Canada Delays 700 MHz Spectrum Auction Until Late 2012

Industry Minister Tony Clement recently said the federal government now intends to hold the 700 MHz auction by “late 2012,” a year later than initially planned and at least six months later than observers had expected. As a result, the 700 MHz spectrum could potentially sit vacant for two years or more after over-the-air TV stations in the country’s major markets give up their rights to it on Aug. 31 as part of Canada’s long-planned digital TV transition. In contrast, the U.S. staged its 700 MHz spectrum auction in January 2008, nearly a year and a half before American TV broadcasters had to vacate the space.

Although he has called the spectrum selloff a top priority for his department, Clement said the government needed to take several steps before actually holding the auction. He said his ministry would launch a fresh round of consultations with the Canadian wireless industry on spectrum auction rules and related subjects. And he said the government would re-evaluate its current restrictions on foreign investments in Canadian telecom firms. “This just makes sense,” said Clement, speaking at the International Institute of Communications’ Canadian chapter conference late last year. “How spectrum is allocated and who is eligible to compete for it and pay for it are interrelated issues. And so we will consider foreign investment rules and decisions around the 700 MHz auction together, as part of an integrated regulatory approach."

Clement acknowledged that it “sounds laggardly” to push back the 700 MHz auction until late 2012 and the following 2500 MHz auction to an even later date. “But it really isn’t,” he argued. “In order to do it right and do it effectively with the one shot that we have, it works out to two years but we're getting started right now."

In the meantime, Clement said his agency would immediately start looking at the tower-sharing policies of the wireless providers to “reduce tower proliferation.” He said the government would also freeze spectrum license fees at their current levels and extend the length of license terms to 20 years “for all future auctions and license renewals.” He indicated the industry consultations would start shortly.

A week after his speech, Industry Canada released a consultation paper describing the wireless industry’s progress and asking industry players to comment on the state of competition and the market’s expected evolution. In particular, the 46-page paper requests comments about possible rules for the 700 MHz auctions, asking whether there should be spectrum caps for incumbents, set-asides for smaller and new entrants, and changes in the foreign investment rules, among other things. Initial comments are due by the end of February.

The 700 MHz spectrum moves come about two and a half years after Industry Canada sold off two blocks of Advanced Wireless Spectrum (AWS) in June 2008 to existing and new wireless providers for a record total of $4.3 billion. As in the U.S., the Canadian 700 MHz spectrum block is considered more valuable than AWS because it offers better in-building coverage, can cover rural spaces easier, and seems better suited for video services, so the 700 MHz auction is expected to bring in higher proceeds than AWS.

The three large national wireless carriers -- Bell Canada, Rogers Communications, and Telus -- have been pressing the government for an earlier auction date and jockeying for position. In recent months, for instance, senior executives from both Bell and Rogers have urged government officials to hold the auction sooner than late next year.

In a recent speech, Rogers CEO Nadir Mohamed said the government should move quickly because the 700 MHz block is “prime spectrum for LTE,” which Rogers just started testing in the Ottawa area in October. “Why we want to make sure that the spectrum is a) auctioned early and b) that it’s made available for companies like ours is because when you look south of the border, both AT&T and Verizon are deploying 700,” Mohamed said. “So we have to have access to it because, for us to drive the agenda in terms of services and applications and to meet the demand of our customers, we need spectrum.”

The three national carriers have also urged the government not to set aside blocks of spectrum for certain players again, as it did two and a half years ago. In the spring 2008 spectrum auction, the government set aside 40 MHz of the available 105 MHz for new entrants, enabling such wireless startups as Wind Mobile, Public Mobile, and Mobilicity to enter the market. The set-asides also allowed such large cable operators as Shaw Communications, Videotron, and EastLink to acquire wireless spectrum in their main regions.

In a speech late last year, Bell Canada CEO George Cope demanded that things be different this time around. “It has to be a wide open auction,” he said. “There can be no discussion of this.” Cope also argued that the younger wireless carriers should be considered incumbent carriers: “The new entrants are no longer new entrants anymore."

But the new carriers said the odds are still stacked heavily in favor of the three major incumbents. They're calling for another round of spectrum set-asides or, failing that, spectrum caps for the three large providers. “The government must continue to support new entrants in that auction or we will be squeezed out,” said Globalive (Wind Mobile) Chairman Anthony Lacavera, in a speech.

The new wireless providers also contend that the major carriers are sitting on a great deal of unused spectrum, a charge that the incumbents angrily deny. “The incumbents have gobs of spectrum they are not using,” said Public Mobile CFO Jim Hardy: “You could argue this should be a complete set-aside from the incumbents … or at least put in place a spectrum cap."