Wind Mobile pulled a shocker Monday evening by announcing it was withdrawing from the wireless spectrum auction set to begin on Tuesday. The move is a huge blow to the federal government’s efforts to boost competition and lower prices for consumers, as well as the cherry on top of the giant flop that is its wireless policy.
Wind attributed the pullout to a refusal by its owner Vimpelcom to fund its spectrum bids. With the tens or even hundreds of millions of dollars likely needed, the parent has evidently decided to cut its losses. As has been reported numerous times, the Russian company would either like to have full ownership and control of Wind, or it would like to be able to sell the operation to whoever it likes. The Harper government isn’t allowing the first option, likely because Vimpelcom is Russian and much of Wind’s gear is made by China’s Huawei, and it’s also barring the second from happening because the likely buyers would be Bell, Rogers or Telus. The feds don’t want to introduce the possibility of foreign spying through telecommunications gear, and they don’t want the industry to become even more concentrated.
Wind is thus a “stranded” investment and, without the ability to get some of the key 700 Mhz spectrum that’s about to be auctioned off, the company is effectively dead on the vine. Without adding more spectrum – and the 700 is “the good stuff” that has a long range and can penetrate walls easily – Wind will find it harder and harder to deliver quality service to customers who are gobbling up more and more data, as well as offer fast fourth-generation LTE. Moreover, as new phones are released that utilize that particular part of the spectrum, the company will likely find itself shut out of some of the latest and greatest handsets. Its competitors, in the meantime, will only be improving their services and offerings – and they already have giant head-starts.
Wind chief executive Anthony Lacavera is saying that the company will try to bravely soldier on, but even he’s admitting this is a huge problem. “Today’s development leaves us with a spectrum shortfall we must still address,” he told the Globe and Mail.
The question now, of course, is what happens next?
Vimpelcom threw out a bone with its news by suggesting that Wind could perhaps acquire some spectrum in the future, possibly through “another 700-MHz spectrum bid process.” In truth, it’s difficult to see how that boat might be caught after it has sailed. It’s possible that some blocks of the spectrum will be left over after this current auction, but if they’re to be auctioned off again, it would probably be in very small chunks – especially if any sort of supplemental sale is done with any semblance of fairness that therefore includes the incumbent players.
Gifting the spectrum to Wind for free is sure to be suggested, but while that might ostensibly fulfill some of the government’s desires for a stronger fourth competitor, it would be considered grossly unfair and certainly contested in court by the Big Three. Why, after all, should Wind get free spectrum when the others just paid hundreds of millions for it?
There is also the next spectrum auction, happening in April 2015, but will Wind survive till then? With an owner unwilling to fund it, that’s a big question mark. And even if it does, the spectrum being auctioned off – in the 2500 MHz range – is nowhere near as good as the 700. (Incidentally, the timing of Industry Minister James Moore’s announcement of that spectrum auction, on Friday, now seems awfully coincidental.)
The government is thus left in an ironic position. If it allows this week’s auction to go ahead, its main accomplishment will be the strengthening of the positions of the Big Three, who will come away with more quality spectrum than they went in with. Meanwhile, the company that needed it most – which bills itself as the country’s fourth (almost) national player – is left at an even bigger disadvantage.
All of the regional players – Eastlink, Videotron, MTS and Sasktel – are still in the auction, but collectively they only account for about a third of Canada’s population. What about the rest of the country?
That really makes the $9 million that the government has spent educating Canadians on how much they’re getting hosed seem extra foolish.
Could the auction even be cancelled at the last minute? It should be, given the complete disintegration of its intention, but it’s doubtful – again, Bell, Rogers and Telus would almost certainly take the government to court. Then again, the Harper government has repeatedly shown that it’ll do whatever the heck it wants, especially when it comes to telecom, so who knows?
In any case, Wind’s withdrawal leaves only 10 bidders, with eight of those existing providers – the Big Three and five regional carriers. The wild cards are now Vancouver-based internet provider Novus, which acquired spectrum in the 2008 auction
but has yet to deploy it (and then sold it to Telus last year), and Feenix Wireless, a company owned by John Bitove, the same man who started nearly-bankrupt Mobilicity after that same auction. Could either company emerge from this auction as the dark-horse saviour of the government’s dreams of more wireless competition? Unless either has somehow stumbled into a giant pile of cash, it’s doubtful. But then again, stranger things have happened.
The Harper crew really has no choice now but to go to Plan B, which is something that no one has any reason to believe exists. In no order of likelihood, this could be one of or a combination of heavy price regulation (possibly including mandated wholesale access to Big Three networks), the complete removal of foreign ownership restrictions in both telecommunications and broadcasting, the creation of a Crown wireless corporation or the structural separation of wireless companies’ retail operations from their network-owning operations.
Again, there’s no reason to believe any of these will happen, and in the absence of them there’s one remaining likelihood: the inevitable return to the status quo and its continually escalating prices.