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Wireless market ‘functioning well’ in Canada: researcherFred Lum/The Globe and Mail

The federal government issued new rules designed to help smaller players compete in the $19-billion wireless telecom market, but the measures may not be enough to allow them to make substantial inroads against the industry's incumbents.

Industry Minister Christian Paradis announced Thursday that Ottawa is tweaking key rules to ensure at least four cellular carriers are able to compete in each region of the country after a pivotal auction of wireless spectrum takes place later this year.

The changes, which were dogged by months of delay, include stricter rules that push carriers to share cell towers, while also toughening up the requirement to provide roaming on their networks to their rivals. Additionally, Ottawa is reviewing its policy on transfers of wireless licences – signalling it could make it tougher for the big three incumbents to acquire spectrum from smaller carriers.

But there is considerable doubt that cash-strapped new entrants have the financial wherewithal to bid for licences in the auction of the valuable 700-megahertz frequency. Neither Wind Mobile nor Mobilicity have committed to participating in the auction that begins Nov. 19. The new entrants collectively control only 4 per cent of the market as of 2011.

Their failure to do so would deal a significant blow to competition. The 700-MHz band is seen as essential for small carriers to compete because it will enable them to build ultra-fast LTE (long-term evolution) networks. Their inability to poach significant market share, coupled with new roaming rules and the high cost of building out wireless networks, could also discourage any new players from entering Canada – despite recent changes to foreign ownership rules.

"The industry has been holding its breath for almost a year," said Geoff White, senior manager and regulatory consultant at Nordicity. "Now the question is: Are we hearing sighs of relief or gasping at the rules?"

Companies need access to spectrum – which is limited – to offer their customers a wider range of services. The 700-MHz spectrum being auctioned is seen as more valuable than what has been offered in the past, because it is well suited to carrying the data cellphone users are consuming in ever-increasing proportions as they move to smartphones and tablets.

To ensure at least four competitors will be able to buy wireless licences in each regional market, Ottawa plans to limit the amount of so-called "prime spectrum" that incumbents can purchase in the 700-MHz band. Even so, buying wireless licences remains an "expensive proposition." Minimum bids are set at $897-million, but the complex auction format could result in a much higher final prices, Mr. White said.

Moreover, new rules allow any carrier, regardless of size, to request a roaming agreement on any competitor's network – a change that could make foreign carriers wary of setting up shop in Canada. For his part, Mr. Paradis stressed that "rules are in place to facilitate access to wireless spectrum for smaller providers" and increase competitiveness.

But Dvai Ghose, an analyst with Canaccord Genuity, questioned which small carriers, other than regional players like Quebecor and EastLink, would bid. "It is not at all clear which new entrants have the financial capabilities to buy more spectrum and upgrade networks to LTE. Consequently, while Industry Canada's goals are clear, long-term achievement of these goals is far from given at this time."

Rogers Communications Inc. characterized the overall announcement from Mr. Paradis as "status quo." New entrants, meanwhile, said the new rules were a step in the right direction to keep competition alive. "All this has to be fixed to make the business viable going forward," said John Bitove, executive chairman of Mobilicity.

Meanwhile, analysts also questioned whether Ottawa's review of spectrum licence transfers could make it more difficult for Rogers to acquire AWS spectrum from Shaw Communications Inc. in late 2014 – a prospect that was applauded by new entrants.

"The days of hoarding and warehousing precious spectrum are coming to an end and Canadian consumers and businesses will benefit from a competitive wireless industry," said Wind CEO Anthony Lacavera.