New licenses won’t change competitive dynamic between carriers, so price increases are inevitable.
Unless you’re a serious telecom nerd, you’re probably not aware that a spectrum auction took place this week in Canada.
Spectrum auctions are periodic sales by the government of licenses to public airwaves, the lifeblood of cellphone companies. The official results of this auction, for licenses in the AWS-3 band, are due to be announced on Friday. (Update: The results are in, with no real surprises, other than Rogers apparently sitting it out.)
Unlike previous auctions, which were marked by the excitement of potential new players entering the Canadian market – including U.S. wireless giant Verizon – this one was low key for several reasons.
For one, there were no new participants, unless you count relatively newer providers such as Wind Mobile and Maritimes cable company Eastlink. But it was also dullsville because the results were a foregone conclusion thanks to the way the auction was structured.
In announcing the rules last year, the government made a point of reserving most of the new licenses for newer, smaller wireless providers. About 60 per cent were set aside for companies that had less than 10 per cent market share nationally, or 20 per cent regionally.
Bidders also needed to already be operating in the regions where they wanted new licenses. In much of Canada, that basically restricted bids on set-aside spectrum to Wind and Mobilicity.
Few observers thought beleaguered Mobilicity, operating under court-supervised creditor protection since 2013 and forbidden by the government to sell itself to Bell, Rogers or Telus, would even be able to take part. But then in January, the company announced it had managed to scrape together the $65-million deposit needed to enter the auction.
That would have made things more interesting, if only because it could have provided Wind with some competition.
Conspiracy theories arose on Twitter that one or more of the Big Three were secretly backing Mobilicity, just to force Wind to spend more money. One other suggested possibility was that Quebec-based Videotron was providing the funding to lay the groundwork for an acquisition and national expansion after the auction.
But, as the Financial Post reports, Mobilicity looks to have lost funding just before the auction started. If true, that means Wind had a cake walk this week to all that extra spectrum. We’ll know for sure once the results are announced.
A few questions remain. For one, whatever happened to Videotron? The company made much noise last summer about potentially becoming the government’s sought-after fourth national carrier, but it has been mostly silent on the prospect since. The website launched in support of the idea doesn’t appear to have been updated since July.
“This file is highly confidential and we can’t comment before the announcement of the results of the spectrum auctions,” a spokesperson said in an email on Thursday.
Videotron could still make a quasi-national play now by acquiring Mobilicity or Wind, or by otherwise joining up with one of the two, or both. But, Wind management seems bent on becoming the fourth player either on its own, or as the driver of any such partnership. Mobilicity, meanwhile, is a much less valuable springboard to national expansion without new spectrum licenses. The company only has about 150,000 subscribers.
The second, related wild card is the Canadian Radio-television and Telecommunications Commission. The regulator held hearings in the fall on whether it should take action on wireless wholesale, which governs how carriers sell network access to each other and to third parties.
The CRTC has been considering whether it should regulate wholesale roaming rates, or what carriers charge each other to interconnect customers, and whether networks should be opened to third-party “virtual” carriers, a system that has proved popular in a number of other countries.
Videotron’s silence on a potential national expansion likely has much to do with the CRTC’s eventual ruling on these issues. The company has said an expansion is contingent on the right regulatory conditions being in place.
The CRTC’s self-imposed deadline on a ruling expired on Feb. 21, yet there’s been nothing as of this writing. While the regulator doesn’t always meet its own deadlines, missing this one was noteworthy because of the relative urgency of the auction. To anyone paying attention, not issuing a decision could seem purposeful.
“This is a complex decision in [the] middle of a busy period,” a CRTC spokesperson said in an email. “We will issue it as early as it is ready. We are fully conscious of its importance, but we have to get it right.”
Taken on its own, this week’s auction look to be an unsurprising reinforcement of the status quo, although Wind and the government are sure to trumpet it as a win for consumers. Most carriers already operating will have more spectrum and the government will have earned a healthy windfall.
Services are likely to improve down the road thanks to the added capacity, especially for Wind, but the company is still operating at a major disadvantage to its Big Three competitors. Bell, Rogers and Telus will likely always have superior networks thanks to deep spectrum holdings and widespread infrastructure deployment, and all three are able to offer a host of bundled services to customers in their respective territories.
(Update: As The Globe and Mail notes, no mobile devices currently use AWS-3 spectrum, meaning that it’ll be another two or three years before any of spectrum purchased in this auction is put to use.)
None of the Big Three companies considered Wind much of a threat before the auction, as evidenced by steady price hikes, and that’s not likely to change now. Prices for long-suffering consumers are therefore likely to go up again as the major carriers look to recoup their auction investments.
For relief, if there is any coming, consumers will have to wait until Mobilicity’s fate plays out, the CRTC intervenes with strong wholesale rules or Videotron acts on its earlier expansion intentions. Or all of the above.