Last week, the titans of the telecommunications industry, including Ted Rogers and BCE's Michael Sabia, joined Industry Minister Maxime Bernier in Toronto for the 2007 Canadian Telecom Summit. The Summit attracted hundreds of delegates, yet the real star of the show was a spectrum auction set for 2008.
Canadians can be forgiven for being unfamiliar with the issue. Spectrum allocation, which focus on the availability of frequencies used to provide wireless services, involve fairly technical questions that few outside the industry follow closely. Earlier this year, Industry Canada launched a public consultation to establish the ground rules for the next allocation of spectrum, planned for auction in early 2008.
The first round of the consultation comments closed last month, generating nearly 50 industry submissions, yet surprisingly only four Canadians provided their views (follow up responses can be made until June 27th). By comparison, in the United States more than 250,000 people have written to the Federal Communications Commission to urge it to set conditions on a forthcoming spectrum auction that would make Internet access more open, affordable, and accessible.
Despite the lack of Canadian public awareness, the issue has an enormous impact on telecommunications since it plays a pivotal role in determining wireless competition. Given its importance, Canadian telecommunications companies have been waging an expensive lobbying campaign to convince Ottawa to adopt their preferred approach on the spectrum auction (a cynic might say that if the companies worked as hard trying to attract new customers as they do trying to stop new competition, the Canadian wireless landscape would be a better place).
The three incumbent wireless providers (Bell, Telus, and Rogers) along with some business groups stand on one side, calling for an "open auction" that would involve minimal pre-conditions and see the available spectrum auctioned off to the highest bidders. These groups argue that the Canadian wireless market is already competitive and that the government should avoid setting aside spectrum for new providers.
Major cable companies (Shaw, Quebecor, Cogeco) and smaller telecom companies (MTS Allstream, Toronto Hydro Telecom) provide the alternate perspective. They are seeking a "set-aside" that would reserve spectrum for new entrants. These companies point to data that places Canada well below other developed countries on metrics such as the number of wireless subscribers, pricing, and the introduction of innovative services. They also note that Canadian spectrum auctions are not truly open, since foreign ownership restrictions exclude many potential bidders.
While the incumbents have been quick to characterize a spectrum set-aside as akin to a government subsidy, they fail to acknowledge that they were handed reserved spectrum to get off the ground.
In 1984, the government allocated its first block of spectrum for wireless services, specifically reserving spectrum for Cantel (later Rogers), who benefited from no upfront payments and regulations that mandated that the incumbent providers could not provide service in a given region before Cantel established service there. In 1995, the government again adopted a regulated approach to the allocation of spectrum for PCS services, setting aside spectrum for the two new entrants – Microcell and Clearnet – that are today owned by Rogers and Telus.
With so many options and opinions, Bernier faces a tough choice. The best guidance for action, however, may have come from a question near the conclusion of a Summit debate on the spectrum auction. After each side exhausted their arguments, the debate moderator asked what the companies intended to do with the spectrum if their bids were successful.
The new entrants responded that they plan to build a new national wireless network to increase the competitive landscape in Canada. The incumbents, meanwhile, did little to alter the view that their primary interest in obtaining new spectrum is simply to stop would-be competitors from doing so, since the best response they could muster was to suggest that increased spectrum would reduce the need to build more cell towers, while ensuring that they could offer services for new phones designed specifically for the new frequency.
Viewed through the lens of planned spectrum use, the choice boils down to the chance for increased Canadian competition through a set-aside or an open auction that offers little in the way of change. For a Minister who has made his mark reshaping the Canadian telecommunications landscape, the decision may not be so difficult after all.
Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can reached at email@example.com or online at www.michaelgeist.ca.