Wireless auction no guarantee of better deals for phone users

Industry Minister James Moore is ebullient in discussing the just-announced results of the recent wireless spectrum auction and what it means for consumers.

Quebec cable company Vidéotron has emerged as the big winner with licences in its home province as well as Ontario, Alberta and British Columbia, paving the way for its expansion into a new quasi-national cellphone provider.

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“Every region in the country now has a fourth wireless player that has spectrum capacity to engage the market and provide them with real choice,” said Moore in a phone interview, referring also to other regional players Eastlink, MTS and Sasktel. “That’s a good thing.”

Talking to consumer groups and advocates, however, you get the sense that the minister might be the only one who’s pleased. If the critics are right, things are likely to get worse before they get better — if they ever do.

“I don’t think this changes much,” said Geoff White, counsel for the Ottawa-based Public Interest Advocacy Centre. “It looks very much like the status quo.”

The pessimism is understandable in a country with some of the highest monthly wireless bills in the world. Despite Vidéotron’s somewhat unexpected purchases, Canada’s Big Three wireless carriers — Bell, Rogers and Telus — still won most of the licences.

Consumers to foot the bills

All told, the auction brought in $5.27 billion, considerably more than the $1 billion or $2 billion analysts had been expecting.

With the incumbents spending most of that — about $4.8 billion — consumers could ultimately bear the brunt as the companies move to recoup their investments with even higher prices.

“This isn’t going to upset their dominance too much, which is what needs to happen,” said Steve Anderson, executive director of Vancouver-based Open Media. “We’re still in first period of the game. The government still has a lot more work to do.”

For one thing, there’s no guarantee Vidéotron will actually use the licences it bought. Its Montreal-based parent Quebecor paid $233 million for seven blocks: four in Quebec and eastern Ontario, and one each in Ontario, Alberta and British Columbia.

This isn’t going to upset their dominance too much, which is what needs to happen.- Steve Anderson, Open Media's executive director

Rather than deploying the spectrum — the lifeblood of cellphone service — the company could hold on to it and eventually resell it to another buyer. Both Wind and Mobilicity, new carriers started in the wake of the previous spectrum auction in 2008, are up for sale. Quebecor could wait until someone acquires them, then sell its spectrum to that buyer at a profit.

The company got its licences for a relative song, mainly because it didn’t have much competition. The auction rules were structured so that Bell, Rogers and Telus were limited in how much spectrum they could buy, which gave a leg up to so-called new entrants, or companies with less than 10 per cent of the wireless market.

With Mobilicity under creditor protection and Wind’s Russian backer Vimpelcom pulling out at the last minute, the runway was clear for the few new entrants remaining.

Quebecor considers its options

Vidéotron qualified as one of those when it acquired spectrum in the previous auction and has since built its own network in Quebec, where it now has half a million wireless subscribers.

Quebecor is acknowledging that it took advantage of the golden opportunity, but remains cagey about its future plans.

“Given the way the auction unfolded, Quebecor Media could not pass up the opportunity to invest in licences of such great intrinsic value in the rest of Canada,” Vidéotron president Robert Dépatie said in a statement on Wednesday evening. “We now have a number of options available to us to maximize the value of our investment.”

Despite that, Moore believes the company is indeed planning to launch service in the three other provinces — or at least he expects it to.

“The money is non-refundable and that spectrum cannot be transferred to the Big Three. They’ve got to make a go of it,” he says. “Those are the best conditions we could have put in place as a government to dissuade people from trying to game the system or purchase spectrum without a serious plan to implement and engage the market.”

To that end, the government has also promised to introduce wholesale roaming legislation that will force the Big Three to open their networks on reasonable terms to smaller wireless providers. The pledge, reiterated in last week’s federal budget, will make it easier for such companies to fill in holes in their coverage, which would make a western rollout less costly for Vidéotron.

The company could also ease the process by acquiring Wind and/or Mobilicity. which have an estimated 630,000 and 190,000 customers respectively. Reports last month confirmed that Quebecor had signed a non-disclosure agreement with Mobilicity in advance of the spectrum auction.

Telus has twice tried to buy Mobilicity, but has been rebuffed by the government on both occasions. Moore said he remains committed to preventing sales of smaller wireless providers — and especially their spectrum — to the Big Three if it results in “undue concentration” of market power.

Acquisitions could aid expansion to west

Simon Lockie, chief regulatory officer for Wind, says Vidéotron would be smart to buy his company and Mobilicity if it does in fact want to expand westward, though he would not comment on whether there have been any discussions in that vein.

One of the problems the smaller players have encountered is too much competition —  ironically, against each other. They were already at a disadvantage, since the Big Three typically sell other bundled services such as television and home internet, so duking it out among themselves only made matters worse.

“Vidéotron is starting from scratch. It’s a very unattractive proposition to be the fifth carrier in those regions,” Lockie says. “You don’t want to get into the same sort of [situation] that everyone’s been in. If you’re going to be a pure-play fourth carrier, you’d better be the only one.”

Regardless of what happens with Vidéotron and pricing, customers of the Big Three —  as well as Eastlink in the Maritimes, MTS in Manitoba and Sasktel in Saskatchewan —  are likely to see an improvement in the quality of their services. The spectrum that was auctioned off, in the 700 MHz range, is strong and particularly good at penetrating walls.

While they are popular targets for criticism, Bell, Rogers and Telus have built modern long-term evolution (LTE) networks that perform well in international benchmarks. Canadian mobile download speeds average at around 11 megabits per second while uploads average at five megabits, enough for 12th and 16th in the world, respectively, according to the Net Index from tracking firm Ookla.

“The acquisition of this spectrum will ensure Telus continues to deliver world-class speed, coverage and reliability,” said chief executive Darren Entwistle in a statement.

“Bell already offers LTE service to 82 per cent of the national population and this new 700 MHz spectrum will help us take the network further: To towns, rural locations and remote communities across the country including Canada’s North,” said Bell Mobility president Wade Oosterman in a similar release.

Nevertheless, consumer advocates say competition and pricing are issues that need further attention. Open Media’s Anderson, for one, would like to see additional regulations that further open up the wholesale market, where wireless companies would be required to effectively rent their networks to all comers.

“There’s an opportunity for more choice, but whether it’s seized depends on whether the government moves forward with other measures,” he says.

Moore, for his part, wants to see how the auction results shake out before committing to further action. “When consumers have more choice we’ll see how firms react,” he said.