On the eve of its one-year anniversary in the Toronto market, Public Mobile fired a shot across the bow at Canada’s big three wireless incumbents, imploring the federal government to once again set aside chunks of spectrum exclusively for upstart new players in the next spectrum auction.
In next year’s auction, some spectrum – particularly in the 700 MHz frequency so key to rolling out service in rural areas cost-effectively – must be set aside only for newer entrants like Public Mobile to make sure the Canadian wireless market isn’t monopolized by Telus Corp., Bell Canada and Rogers Communications Inc., said Bruce Kirby, vice-president of strategy and business at Public Mobile.
No one underestimates the importance of the 700 Mhz auction – expected in 2012 – because its spectral efficiencies mean new entrants will be able to better compete with incumbents in offering data services.
“If the government wants to keep better services and cheaper prices for Canadians, the only thing they can do is ensure that you have an ongoing sustainable competitive market in Canada,” Kirby said in an interview with ITBusiness.ca on Wednesday.
When spectrum was set aside in the last auction in 2008, it allowed new blood to compete in the Canadian wireless landscape, such as Public, Wind Mobile, and Mobilicity, which in turn led to lower pricing for consumers, he said. From 2004 to 2009 Canada was the only country in the world where the average revenue per user went up “because you basically had three players who didn’t want to compete with each other on price.”
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Reserving spectrum for fresh players is necessary to prevent the big three from enjoying an “oligopoly,” said Michael Janigan, executive director and general counsel at the consumer research group Public Interest Advocacy Centre in Ottawa.
“We think the solution is to ensure that spectrum is set aside for new entrants and competitors in the market so they are able to offer wireless service at competitive rates, as well as experiment with other kinds of offerings that might not be appealing to the incumbents,” Janigan said.
But the biggest players are lobbying Ottawa to scrap so-called ‘set asides,’ including Telus, which is calling for a cap on the amount of spectrum all bidders can buy without banning any bidders outright from purchasing specific lots of spectrum.
“You can achieve a similar result with a spectrum cap in the auction and that’s by ensuring the caps are set such that even if each of the three incumbents got spectrum, there would still be some left over (for new entrants),” said Michael Hennessy, senior vice-president of regulatory and government affairs at Telus.
Hennessy said a major downside of setting aside spectrum is that although the big three are banned from bidding in the set aside auctions, the new entrants can still bid on all spectrum up for sale – which allows them to bid on spectrum they don’t really want and artificially drive up the prices in the auction.
“As a result we in the (Canadian) industry paid 40 per cent more for spectrum than had been paid in the U.S.,” Hennessy said. This means all bidders end up overpaying for spectrum and money that could have been used to improve networks for users (especially in rural areas) goes to buying at the auction instead.
Meanwhile, more competition is coming from two other new entrants: Halifax-based Bragg Communications Inc.’s Eastlink cable division may launch its wireless services this year, while Calgary-based Shaw Communications Inc. says its twice-delayed cellular service should go live next year.
The next year should be an interesting one for the wireless sector in Canada. Mobilicity said it recently raised $216 million in debt financing, although it didn’t say whether it will use proceeds to buy more spectrum in the next auction. UBS Securities analyst Phillip Huang recently predicted that Mexican carrier America Movil could enter the Canadian market by running a cut-rate wireless service over the network of an incumbent like BCE Inc.
With notes from Howard Solomon
