The explosive popularity of mobile devices like smartphones and tablet computers is transforming Canada’s telecommunications industry.
Canadians’ data use is surging, heaping pressure on wireless companies to provide faster mobile broadband speeds.
Now, companies of all sizes are eager to implement what is known as Long-Term Evolution technology, the hugely important standard for existing and future smartphone networks. Doing so, however, requires significant network investments and more mobile spectrum.
“This is a game of speed,” said Ken Engelhart, senior vice-president for regulatory affairs at Rogers Communications Inc. “Whoever has the faster network has a lot of cachet with customers.”
The next year is poised to be a game-changer for the telecom industry as the federal government mulls an overhaul of the sector’s foreign investment rules and unveils its long-awaited vision for a crucial auction of wireless licences on the valuable 700 MHz frequency. What’s ultimately decided by Ottawa has the potential to shake up the competitive landscape by triggering consolidation, which could, in turn, impact pricing trends. The ramifications of the government’s weighty decisions will be felt by businesses and consumers alike.
Various federal governments have for years waffled on making changes to the sectors’ foreign investment rules, due to political sensitivities over maintaining Canadian ownership and control over infrastructure.To begin the 2010 session, for example, the Tories vowed to ease those restrictions but have yet to take action.
The law restricts direct and indirect foreign investment in telecom companies to a combined total of 46.7 per cent. Critics argue those rules harm investment and hamper the ability of new entrants to compete.
In the fall, a cabinet committee was considering a proposal to allow 100-per-cent foreign ownership of telecom firms with a market share of 10 per cent or less. But Industry Minister Christian Paradis has since remained tightlipped over the government’s plans.
There is general agreement among smaller wireless players that relaxing the restrictions would help them tap fresh sources of capital for network investments and to effectively bid against the big three incumbents – Rogers, BCE Inc. and Telus Corp. – in the next wireless spectrum auction.
Incumbents, though, oppose an asymmetrical reform of foreign investment rules, arguing it would benefit foreign investors at the expense of Canadian shareholders.
Overall, the industry is hoping the federal government will announce its final decision on foreign investment in January.
The industry is also counting on Ottawa to unveil early in 2012 its auction policy, which will outline the general structure for the next spectrum auction.
It will likely clarify whether the government will hold an open auction or set aside wireless licences for smaller players as it did in 2008. Alternatively, it could limit the amount of spectrum that each company is allowed to purchase. One proposal being considered is to place a cap at 10 MHz of bandwidth.
That policy should also spell out plans to divide up key blocks of the 700 MHz frequency. Ottawa is generally expected to replicate the U.S. 700 MHz band plan to co-ordinate issues like frequencies, roaming and to ensure an affordable selection of handsets.
Following the release of the auction policy, Ottawa is expected hold an industry consultation to determine more nitty-gritty details for its auction rules. Industry experts suggest that consultation process could easily run until late summer or early fall. That means the auction itself is unlikely to take place until late 2012 at the earliest.
700 MHz Frequency
Canadians’ growing love affair with data-consuming mobile devices like smartphones, Internet sticks and tablets is putting tremendous bandwidth pressure on the wireless industry. As of September, 20.1 million Canadians, 13 years of age or older, used mobile devices, according to comScore, Inc.
The 700 MHz frequency is highly coveted because it is well suited to providing ubiquitous mobile broadband networks at high speeds – such as those required for implementing LTE technology.
Faster connection speeds are critical to ensure the reliable delivery of high-quality mobile video, which is a growing part of data usage.
The 700 MHz frequency is also valuable because it is a lower frequency that travels longer distances, which means companies need to build fewer towers. (A single tower can cost, on average, between $500,000 to $700,000.) It also better penetrates buildings and trees – making it ideal for LTE networks in both urban and rural areas.
Still, only three blocks of that frequency are considered prime spectrum, meaning overall availability is scarce. “The bidding will be pretty hot and heavy for that spectrum,” said Chris Peirce, chief corporate officer for MTS Allstream Inc.
The concept of a digital divide between urban and rural areas remains a politically charged topic. The issue today is not so much access to the Internet, but rather ensuring that rural residents also benefit from the same high speeds and capacity offered by modern urban networks.
“Urban and rural broadband use is the same. People want to do the same thing in rural as urban,” said Allison Lenehan, chief strategy officer of Xplornet Communications Inc., which provides wireless broadband for rural homes and businesses.
Without access to more spectrum, smaller companies like Xplornet say they will be unable to increase broadband capacity to rural residents.
For its part, Rogers argues that carriers that bid and purchase 700 MHz spectrum should commit to rural deployment. Critics, however, suggest that is an offensive tactic designed to squeeze new entrants out of the auction process since those players are mostly focused on large urban markets.Report Typo/Error