What the recent ban on spectrum sales by the Canadian government means for the telecom industry

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Regional telecom providers have been caught in the fallout of the Rogers-Shaw deal, with Industry Canada freezing all large transfers of spectrum and potentially hampering efforts to expand services.

As part of his decision to approve the spectrum transfer needed to allow Rogers Communications Inc. RCI-A-T to acquire Shaw Communications Inc. SJR-A-X, Industry Minister François-Philippe Champagne placed a moratorium on further “high-impact” spectrum transfers and said Innovation, Science and Economic Development Canada (ISED) would review the framework for such moves. He did not say how long the moratorium would last or provide a deadline for the framework review.

While the moratorium does not give Mr. Champagne any additional authority – he already has the power to veto spectrum transfers – it does put an immediate halt to any collateral takeovers of regional players that might have followed the Rogers-Shaw deal. Takeovers and mergers often hinge on the transfer of spectrum – a finite resource, the airwaves used to transmit wireless signals.

In addition to Canada’s four largest players – Rogers, Telus Corp. T-T, BCE Inc.’s Bell Canada BCE-T and Quebecor Inc. QBR-A-T – a statement from ISED said the freeze applies to five regional players: Cogeco Communications Inc. CCA-T, Saskatchewan-based SaskTel, Xplore Inc., New Brunswick-based Bragg Communications Inc. (Eastlink) and TerreStar Solutions (operating as Strigo), a Montreal-based satellite telecom company.

These companies hold substantial commercial mobile spectrum and will not be allowed to transact more than 10 per cent of their total spectrum holdings while the moratorium is in place, precluding any deals or mergers. For context, Shaw transferred 100 per cent of its spectrum holdings to Quebecor’s Vidéotron when it sold Freedom Mobile to the Montreal-based telecom, a condition of the deal with Rogers. However, the regional players can acquire spectrum from smaller telecoms, swap it or license it to others.

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In statements, SaskTel and Strigo both said they were evaluating how the moratorium will affect their business and operations. Eastlink declined to comment.

According to ISED spokesperson Hans Parmar, the moratorium on Xplore Inc.’s spectrum transfers includes “two companies related by ownership or control: X-Spectrum 1 (the former Xplornet Wireless Inc.) and X-Spectrum 2 (the former Xplore Mobile Inc.).”

This could be bad news for Globalive Capital, which founded Freedom Mobile (then Wind Mobile) and is attempting to re-enter Canada’s wireless market by acquiring Xplore Mobile’s licences after the latter shut down its services last summer, citing regulatory delays.

Anthony Lacavera, Globalive’s founder and chairman, said he believes ISED’s information is not accurate.

“We believe ISED may not be current on the present control and ownership at Xplore and previously related parties and look forward to discussing with ISED in due course,” he said.

Xplore Inc. declined to comment.

In a statement, Cogeco said the moratorium will not have any immediate implications for its planned entry into the mobile services market. The Montreal-based cable company has said it plans to launch a mobile service through the CRTC’s mobile virtual network operator framework, but in order to gain mandated access through an incumbent’s network, it will need to start operating a mobile network somewhere in Canada. One of the ways it could do so is by acquiring the operations and spectrum of another company.

Spokespeople from Quebecor and Rogers each said their companies do not have any spectrum transfers under way that will be affected by the moratorium. Bell and Telus did not respond to requests for comment.

Quebecor welcomed the news as an opportunity to expand on its recent acquisition.

“This moratorium on large scale spectrum transfers will allow Vidéotron to crystallize its position as the fourth player in Canada,” said spokesperson Véronique Mercier in a statement.

Some experts say the developments are signs that Ottawa is taking telecom competition seriously. Vass Bednar, a senior fellow at the Centre for International Governance Innovation and a policy professor at McMaster University, said the moratorium and review reflect ISED’s push to enhance mobile competition by quashing further industry consolidation before it occurs.

“It’s almost like the minister is trying to say, ‘Where are the genies still in the bottle, and how do we keep them there?’ ” Prof. Bednar said.

She said the review will also fill a legislative gap that has atrophied for more than a decade and a half.

Experts have long been calling for a review of the overall spectrum policy framework, which has not been updated for 16 years. Ottawa has been slow to make decisions about 5G rollout, and the pace of Canada’s 5G spectrum auctions lags that of international peers. In order to catch up, ISED is running two upcoming auctions for 5G connectivity, with the first one planned for October. ISED said the review will not affect the auctions.

However, some experts say the freeze is little more than political grandstanding in service of disgruntled Canadians – an attempt to blunt the criticism it expected for its approval of the Rogers-Shaw takeover.

“The government presumably predicted that type of reaction, so they want to have a little bit of a carrot to dangle for people,” said Ben Klass, a telecom researcher and PhD candidate at Carleton University.

“The government wants to be seen to be acting in the public’s best interest. But how serious is that in the context of having just approved a giant merger?”