An earlier post had discussed the issuance earlier this Spring of Industry Canada's new licensing framework for the Mobile Broadband Services (MBS) 700 MHz Band. As that post explained, the objective of the framework is to promote increased wireless competition in each region of the country, “to ensure that Canadian consumers continue to benefit from more choice in the wireless sector and faster wireless speeds at better prices”. Among the key elements of the new framework was the announcement by the Government that it would review its policy on spectrum licence transfers after a public consultation. The first phase of the consultation is now complete (comments were filed on April 3rd with reply comments due May 3rd).
The proposed revision to the licence transfer procedures is probably the most controversial step taken by the Government under the proposed new 700 MHz framework. Under the proposed revised policy, Industry Canada would assess all spectrum licence transfer requests with a view to determining if a “detailed review” is warranted with respect to the proposed transfer’s impact on concentration and competition in the provision of wireless services to the public. In its call for comments on the new licence transfer procedures, the Government pointed to “the already highly concentrated market structure in the Canadian wireless segment”, with three national incumbents (Rogers, BCE and TELUS) holding licences for approximately 85% of all currently usable mobile spectrum in Canada and 90% of all wireless subscribers.
Under the proposed revised procedure for licence transfers, where a detailed review is required, an assessment of the impact of the spectrum licence transfer on:
the efficiency and competitiveness of Canadian telecommunications market;
the availability, quality or affordability of services available to consumers; and/or
the economic and social benefits that Canadians derive from the use of the radio frequency spectrum resource.
The detailed review will also take into consideration the current licence holdings of the proposed transferee, the current and/or prospective services provided using the subject spectrum, and/or the existence and availability of alternative spectrum.
It is foreseeable that the proposed new licence transfer procedures, if adopted, would make it more difficult for incumbent carriers to acquire spectrum from new entrants. It is not surprising that all of the incumbent wireless carriers have raised concerns about the proposed new licence transfer procedures in their submission filed with Industry Canada.
Rogers submitted that the revisions would be a significant departure from the procedure adopted in the 2008 “Advanced Wireless Spectrum” auction by changing the rights of bidders in that auction after the fact, “a change that flies in the face of the principles of contractual certainty that the Department strives to attain in its spectrum auctions.”
Shaw has argued that the new procedures create a significant amount of uncertainty regarding the existing framework, an unnecessary increase in the regulatory burden for both the Department and holders of radio spectrum licences, “and an overall loss of confidence in the reliability of the Department’s rulemaking, all of which would undermine, rather than promote, the goals of the consultation”, namely to achieve a more competitive robust wireless market.
Bell Mobility noted that the Industry Minister and Competition Bureau are already required to review spectrum transfer transactions and that the Government had previously supported the development of secondary spectrum markets to ensure the limited resource ends up in the hands of companies that will actually use it effectively. According to Bell’s submission, market forces ought to determine the number of players, rather than "intrusive" government policy.
The proposed new licence transfer policy has even raised concerns on the part of new entrant wireless providers who would presumably benefit from a more stringent licence transfer process governing the incumbents. Mobilicity has raised concerns that investment uncertainty will increase for carriers at a time when new entrants are seeking access to capital to bid for 700 MHz spectrum. According to Mobilicity, ironically, the proposed new procedure has already created “a level of uncertainty and confusion in the minds of investors as to the liquidity of spectrum assets which in particular affects new entrants far more than incumbents and further hampers their ability to create a competitive marketplace – the very thing the Department has suggested it wants to enhance."
Wind Mobile, a newer entrant, has submitted that the Government should be more forceful and confer on all new entrants a "right of first offer" to purchase any spectrum that comes up for sale to address the fact that the Canadian market is a “highly-concentrated oligopolistic market consisting primarily of the three Incumbents.”
This aspect of the proposed new 700 MHz spectrum framework further underscores the challenge facing governments and regulators in the wireless sector in striking the appropriate balance between intervention/regulation on the one hand and reliance on market forces, on the other hand.