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Spectrum Licensing

Does competitive bidding equal a competitive industry? In the market today, there remains two schools of thought about that sentiment.


July 1, 2007  


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It is summer: Time to slop on some sunscreen, lie in the hammock… and read a column on spectrum licensing and public policy.

Wireless services require a block of radio spectrum in which to operate. The useable spectrum is large, but finite, so it has to be managed somehow to make sure there’s no interference between the various users.

These include mobile phones, television and radio broadcasters, radio telescopes, emergency services communications systems, microwave towers, satellite transmissions, and soon.

The tasks of licensing and regulation fall on national governments, which work together to co-ordinate how they allocate spectrum in their own countries so as to not interfere with their neighbours.

(It is a testament to the importance of radio spectrum that even countries that have long been at odds — the United States and Cuba, or Israel and Syria, to name just two examples — are able to sit down at a table and hammer out agreements on how frequencies are to be used.)

In the beginning there was plenty of spectrum to go around — especially in Canada, where most spectrum suitable for telecoms was reserved for monopoly telcos and various government users.

As people began to appreciate the value of radio-based services, several potential users often sought the same block of spectrum.

Governments started accepting applications and weighing the merits of each, in what is known as a comparative process (or a beauty contest).

More recently, economists recommended to countries that they use auctions to award radio licences.

The theory is that auctions generate fair economic rent for the spectrum because those bidding on the spectrum have the best handle on what the frequencies up for grabs are really worth.

Many countries have used auctions. Some have had unusual or disastrous results, but Canada learned from their experiences and has conducted some very successful spectrum auctions over the past few years.

However, as a country we still seem divided about what it is we want to achieve with our spectrum — that scarce public resource that we rent to private companies.

A round of public consultations earlier this year produced comments typical of every consultation process since Canada started using the auction option.

The large incumbent players — Bell, Rogers, Telus and so on — spoke through the Canadian Wireless Telecommunications Association to encourage the federal government to place no restrictions on potential bidders.

They called for a level playing field, with no spectrum set aside for new entrants or other groups that might be given special consideration.

Conversely, smaller wireless players such as Quebec’s Vidotron want to be given a chance to build a facilities-based network to offer wireless services. Vidotron argues that it needs auction rules that are favourable to new entrants and regional companies in order to succeed.

If the federal government’s public policy objective is to generate the greatest revenue from those who wish to rent spectrum, then a wide-open auction is probably the way to go.

The giants can compete against each other to fling money at blocks of spectrum and keep others on the sidelines, especially in larger markets such as Montral, Toronto and Vancouver.

Conversely, if Ottawa’s goal is to create the market conditions that would encourage additional wireless companies, then some sort of policy-driven regulatory intervention is required.

This may mean rules to establish who can bid on what. In more extreme cases, it may mean returning to the comparative licensing process to cherry-pick operators that the government feels can best help realize policy objectives.

Whenever the federal government establishes the framework for an auction, it must decide whether to allow a wide-open bidding process or create special blocks of spectrum for new entrants.

As in the past, it will do this based on the input it receives from public consultations, and I’m not offering an opinion here in favour of one side or the other.

But at some point, more fundamental questions need to be addressed. Are Canada’s public policy objectives best achieved through holding wide-open spectrum auctions that encourage transparent and truly competitive bidding?

Or does heavier regulation — everything from special rules for auctions that handicap those with the deepest pockets in favour of new entrants, to the use of a comparative licensing process — better serve Canada’s public policy goals of a vibrant and competitive wireless industry?

That’s something to ponder in the hammock. Enjoy the summer.

Trevor Marshall is a Toronto-based reporter, writer and observer of the Canadian wireless industry. He can be reached (on his mobile) at 416-878-7730 or trevor@words-tm.com.