2013 Radio Waves Auction

Wind Mobile CEO Denounces Government’s Telecom Regulations

Unless there are substantial modifications to the government’s recent announcement regarding the rules and regulations for next year’s federal auction of radio waves, at least one national telecom provider won’t be part of the bidding process.

“Obviously we don’t want to sit the auction out,” Wind Mobile CEO Anthony Lacavera tells CBJ. “But we aren’t going to spend millions of dollars to enter the auction if we have no chance of winning. The way the rules are structured, there’s no reason for any stand-alone new entrant to show up. You can’t buy enough real estate to make a go of it, so you’re going to have stranded spectrum and an inability to compete with LTE speeds.” (long term evolution).

Wind Mobile is one of two small Canadian national cell phone companies that have been publicly threatening to sit out the next federal auction of radio waves, perturbed by what they feel is an unfair process too heavily weighted in favour of the industry giants, leaving little, if any, room for new players. The other was Public Mobile, but they seem more accepting of the auction setup following the government’s announcement.

Companies like Wind Mobile and Public Mobile have said all along that space needs to be set aside for companies such as theirs or there is no conceivable method for them to ever stand a chance in going up against established titans such as Bell, Rogers and TELUS.

Industry Minister Christian Paradis recently announced the rules for the auction of the much-anticipated 700-megahertz band. Those within the industry have dubbed it the “beachfront property” of the airwaves due to the spectrum’s tremendous reach and an ability to keep strong signals, even in hard to reach areas.

It’s also known for an ability to penetrate through concrete walls. During the announcement Paradis said “The measures I am outlining will ensure the timely availability of world-class wireless services at low prices for Canadian families, including those in rural areas.”

Wind Mobile, and small companies like it, require these new radio frequencies in order to provide faster, more stable networks using LTE technology for hard-to-reach locations and rural destinations.

Lacavera had hoped for much more when Minister Paradis outlined the parameters of next year’s auction. The government is putting capped limits on how much spectrum the largest players can buy in the auction, and it’s easing off on strict regulations regarding foreign ownership. That’s all good, according to Lacavera.

The plan is to set aside a portion of the air waves available for new telecom companies such as Wind Mobile, Public Mobile, Mobilicity and Videotron. But for Lacavera, the new rules come up way short. In fact, when giving an overall assessment he views it as one step forward, two steps back.

“One step forward in terms of broader foreign investment, then unfortunately the government took us two steps back by creating a spectrum auction policy,” he says. Spectrum is the real estate – for lack of a better term – of the wireless business. Companies require sufficient real estate to build their commercial operations. This particular real estate is what all the companies want to obtain for the purposes of high-speed wireless networks and content distribution over wireless.

Lacavera provides this analogy for those who may not be able to envision what he means.

“What the government has done is created a policy that allows us to buy a sliver of beachfront real estate – just enough so I can build a walkway out to the beach, but I can’t build a hotel on the beachfront property,” he asserts. “And of course I’m looking up and down the beach and I’m seeing Rogers, Bell and TELUS already with their huge beachfront property, already running their big resorts.”

The issue for Wind Mobile is it can’t access enough of the prime real estate to build a “hotel” of its own. Even although capital is no longer a restraint, should the company want foreign investment, the new roadblock is a real estate constraint.

With the new cap system, the incumbents will have access to one block apiece – which is enough to build a “hotel.” Why then have the big players been so quiet after the capped regulations imposed against them were made public?

“They already have enormous swaths of 800 MHz frequencies, which they’re now using as part of their LTE solutions they’re advertising,” Lacavera notes. “They don’t have real estate constraints. We have no other frequencies. It’s also important to note that in the mid-1980s those 800 MHz frequencies were gifted to Mobility Canada and Cantel – gifted. There was no value put on them by the government. The current Rogers Wireless and the current Bell Mobility and TELUS Mobility are operating on frequencies that were given to their predecessor companies.”

Needless to say, the wireless industry has matured exponentially since the mid-1980s, and so Lacavera realizes gifting is a thing of the past and he’s in no way looking for a free handout in 2012.

“We just wanted the right to buy enough real estate to compete on a level playing field with the three big guys,” Lacavera notes. “Unfortunately the government has come out with a new policy that further handicaps new wireless competition.”

Regardless of whether one views the government’s policy fair or not, it would seem the new regulations will likely result in consolidation of the new entrants in the wireless market, perhaps even in advance of the auction, in order to have any hopes of competing against the established players over the long haul.

“I’m hoping to participate in that consolidation and maintain some sort of independence from the big guys so I can achieve my goal of giving Canadians a real choice in wireless,” Lacavera reveals.

In a media release, Mobilicity CEO Stewart Lyons was more upbeat, saying “We are confident that competition will continue for the betterment of Canadian consumers.” Appearing on CBC’s The Lang & O’Leary Exchange, Lyons said Mobilicity will “be a force to be reckoned with in the auction.” He says his company has received several strong financial offers to help fund the project.

