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The federal government's approach to fostering wireless competition has some serious flaws, as the giant carriers have groused bitterly over the past few weeks. Perhaps the biggest flaw, however, was more diplomatically cited last week by Quebecor Inc. vice-chairman Pierre Karl Péladeau: that those who stand to be hurt most by Ottawa's latest moves are actually newcomers – including Quebecor – who responded to the government's call six years ago to challenge the Big Three incumbents. His proposed solution would add yet another twist to the government's disjointed efforts, but it would at least be consistent with the feds' past moves.
Quebecor's Vidéotron unit is one of the few successes among the wireless upstarts, for one main reason: Unlike Wind Mobile or Mobilicity, it already had a franchise in its home market of Quebec, namely its cable, Internet and home phone services. All it lacked to counter the "quadruple play" heft of the incumbents was a wireless offering – that is, until the government set aside spectrum in a 2008 auction for new entrants. The company paid $555-million for its spectrum, launched quickly and invested hundreds of millions of dollars more to build its business. Despite its limited spectrum, the company boasts an impressive 450,000 wireless customers as of June 30.
Vidéotron should be Ottawa's poster child for enhanced wireless competition, but Mr. Péladeau isn't happy with the rules for the upcoming 700-megahertz auction either. As a new entrant, Verizon would be able to bid for two out of the four prime blocks of spectrum being set aside for newcomers in each market. Like the incumbents, Vidéotron also worries that it could be frozen out (they can only bid on two blocks and win only one each) if it is outbid by the vastly larger Verizon, which seems probable. "New entrant carriers like Vidéotron and Eastlink [of the Maritimes] have fulfilled the government's objectives yet stand to be negatively impacted by Verizon due to the auction rules," Canaccord Genuity analyst Dvai Ghose said. "They may rightfully feel betrayed."
If Ottawa went to such great lengths to help regional players get established, it hardly seems fair to not set aside more spectrum just for them. But Mr. Péladeau has craftily decided to use honey instead of vinegar to make his case. While the incumbents' public campaign is largely about what's good for them, Mr. Péladeau this week applauded the government, pointing out that Vidéotron has "led the fight" against the Big Three. Then, he politely argued the "Canadian controlled market entrants" still need help to get established, which the government can do by reserving one of the four blocks of them exclusively in their regional markets. Otherwise, they "will leave the auction empty-handed, hobbling their ability to remain technologically competitive," he warned.
Mr. Péladeau is essentially arguing that market entrants who got special favours in the last auction should get more now. Then again, every player in the Canadian wireless market has received special favours, primarily when the incumbents got free spectrum in the 1980s and 1990s. For a sector whose forging has consistently belied free market principles thanks to free passes from government, it would hardly make sense for the government to stray from past market-bending moves. But it would make no sense whatsoever to effectively prevent one of the upstarts that responded to its call five years ago from finishing the job.
Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Sean on Twitter at @seansilcoff.