Aligning Policy Goals with Policy Outcomes

This recent story in the Financial Post caught my eye, suggesting Industry Canada rejected a proposed spectrum licence transfer (sale) from WIND Mobile to SaskTel prior to the recent AWS3 auction. The decision seems in keeping with 2013’s Framework Relating to Transfers, Divisions and Subordinate Licensing of Spectrum Licences for Commercial Mobile Spectrum, which was (in part) meant to increase competition by preventing spectrum concentration in market leaders. The question is will Industry Canada’s decision actually increase competition?

First, some context. WIND Mobile won the licences in question during 2008’s AWS spectrum auction. They currently operate their cellular networks in BC, Alberta, and Ontario but have not deployed in Saskatchewan — nor built networks in Manitoba, Northern Quebec, Atlantic Canada, the Yukon, North West Territories or Nunavut, also areas they won licences. These areas are all smaller markets and it seems likely that WIND will focus on their current operating markets for the foreseeable future, looking to deploy LTE networks in the areas where they secured AWS3 licences.

WIND’s AWS licences were won as part of a new entrant set-aside. According to the Policy Framework for the Auction for Spectrum Licences for Advanced Wireless Services and other Spectrum in the 2 GHz Range, “licences obtained through the set-aside may not be transferred to companies that do not meet the criteria of a new entrant for a period of 5 years from the date of issuance.” This moratorium on set-aside spectrum has lapsed though — the AWS auction occurred 6.5 years ago. What’s more, SaskTel counted as a “new entrant” in the AWS policy framework.

To be eligible for the set-aside, a new entrant is defined as:
An entity, including affiliates and associated entities, which holds less than 10 percent of the national wireless market based on revenue. 

In fact, SaskTel won 2 of the 3 Saskatchewan set-aside blocks in the AWS auction! But is SaskTel really a ‘new entrant’? They’ve been around for over 100 years (founded in 1908) and captured ~68% of Saskatchewan’s wireless customers in 2013, according to the CRTC Communications Monitoring Report 2014.

National incumbents successfully argued that dominant regional carries like SaskTel (and MTS in Manitoba) shouldn’t be counted as new entrants. For 2014’s 700 MHz auction and 2015’s AWS3 auction, pro-competition measures of spectrum limits (700 MHz) and set-asides (AWS3) defined new entrants as carriers that did not fit the definition of LWSPs.

Large wireless service providers are defined as companies with 10% or more of national wireless subscriber market share, or 20% or more wireless subscriber market share in the province of the relevant licence area.1

With this change in definition of what a new entrant is, and SaskTel’s dominant position in their home market, it’s easy to see why Industry Canada may have denied the licence transfer. The problem is that SaskTel (and MTS in Manitoba) are succeeding in bringing competition to their respective markets vis-à-vis national carriers — at least as strictly relates to pricing. The important question for Industry Canada becomes is it more important to have a 4th ‘national carrier’ or 4 competitive carriers in every market?

The application of competition policy in evaluating spectrum transfers is also problematic in that the AWS3 auction required ‘new entrants’ to be operating in the licence areas to be eligible. As a result, even before the auction the set-aside licences in Manitoba, Saskatchewan, and northern Territories couldn’t be acquired. While some, including me, have suggested that the Harper Government may be creating market conditions to facilitate (force) consolidation between some combination of new entrants Moblicity, WIND and Vidéotron (Quebecor) or a national consortium with these players and Eastlink, SaskTel and MTS, no scenario would have resulted in these three AWS3 licences being eligible to the new entity.

Industry Canada did indicate in the AWS3 framework that they would, “consider making unassigned licences available for licensing through an alternative process, which could include a subsequent auction at a later date following the close of the initial auction.” Until that time, that’s another stranded 30MHz of spectrum across the prairies in addition to the 20MHz (SK) and 30MHz (MB) from AWS at a time when increased demand for mobile broadband means carriers need more spectrum.

There may definitely be something to the idea of a 4th carrier playing a disruptor in the market — the US Justice Department’s objection to the (failed) 2011 AT&T acquisition of T-Mobile argued a merger of two of the top four national carriers “would substantially lessen competition for mobile wireless telecommunications services across the United States.” This decision may, in fact, be a key factor in the Harper government’s thinking about competition of regional vs national 4th carriers.

The [DOJ] complaint also states that regional providers face significant competitive limitations, largely stemming from their lack of national networks, and are therefore limited in their ability to compete with the four national carriers.

The US isn’t Canada though. Regional carriers can and do compete effectively, at least in their own markets like Saskatchewan. And while SaskTel is the single largest mobile spectrum holder in Saskatchewan, they support 68% of customers with just 33% of total licensed spectrum.

In the end, this decision may be more about retail politics. Canada will have a federal election in October 2015 (if not earlier) and the Conservatives have been promoting their party’s Consumers First strategy in wireless (since expanded to other consumer issues) and their government’s More Choice policy. Yet gaps still remain between policy goals and outcomes, which see operating competitors unable to get access to spectrum while other spectrum is being acquired (and perhaps warehoused) by companies not actively deploying it.

According to the Financial Post article, transfers like the proposed WIND – SaskTel one simply be delayed.

It’s more of a timing issue,” said the source, adding that once [2500 MHz auction] results are final, the government will have a clear picture of who owns what spectrum and where, allowing Industry Canada to make informed decisions about which transfers it will or won’t approve.

For now though, no additional spectrum for SaskTel to serve their customers and no additional funds for WIND for LTE network deployments in their operating markets. It’s hard to see how such a decision makes Canada’s wireless market more competitive.