The House of Commons resumes this week with most political attention likely to be focused on the upcoming budget. Around the same time as the budget is tabled, Industry Minister Christian Paradis is expected to unveil Canada’s much-anticipated spectrum auction policy, a decision that will define the competitive landscape for telecom and Internet services for the next decade.
While interest in spectrum auction policy is typically limited to telecom companies and business analysts, all Canadians have a stake in this decision. The available spectrum – known as the 700 MHz spectrum – opens up a host of possibilities for new innovation, competitors, and open Internet access. It is viewed as particularly valuable spectrum since it easily penetrates walls, making it ideal for delivering wireless high-speed Internet services.
Auctioning the spectrum raises a host of critical policy choices. Topping the list is whether the government tinkers with the auction framework to help foster greater marketplace competition. Some of the large incumbents unsurprisingly favour an â€œopen auctionâ€ with no bidding limits, but assuming Paradis concludes that some measures are needed, the choice will likely come down to either a spectrum set-aside that reserves some spectrum for new entrants and smaller companies or spectrum caps.
The last spectrum auction included a set-aside, which opened the door to a handful of new competitors such as Globalive, PublicMobile, and Mobilicity. A further set-aside may make sense since this round of new entrants may look to use the spectrum primarily for wireless broadband services, providing a potential alternative to the cable and telecom dominance.
If another set-aside proves too unwieldy, a spectrum cap, which would limit the amount of spectrum any single company could hold, may emerge as the alternative. A spectrum cap might prove effective if combined with two additional conditions.
First, the implementation of a use-it-or-lose it principle that would require all bidders to use the spectrum within a defined period. The use-it-or-lose-it approach would help guard against the hoarding of spectrum, particularly for incumbents who may overbid in the hopes of keeping new competitors out of the market.
Second, safeguards against opportunistic flipping of the spectrum with the prohibition on its sale within the first five years of the auction. The trio of policies – caps, mandatory use, and a block on transfer, may increase the number of successful bidders.
Another critical issue is who should be entitled to bid for the spectrum. The last spectrum auction featured Canadian ownership requirements, thereby limiting potential entrants. Given that Canada is one of the only developed countries that has retained significant telecom foreign ownership restrictions, the auction provides a tailor-made opportunity to eliminate the restrictions by opening the market to all bidders.
The spectrum policy decision will also determine which spectrum is available for auction and which is reserved for alternate purposes. The government has already indicated that it plans to grant some of the spectrum to law enforcement agencies, which intend to create their own emergency wireless network.
Many leading technology companies have recommended allocating some of the spectrum for unlicensed purposes. This spectrum, which would be free to anyone to use without the need for licence or government approval, could yield new services and technologies.
Beyond the technical details of the spectrum auction, the final billion-dollar question is what the government should do with the auction proceeds. While the $4 billion in proceeds from the last auction went into general revenues, this auction represents the best â€“ perhaps only â€“ opportunity to access billions of non-tax dollars for the digital economy. The money could be used to support broadband initiatives, digital content creation, and digital skills programs.
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 firstname.lastname@example.org or online at www.michaelgeist.ca.