If you’re an electromagnetic frequency buff, the federal government’s upcoming wireless spectrum auction is going to make for a thrilling 2013. If you’re a normal person, well, the next few months will be exciting nevertheless.
Some time in the first half of the year, the big, established wireless power trio – Bell, Rogers and Telus – will be set against hungry up-and-comers Wind, Mobilicity and Public Mobile in a competitive auction of the airwaves that are the lifeblood of cellphone services.
Hanging in the balance will be the most precious prize of all: consumers’ wallets.
Things will be considerably different from the previous auction in 2008. For one, Wind, Mobilicity and Public didn’t exist then – that auction brought them into being through special rules, which reserved a portion of licenses for new players.
More importantly this time around, foreign investors will be much freer to participate. With an amendment to the Telecommunications Act this past summer allowing majority ownership and control of infrastructure-based companies, foreigners can now actively get involved in the Canadian market.
The previous auction saw a complicated dance of ownership among several players, with Wind being the most notable. Funded by Egypt’s Orascom, Toronto-based Globalive acquired licenses across the country, only to be denied the right to start up by the Canadian Radio-television and Telecommunications Commission.
The regulator found Orascom’s big investment contravened existing foreign-ownership restrictions, with Wind eventually needing a fiat from cabinet to begin operations.
The startup wasted little time in taking advantage of the recent ownership rule changes, with Orascom increasing its allocation of voting shares in Wind to 65 per cent from 32 per cent in October. Mobilicity, meanwhile, says it has had some “tire kicking” from international players.
Bidding war to come?
In the upcoming auction, new players clearly won’t be handcuffed by complicated and onerous rules regarding their corporate structures.
The auction framework itself will give new players something of a leg up too, in that big incumbents will be capped at buying only one of four licenses in each geographic area. Newer carriers, if they choose to outbid Bell, Rogers and Telus, will be allowed to purchase two.
While the cap system isn’t as advantageous as the complete set-aside the newcomers were hoping for – a scheme that would have precluded the big three from bidding on entire blocks of spectrum – it does ensure they’ll end up with at least one license in each area.
Wind in particular complained that it will need more than one block if it is to provide comparable and competitive service to the big three. The 700 megahertz spectrum, which is valuable for its strong range and ability to penetrate walls, is necessary for newer, higher-end phones that run on Long Term Evolution networks, such as the iPhone 5. Not being able to offer such devices remains a competitive disadvantage for new carriers.
Still, with new access to foreign capital, Wind and other smaller players will theoretically be able to acquire the spectrum they say they need, if they’re willing to pay the price.
The caps are expected to dampen bidding somewhat, which is why this auction is expected to bring in about $3.5 billion, or less than the $4.2 billion raised in 2008.
The government’s haul could be even smaller if new players consolidate ahead of the auction. Wind chairman Anthony Lacavera has repeatedly suggested that the smaller firms would be better able to compete against the big three if they were unified, but Mobilicity and Public haven’t shown much interest in being acquired.
Whatever the teams are going into the auction, it’s clear that new carriers have succeeded in improving wireless services and prices across the board despite attracting fewer than the total estimated million subscribers.
The big three pre-empted their arrival in 2008 by dropping the hated system access fee, with prices generally heading downward since then. Telus, for one, recently dropped activation fees while other incumbents have also begun offering unlimited nation-wide calling plans.
A clearer picture of the wireless market – and the fate of Canadians’ bills – will inevitably emerge going into the second half of the year. Obviously, spectrum auctions aren’t just for telecom nerds anymore.