Wireless companies’ claims need reality checks

01 Aug
Call me maybe?

Call me maybe?

I have to apologize for writing about telecom and wireless so much of late, but the rhetoric is flowing pretty hot and heavy and the developments are coming almost as fast. With so much bluster flying around, a healthy dose of reality checking is needed.

The big events this week include Telus suing the government, which we’ll get to below, and the government’s decision on Wednesday to stand pat on its policies despite the Big Three’s lobbying campaign.

There are three things the wireless giants – Bell, Rogers and Telus – are contending that definitely need correcting: the need for a “level playing field” in the upcoming auction of public airwaves; the suggestion that the current rules for that auction are not intended for big companies such as Verizon; and the idea that the U.S. giant will somehow be bad for rural wireless customers.

The first issue is actually a song that’s been played before to the point where, honestly, it’s pretty tired. Like Carly Rae Jepsen. The Big Three have over the years received tons of free spectrum, to the point where they control about 85 per cent of all currently usable airwaves. Executives say the gifted airwaves they received in the 1980s and 1990s shouldn’t be considered free because they’ve paid license fees on them over the years, and besides, things were different then and no one knew wireless would be so important. “It was very much a bet on something that hadn’t happened,” Rogers chief executive Nadir Mohamed told the Globe and Mail.

Actually, anyone versed in Moore’s Law and basic common sense knew wireless would eventually be big. There’s something about a phone not having a cord on it that has always seemed innately superior to one that does. Moreover, we’ve known for decades that data could be sent over radio airwaves too, meaning that the phone’s transformation into an information hub was also an inevitability. Companies don’t like to take long-term financial bets, which is what Mohamed is referring to, but the technological bet was going to pay off sooner or later.

As for the other aspects of a level playing field… Well, Bell, Rogers and Telus have other services they can bundle, including home internet and TV, giving them significant advantages over Verizon. Bell and Rogers also have substantial broadcast holdings that they can leverage to make those deals, and their wireless services, even sweeter. How about some free Blue Jays TV with your mobile phone?

They also have 30-odd years of infrastructure and systems to offer. Verizon, if it enters Canada by taking over Wind and/or Mobilicity, has a patchy network with bare bones staff and crappy existing spectrum to work with. Sure, the company has piles of money, but otherwise the deck is stacked against it, not the incumbents.

A major reality check is also needed on the second claim, that the spectrum auction rules – which will give Verizon a leg up over the Big Three – were intended for small start-ups and not a big company. For this one, we have to go back to 2007, where the federal government enacted similar rules. That auction reserved 40 per cent of the licenses for anyone but Bell, Rogers and Telus. The hope was that some deep-pocketed company would come along and fund a fourth competitor, yet the problem was the law didn’t really allow it. The Telecommunications Act prevented any foreign entity from having meaningful ownership of such a player.

Still, the miracle actually happened – Egypt’s Orascom came along and funded Wind. The Big Three were so shocked, they sicced the CRTC on Wind, and the regulator duly blocked the company from starting up. If there was ever any requirement of proof that the government has always wanted a big fourth player, it was its subsequent overturning of that decision. The Tories really bent the law to get Wind – essentially a foreign-owned competitor – off the ground.

The set-aside in the next auction, currently scheduled for January, is structured a little differently than it was in 2008. This time around, the licenses are being sold in four blocks, two of which are reserved for companies that have less than 10 per cent of the market. Nowhere in the rules does it say how big or small those companies must be – just that they can’t be Bell, Rogers or Telus.

The Big Three were of course wringing their hands at the prospect of the upcoming auction under their interpretation, because it would have spelled the end of one or all of the small players. Where would those companies come up with the big bucks required to buy new spectrum? More likely than not, they couldn’t, leaving the precious licenses to be added to that 85-per-cent stockpile.

Besides, the argument that the rules were always intended for start-ups is hypocritical. In 2008, both Shaw and Quebecor – respective cable giants – were considered new entrants yet they bought spectrum under the set-aside. They’ll get that same status in the next auction if they choose to participate – are they to be thought of as start-ups? They’ve never been that.

Claims on the third point – that Verizon won’t build into rural areas – are also a little misleading. The U.S. company will naturally concentrate on first building in big cities and indeed probably forgo rural areas for the time being, but customers in such places are likely to benefit from renewed attention from the Big Three. Competition getting too hot in the cities? How about going to where it’s not as intense? There aren’t as many customers there, but they’re easier pickings.

A fourth reality that no one is actually talking about is what might happen if the government really does stay the course and goes ahead with its plan, and that’s the probability of more shared networks. As it stands, if Verizon comes in Bell, Rogers and Telus will be bidding on just two blocks of spectrum, meaning someone is going to lose out. Whoever the loser is will waste no time in cutting a deal with the other winners, thereby moving Canada one small step closer to shared wireless infrastructure.

That goes double for smaller regional players such as SaskTel, Eastlink and Videotron. In an auction where Wind and Mobilicity are crippled and possibly not even participating, there’s a reasonable change these regional companies would end up with some spectrum. But with a strong, well-financed bidder such as Verizon in the race, they too could be shut out. That could lead to one of two things: either they sell out to Verizon and help build its Canadian operation into a national force, or they cut deals with the Big Three, moving the country further along to the desirable outcome of shared networks.

That’s a reality that Bell and Telus voluntarily set into motion years ago when they opted to jointly build a new network, by the way. With the ridiculously high costs of building and maintaining telecommunications infrastructure, it’s not just desirable, but also inevitable.

