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Rural Canada unlikely to benefit from foreign wireless carriers

Increased competition could also force incumbents to focus on keeping urban customers.

Moe Doiron/The Globe and Mail

The entry of a big foreign player into the wireless market would be unlikely to improve service in rural Canada, because federal rules don't require it.

Under the rules governing the auction of 700 MHz spectrum – the publicly owned airwaves that carry wireless signals – new wireless companies would only have to build enough capacity to serve between 20 and 50 per cent of the population covered by the license area, within 10 years.

Assuming a new entrant were to purchase spectrum in the lucrative Ontario, Alberta and British Columbia markets, it could meet that requirement by building a network only in urban centres.

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However, existing wireless carriers, such as Rogers Communications Inc., BCE Inc. and Telus Corp., are required to deploy services to 90 per cent of their existing high-speed network within five years and 97 per cent within seven years.

Investment in rural service could also take a hit, the Big Three carriers warn, because they are prohibited from bidding on two of the four blocks of spectrum.

"If Verizon were able to buy two of the four blocks of spectrum that are being auctioned off, it's going to prevent a company such as Telus from being able to get one of the blocks of spectrum and we won't be able to take LTE wireless service out to rural Canada," Telus chief corporate officer Josh Blair said in an interview. (LTE stands for fourth-generation, long-term evolution.)

Increased competition could also force incumbents to focus on keeping urban customers. BCE has said it would likely scale back efforts to bring advanced cellphone services to rural areas if large foreign telecoms such as Verizon were allowed to enter the market.

"If Verizon focuses on urban areas, then the incumbents will likely look to vigorously protect their network quality and would likely look to trade off urban versus rural [capital expenditures]. We would expect less capital investment in rural areas," said research analyst Andrew Calder of RBC Dominion Securities. "The regulations are currently highly favourable – or accommodative – for a new entrant."

But the federal government is standing behind its regulations for rural areas. "We have set strong rural deployment conditions – the first of their kind in Canada," Industry Canada spokesman Derek Mellon said in an e-mail. "Incumbents took almost 30 years to reach the level of coverage that they have today; new entrants require adequate time to expand their networks."

Anthony Lacavera, chief executive officer of Wind Mobile, one of two companies Verizon is said to have looked at acquiring, believes the government's spectrum auction rules will not have an impact on rural capital investments. Rural service is still somewhat limited, he noted, and the incumbents continue to roll out upgrades to major centres first, and rural areas later.

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"This idea that this upcoming auction outcome will impact rural builds one way or another is the straw man of all straw-man arguments," Mr. Lacavera said.

There are no penalties associated with not fulfilling the building obligations, but spectrum licences, which are issued for terms of up to 20 years, are subject to public consultation before renewal.

Randall McLaren, mayor of the Township of Bonfield in northeastern Ontario, said network upgrades have been rolled out in his region only this past year, allowing residents to use smartphones. "There has been a big expansion in this area within the past couple of years, which is why we have access now [to high-speed data networks]. Most of the wireless carriers have really stepped up their game as far as that," he said.

But Mr. McLaren said the rules should be the same for all carriers. "Canada has places where it's costly to do business. If there's rules for one company it should apply to all the players in the game."

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