for an auction that experts say will shape the future of Canada’s wireless sector. The 3,500-MHz band is key for the delivery of fifth-generation wireless services because it can carry large volumes of data over long distances.

According to the rules set out by Innovation, Science and Economic Development Canada (ISED) – the federal ministry that regulates spectrum – companies that are in an agreement to merge are considered associated entities and can only participate independently in the auction if they can prove to the government that they plan to provide services separately. The rival telecoms argue in letters to the government that Rogers and Shaw fail this test because they plan to operate as a single entity after they have merged.

The telecoms claim that Rogers and Shaw can also be classified as affiliated entities under the auction rules because their merger agreement gives Rogers control over Shaw’s financial and strategic decisions, according to the sources and letters viewed by The Globe. Under the auction rules, affiliated entities can apply to participate together as a single bidder. Alternately, one of the companies in an affiliate relationship can bid on its own.

Rogers and Shaw declined to comment, citing auction rules.

The agreement between Rogers and Shaw – which last week announced a merger valued at $26-billion, including debt – stipulates that Shaw will not stray from its usual day-to-day operations “except with the express prior written consent of the Purchaser [Rogers].” The acquisition is subject to approval by ISED, the Competition Bureau and the Canadian Radio-television and Telecommunications Commission, and is expected to face significant regulatory scrutiny because it would eliminate Canada’s fourth-largest wireless carrier, Shaw-owned Freedom Mobile.

The rival telecoms argue that Rogers and Shaw could bid strategically in the auction to fulfil their shared spectrum needs, which would give them an unfair advantage over other participants, according to the sources and documents.

They are requesting that ISED address the issue of Shaw’s participation in the auction publicly and that it bar the company from bidding on blocks of airwaves that are set aside for newer wireless carriers. At least one of the rival companies is also asking that the amount of spectrum set aside for new entrants be reduced, particularly in areas where Shaw may have been the only eligible bidder. (Freedom Mobile operates in Ontario, British Columbia and Alberta.)

ISED said it is planning to hold the auction as scheduled, beginning on June 15, but noted that it cannot speculate on which companies will apply to participate or request eligibility to bid on set-aside spectrum. The government will apply the rules it set out in its auction framework when it reviews the applications and will publish a list of all applicants on April 9 and a final list of qualified bidders on April 22, ISED said in a statement.

Analysts are expecting strong demand for the airwaves. TD Securities analyst Vince Valentini predicts that Bell, Rogers and Telus will spend roughly $2.8-billion combined in the auction, according to a report published earlier this year. In the United States, an auction for similar airwaves brought in US$80.9-billion.

Telus did not comment on the prospective merger or the impending auction. Bell said in a statement that allowing Shaw to bid would be against ISED’s own rules and that the company would like to see a public decisions with reasons announced soon. “Considering the unprecedented network, spectrum and other investments that Bell and others are making for all stakeholders, we need regulatory certainty on this,” the company said.

Scotiabank analyst Jeff Fan said that if Shaw is not allowed to bid on set-aside spectrum and the acquisition falls through, it could receive spectrum licences or a roaming agreement from Rogers as part of a $1.2-billion reverse break fee outlined in the merger agreement. That’s what happened when a proposed US$39-billion takeover of T-Mobile USA by AT&T failed in 2011. “The result was that T-Mobile received spectrum, a cash break fee, and a roaming agreement,” Mr. Fan wrote in a note to clients.

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