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Mobilicity calls for U.S.-style 'spectrum screen' for coming auction

Mobilicity chairman John Bitove wants Ottawa to introduce a 'spectrum screen,' a mechanism currently used by the U.S. Federal Communications Commission to limit carrier holdings, in time for the Canadian auction of the 700 MHz frequency.

Peter Power/The Globe and Mail/Peter Power/The Globe and Mail

Behind-the-scenes lobbying efforts are ramping up as the clock ticks down to the federal government's long-awaited policy announcement for the next spectrum auction.

Wireless newcomer Mobilicity is calling on Ottawa to introduce a U.S.-style "spectrum screen" to prevent the big three incumbents from using their financial might to hoard licences in the upcoming auction of the valuable 700 MHz frequency.

Spearheading that last-minute lobby effort is Mobilicity's executive chairman, John Bitove, a seasoned deal-maker with long-standing connections to the Conservative Party.

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Mr. Bitove is urging Prime Minister Stephen Harper and Industry Minister Christian Paradis to scrutinize the spectrum holdings of Rogers Communications Inc., BCE Inc. and Telus Corp., arguing those companies already hold too many wireless licences.

Specifically, he wants Ottawa to introduce a "spectrum screen," a mechanism currently used by the U.S. Federal Communications Commission to limit carrier holdings, in time for the Canadian auction of the 700 MHz frequency. Depending on the timing of Ottawa's policy announcement, that auction could take place in late 2012 or early 2013.

"Fostering a healthy, competitive wireless industry is in all of our best interests," Mr. Bitove wrote in a recent letter to Mr. Harper and Mr. Paradis.

In championing the proposal, Mr. Bitove noted the FCC applied its spectrum screen to help block AT&T's now-failed acquisition of T-Mobile by citing concerns the combined entity would hold too much spectrum. AT&T is now lobbying the FCC to use a tougher version of that screen test to thwart Verizon's purchase of airwaves in two recently-announced deals.

The FCC developed its spectrum screen in 2004 as a tool to identify markets that have lower levels of competition. The screen is generally triggered when a carrier tries to gain control of more than one-third of the spectrum in a given market. As a result, the FCC can require divestitures in order to approve major spectrum purchase transactions.

Additionally, as part of recently approved spectrum auction legislation, the U.S. Congress confirmed the FCC's authority to regulate spectrum holdings during auctions. That means the FCC can set rules to promote competition by preventing the largest companies from abusing their dominance when bidding for new wireless licences.

In addition to calling for a spectrum screen in time for Canada's 700 MHz auction, Mr. Bitove is lobbying Ottawa to "pro-actively regulate all used and unused spectrum holdings" of major carriers.

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He argues that Rogers, BCE and Telus already have "excessive spectrum ownership," which he quantifies as "more than twice the amount of the highest holders in the U.S." His letter lays the blame on "decades of lack of competition and the free spectrum that were gifted to the incumbent carriers back in the 1980s."

"This problem could have been easily avoided if the government had implemented a stringent 'Spectrum Screen' in the first place," he wrote.

Even so, the spectrum screen has proven controversial in the United States, with critics dialling up their criticism in recent months. AT&T chief executive officer Randall Stephenson, for instance, has blasted the FCC for being inconsistent on how it applies the test.

"It appears the FCC is intent on picking winners and losers rather than letting these markets work," Mr. Stephenson said during the company's quarterly earnings call in January.

He noted that while the FCC changed its spectrum screens in order to evaluate AT&T's T-Mobile bid, it later approved its acquisition of Qualcomm spectrum using old spectrum caps. "So we're literally sitting here in a situation, where we don't know what spectrum caps are going to apply from one transaction to the next."

Those issues aside, it is not immediately clear how such a spectrum screen could potentially work in Canada. Even if adopted, its implementation might be complicated by the fact that Industry Canada is in charge of the auction process, while the Canadian Radio-television and Telecommunications Commission regulates the telecom industry.

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Mobilicity has previously argued that Ottawa should set aside, or reserve, wireless licences for smaller players during the next auction. Failing that, the company has said it would support a "low cap" to limit the amount of spectrum that each company could buy.

When asked how its new spectrum screen proposal meshes with that previous stance, Mr. Bitove said Ottawa should start with the spectrum screen and see what results from its formula before applying either a set-aside or cap to the next auction.

"We suspect the big three will be found with way too much spectrum that either a set-aside or cap will be required to limit what they can purchase in 700 (MHz)," he said in an e-mail. "Net net, the end result is most of the 700 (MHz) spectrum should go to new entrants in order to continue to grow and continue bringing down wireless pricing."

Privately-held Mobilicity, which is legally known as DAVE Wireless, is controlled by Mr. Bitove's holding company Obelysk.

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