As for Telus suing the government, it’s tough to fathom how the company wins on that one. The company is claiming that it has been unjustly harmed by the government’s recent rejection of its attempt to buy Mobilicity. The Tories didn’t just say no to that deal, they also said that all further spectrum transfers would be reviewed to see if they would result in undue market concentration. It’s understandable that Telus is upset, since that’s a very arbitrary proclamation of power, but the company is very obviously missing the point: the government think there is undue concentration of power and it’s taking moves to correct that.

Telus would be well suited to adjust and work within that reality, rather than further antagonize the government and, by extension, the public. Suing the government proves only one thing – a contempt for it and the public it represents.

Observers are guessing that Telus’s court case can have only one possible motivation, that it’s trying to scare Verizon off or prevent any assurances being made to the company by the government. Maybe it works, but if so there’s another reality the carrier will have to face in the aftermath: a really, really angry government.

ADDENDUM: It turns out it’s probably incorrect to say that any of the big wireless carriers are going to get shut out of the upcoming spectrum auction, which is the impression they certainly want people to have. According to the rules, any bidder can buy two blocks of spectrum – including Bell, Rogers and Telus. The Big Three, however, are limited to getting just one prime block, which is obviously the juiciest. The non-prime “A” block is still good spectrum, but there are currently some technical interference issues with it and therefore there aren’t many (if any) phones being made for it. The anticipation is that those issues will eventually be cleared up, after which that “A” block will become very useful.


Posted by on August 1, 2013 in bell, mobile, rogers, telus


8 responses to “Wireless companies’ claims need reality checks

  1. Marc Venot

    August 1, 2013 at 12:22 am

    CBC is just talking about Ting, a canadian company not allowed in the big north.
    Maybe you can talk on the different spectrums since it will be this time much wider with a view on regular LTE?

    • Serge

      August 1, 2013 at 7:36 pm

      Ting is allowed to go wherever it wants.

  2. Jean-François Mezei

    August 1, 2013 at 2:15 am

    A different way to look at things:

    Instead of “incumbent” and “new entrant” for auctions, think national vs regional players. This explains why Shaw, SaskTel, MTS, Videotron and Eastlink all go to bid as a “new entrant” despite being incumbents.

    The set asides allowed the creation of new carriers. Government got to brag about creating competition, and incumbents don’t really mind because by being limited to being 2 bit regional players, the new entrants cant mount serious competition.

    But Verizon changes things because it is big enough to gather regional spectrum or partner with regional players and mount some serious competition with a national presence.

    Folks like Videotron now focus on getting some spectrum as negotiating leverage with Verizon. That is why they want the set asides reserved to canadian owned companies. (and ironically this now excludes Wind).

    Rogers risks losing its deals with Shaw, MTS and Videotron. And bell/Telus risk having Verizon win a blck between their respective ones, reventing Bell and Telus from combining their blocks into a single one with greater performance, unless they partner in a 3 way with Verizon.

    The stakes are high, so it is normal to see incumbents panic as they are doing now.

  3. Michael Elling (@Infostack)

    August 1, 2013 at 7:42 am

    The reason auctions were put in place in the early 1990s is because the grants of the 1980s seemed like lotteries for the rich to get richer.

    Very simply we need to revisit a simple principle, which is if a company receives permission to use a ROW or frequency they should be held to an open/equal access, or common carriage, or net neutral position. The result would be rapid scaling (a la long-distance fiber, the internet, new competitive wireless standards of the 1990s, and most importantly 802.11/wifi).

    Auctions are a terrible response to the perceived “taking” by the rich. In fact, they harm the lower third demographic as it is a high flat tax and deters “universal service” in addition to being a huge competitive barrier.

  4. Robellus Rancor

    August 1, 2013 at 10:23 am

    “There’s something about a phone not having a cord on it that has always seemed innately superior to one that does.”

    Perhaps the CEOs at Robellus should watch a bit more science fiction if they want to know the future. Or invest in a planning department.

    Pretty much any advertised discounts on cell service now comes with a tiny asterisk pointing to the fine print that says this is a time-limited offer and subject to bundling with two other services like cable or satellite TV, and home phone, plus a minimum term of 2-3 years. The discount is good for one year but your contract locks you in at much higher pricing for at least two years.

    We need consistently affordable pricing that doesn’t come with an asterisk. Since Verizon won’t be able to bundle, it will need to attract customers with pricing better than the bundles. I look forward to that. If incumbent profit margins shrink from astronomical to merely “holy sh*t,” that’s good for consumers.

    It seems as if the Big 3 have suddenly woken up and are a bit grumpy and thus they lash out for having their slumber disturbed.

  5. Vishal Malik

    August 1, 2013 at 1:18 pm

    Hi Peter:

    Why do you say, “…if Verizon comes in Bell, Rogers and Telus will be bidding on just two blocks of spectrum.”?

    Just because Verizon is able to buy two prime blocks doesn’t mean they would. If the bids get too high, they might find it best to buy just one.

  6. Faisal

    August 1, 2013 at 7:32 pm

    “Just because Verizon is able to buy two prime blocks doesn’t mean they would. If the bids get too high, they might find it best to buy just one.”

    The question becomes who is going to bid on those blocks? Wind and Mobilicity in theory would be bidding on behalf of Verizon (or not bidding at all since they have no cash), that leaves regional players that do not have a national network or interest in building national network to outbid Verizon who is trying to build a national network.

    In theory Shaw and Cogeco can buy the spectrum like they did last time and try to sell to the big three after, but as seen by Telus taking over Mobilicity the Canadian government will most likely step in to ensure that does not happen.

  7. CFok

    August 2, 2013 at 8:29 pm

    Level the playing field by giving the towers and infrastructure back to the government. Then buy it wholesale from the government. That would be a truly level playing field.

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