It’s Canada Day, which means that across this great land of ours people are firing up their barbecues, popping open a cold one and talking about… wireless spectrum. Okay, maybe not that last one. But hey, it is relevant to a certain lot, even if they amount to a miniscule percentage of the population.
The reason it’s timely is because the federal government on Friday released its “rules” regarding how cellphone companies can transfer their spectrum licenses – the all-important assets that make their networks go – to each other. I put “rules” in quotes because that pretty much tells the story – the government is essentially going to make them up as it goes.
As per the press release: “All spectrum transfer requests will be reviewed, and those that would result in undue spectrum concentration – and therefore diminish competition – will not be permitted. Decisions on transfer requests will be made on a case-by-case basis and will be issued publicly to increase transparency.”
The full framework goes into greater detail, but from several reads of it, the above paragraph is really the only meaningful part of it. The federal government is reserving the right to reject any potential spectrum transfers – otherwise known as sales – if it feels that competition will be harmed. That’s a vague rationale that can be used to kill pretty much any deal.
Wireless carriers, both existing and potential, won’t like this because it maintains the uncertainty surrounding license ownership. A particular piece of spectrum sold during an auction, like the next one scheduled for early 2014, may be less valuable to a carrier or investor if there’s doubt over whether it can be resold. That could keep important investment dollars away from Canada.
Take Verizon, for example. If the company really is interested in entering Canada, it will have to spend big in that upcoming auction. Deciding to do so might be easier if there’s the possibility of recouping some of that money at the end by selling the spectrum, if things don’t work out. The new “rules” make that possibility murky.
Over all, the government’s arbitrariness is a good move – it reminds investors and carriers exactly who owns the airwaves, and what they’re supposed to be used for. Wireless spectrum is a precious commodity and it’s not meant to be bought and sat on, as both Shaw and Videotron have done out west and in Toronto, respectively.
If anything, the new framework should work to eliminate that sort of speculative gamesmanship. Investors are still free to buy up spectrum and sit on it, but good luck guessing who the government will allow them to eventually sell to. In other words, buying spectrum just became a bad investment, if that’s all you want it for.
One other interesting element of the new rules is the additional clarity on sharing spectrum. Carriers will be allowed to enter into such deals, but they’ll have to acquire a subordinate license from the government to do so. What that might cost is an open question at this point.
The framework also states that such agreements may result in the effective change of control of a particular license, which would kick off the same sort of review that a transfer or sale would.
That’s key because there are all sorts of insinuations bouncing around the industry about who’s sharing spectrum with who. At the Canadian Telecom Summit last month, Rogers accused Bell and Telus – who share a network – of also pooling their spectrum, which is not something that’s explicitly allowed. Rogers, meanwhile, is now entering into network-sharing agreements with Videotron and MTS.
The government is going to have to take a close look at all of those sharing set-ups and see if they do constitute a change of control. While spectrum sharing is logically good for everyone involved, there isn’t much point to selling it at auction if everyone’s doing it, is there?