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Rogers Communications Inc.’s friendly proposal to acquire Shaw Communications Inc. for $20.4-billion is the clearest sign yet that Ottawa must rethink its spectrum set-aside policy for new carriers.Adrian Wyld/The Canadian Press

It was always going to end this way for wireless new entrants.

To understand why, cast your mind back to 2006, a time when when wearing a BlackBerry in a hip holster was in vogue. The Conservative government of the day was eager to create new competition in the wireless market and began crafting a plan for a federal auction of advanced wireless services (AWS) spectrum. After much deliberation, it opted for a set-aside policy to give new carriers preferential access to some of those airwaves in a 2008 auction.

Trouble is, some of the government’s telecom advisers had misgivings about reserving a portion of that spectrum for bidding by new entrants. As they would later tell The Globe and Mail, there were concerns the set-aside policy would either result in profitable companies paying discounted prices for valuable spectrum or new entrants that would eventually sell out to large carriers at higher prices.

Turns out, those policy wonks were right.

Rogers Communications Inc.’s friendly proposal to acquire Shaw Communications Inc. for $20.4-billion is the clearest sign yet that Ottawa must rethink its spectrum set-aside policy for new carriers – a model it has used in a number of auctions over the years.

Although Shaw is an established cable and internet provider, it is considered a new entrant in the wireless market. That new carrier status allowed Shaw to benefit from the policy and purchase spectrum at lower prices. The proposed Rogers-Shaw tie-up means its spectrum is now in play and, depending on regulators, at least some of it will end up with Canada’s largest carrier.

It’s time to admit the set-aside policy has failed. Ottawa should reassess whether providing such generous inducements to new players serves the public interest in a 5G world – one in which carriers need scale and capital to truly compete.

A lot has changed since the policy was first devised. The future of wireless is all about data, not the talk-and-text model of yesteryear. Start-ups such as Mobilicity and Public Mobile couldn’t survive as independents and were swallowed up by incumbents.

Now Shaw, too, wants to sell itself to a large player. The Western Canadian cable company is crying uncle just five years after acquiring fellow new entrant Wind Mobile – a deal that was supposed to mark its rebirth as a wireless contender.

Shaw’s journey as a wireless player is a cautionary tale. The company was Ottawa’s best hope of achieving a fourth national carrier despite its history of running hot and cold on wireless.

As a new entrant carrier, Shaw has benefited from $1.7-billion in incentives – not cash payments but arguably implied taxpayer subsidies – through its purchases of set-aside spectrum since 2008, according to public documents.

That total includes $145-million for Shaw’s purchase of AWS spectrum in 2008 (later sold to Rogers), $890-million from its Wind Mobile acquisition in 2016 and $696-million from Shaw’s 600 MHz spectrum purchase in 2019. (The total excludes Shaw’s purchase of 700 MHz and 2500 MHz spectrum from Quebecor’s Videotron in 2017.)

It is also worth noting that Shaw earned a $160-million profit by selling AWS spectrum that it originally purchased for $190-million to Rogers for $350-million, according to its financial statements.

Shaw, however, disagrees “with the premise underscoring” the tally of implied taxpayer subsidies and its profit from the AWS resale. (The government declined to comment on those figures and did not provide its own numbers.)

“The notion that Shaw earned a profit from the spectrum sale to Rogers in 2013 is false, given Shaw incurred significant losses as a result of our decision to discontinue our wireless network strategy,” Chethan Lakshman, Shaw’s vice-president of external affairs, wrote in an e-mailed statement.

Still, even Shaw suggests the set-aside policy is behind the times.

“While this model worked for an LTE world, we accept the incoming 5G world may require a further evolution of policy,” Mr. Lakshman said. “To be successful, 5G technology requires wireless companies to have access to significantly more spectrum to compete because the spectrum requirements are significantly larger.”

As he also points out, carriers also need access to a fibre network, billions of dollars to build infrastructure and time to grow a customer base.

But if a formidable challenger like Shaw can’t find a path forward on its own, that should give Ottawa pause. What’s to stop other wireless new entrants, including regional cable companies like Bragg Communications and Videotron, from eventually selling out to incumbents?

We must remember that spectrum – the invisible radio waves that carry wireless signals – is a limited public resource. Taxpayers deserve to know if they’ve gotten their money’s worth by providing incentives to new entrant carriers through auction set-asides. Perhaps Parliamentary Budget Officer Yves Giroux could take a crack at it. The Trudeau government only gives us spin.

While it’s too late to make rule changes for next month’s 3500 MHz auction, there’s no point in continuing with a set-aside model for future auctions if that spectrum eventually ends up with incumbent carriers.

“What will continue to happen is that the small players that have any success will be bought by the major companies,” said Gregory Taylor, a spectrum expert and an associate professor at the University of Calgary.

At the very least, Ottawa needs to crack down on spectrum speculators by having stricter roll-out obligations and tougher penalties for flippers, he said.

The government should also narrow its definition of new entrant carriers so that it only applies to small independent players like Tbaytel that provide services in underserved rural and remote communities.

There’s no reason that successful regional cable companies, which are controlled by some of Canada’s richest families, or Crown-owned SaskTel, should be given special allowances to buy spectrum at lower prices. “They’re big enough on their own. There’s no doubt about that,” Mr. Taylor said.

We can’t rewrite the past. But Ottawa must learn from it. As those spectrum sages feared 15 years ago, the set-aside policy has indeed gone awry.

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