Increased competition invariably brings better pricing deals for the general public. As we’ve seen many times before, once an industry becomes monopolized by just one or even several large corporations, it essentially gives them carte blanche to set the standard when it comes to price points. For the frazzled consumer, it’s either pay the price or go back to sending smoke signals.

Bell and Rogers are now – and always have been – staunchly opposed to any radio waves being set aside for fledgling telecom companies to upgrade and expand their wireless networks.

“This auction shouldn’t be about what’s the best business strategy for the new entrants,’’ says Mirko Bibic, senior vice-president of regulatory and government affairs at Bell. TELUS has taken a less militant stance, saying it has no issue with spectrum caps for the next auction.

In addition to the auction rules and requirements, Minister Paradis addressed the issue of foreign ownership of Canadian telecom companies in terms of percentages allowed. As far back as two years ago, the federal government made a commitment to open up foreign ownership within the industry and it has followed through on that promise.

Bruce Kirby, vice-president of strategy and business for Public Mobile, says if cellphone companies such as his aren’t given a fair opportunity to win new radio frequencies against their larger competitors, they will have no hope of expanding into many of the smaller communities throughout Canada.

“For small town and rural you need to have either the 700 MHz spectrum or what the incumbents already have, the 800 MHz spectrum to be able to economically build out a network and compete within markets that are that small,” Kirby says.

The 800 MHz spectrum is very heavily used, because it’s such a valuable frequency range.

Combined, the “Big Three” owns about 100 MHz of personal communications service spectrum (PCS) across small rural towns, which has never been used. They have a combined 50 MHz of advanced wireless services spectrum (AWS), which they’ve said publicly they have no plans to use in small towns or rural areas.

“They have more than enough spectrum to enhance their networks and expand them into new technology, but it takes more work for them to do that rather than just go out and buy more very valuable spectrum,” Kirby indicates.

With each of Bell, Rogers and TELUS all being granted one licence slot each, it leaves two spots open for the newcomers.

On foreign ownership, Kirby believes too much has been made of it in the past and the latest modifications to the rules will be beneficial.

“Our position is that there shouldn’t be any restrictions on foreign ownership in telecom of any kind; that it actually serves no public purpose to restrict the ownership – even the big guys,” Kirby states. “But as a practical matter, all the big guys have themselves wrapped up in the broadcasting industry, which has its own set of issues. Every time you talk about changing the rules for those guys, it creates a political firestorm.”

When there’s a telecom-broadcasting mix, it becomes a much more complicated matter because cultural concerns are then front and centre. Who owns the pipe is irrelevant to Kirby.

In the previous 2008 auction, there was a policy that allowed the smaller players to acquire some of the frequencies. That process effectively is still in place.

“There were ample bidders on both the set-aside and non-set aside frequencies,” Lacavera says of the 2008 outcome. “There was obviously a massive windfall for the government taxing taxpayers with in excess of $4.2 billion bid on those frequencies, which was more than double what was projected.”

The auction four years ago provided the largest revenues ever seen; there’s been competition in the marketplace and the policy in wireless competition has been working for the most part. It’s anticipated the upcoming 2013 auction could fetch about $3.5 billion for the federal government.

Small companies wanted to see the basic process continue, but not everyone feels that way. The incumbents have repeatedly said there should be no more handouts for the little guys, because they’ve already been helped out more than enough already. Lacavera wholeheartedly disagrees with what he says is a completely inaccurate assertion.

“That’s just a pile of crap,” he firmly states. “We’re not asking for any handouts. We paid full price for the frequencies in the last auction and we’re prepared to pay fair market value in this auction but we have to have some chance of buying them at all because it cost us between $3 and $4 million just to enter the last auction, which is a huge expense for a start-up.”

Lacavera believes the federal government has a solid understanding of the issues and there are good intentions all around, but the problems are generated more from a lack of resources to sort through an endless number of files at Industry Canada.

“The tower sharing – or roaming – those are two issues that results in street level fighting at the municipal level,” he says. “The federal government has oversight and created a policy for tower sharing, but when the rubber hits the road at the municipal level, when we’re actually trying to share a specific site with Bell, TELUS or Rogers that’s when all the site surveys happen, permits happen and town-hall meetings to propose us building a new site happen, that’s when Rogers says ‘we offered to share’ – but they really didn’t offer to share, and that’s when all the shenanigans start.”

“I think the big guys are doing the smart thing by slowing us down any way they can,” Lacavera admits.

“Ours is a 10 to 12-year business plan, it’s not a three-year business plan,” he offers. “We got into it with the government saying they are pro-competitive in wireless.”

Lacavera also strongly refutes the assertion by the big players that companies such as Wind Mobile and Public Mobile are established corporations.

“You don’t have to look too far to see just how entrenched Bell, TELUS and Rogers are,” he says. “And then of course all of the flanker brands that they own 100 per cent: Koodo, Fido, Solo, Virgin, Chatter, all those brands. Canada is unique that way where the big guys have gone largely unfettered over the last three decades.”