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. 

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Winner’s Curse: If you buy it, they still may not support it.

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[Update: The Nexus 6, which supports Band 12, was launched in Canada November 26th. Rogers did not secure spectrum in the AWS-3 Auction in early 2015.]

Winner’s Curse: A phenomenon that may occur in common value auctions, where the winner will tend to overpay due to incomplete information.

I was planning on writing a short blurb about Rogers and winner’s curse/buyer’s remorse when Industry Canada initially announced the AWS-3 auction. I got into a Twitter conversation about AWS-3, with the thinking that the high cost of Rogers’ 700MHz spectrum would cause them to be uncompetitive against a TELUS-Bell effort to gain the non-set aside block. JF noted that Rogers would still be bidding to drive up their competitors’ costs. It’s a strategic move I agree will be likely, but felt just further reinforced my original observation.

Rogers wouldn’t hesitate to add to their industry-leading spectrum holdings, if it could be acquired at a good price. But with the significant capital outlay for their 700MHz spectrum — some might say, overpaying — Rogers would need to be extra wary of the risks of inflating auction prices beyond what value could be reasonably extracted, not wanting to ‘accidentally’ win over-priced spectrum. Europe’s experience with the winner’s curse surrounding 3G licence costs is a major contributing factor to lagging in LTE investment, something that wireless executives haven’t addressed at all during the recent CRTC wireless wholesale roaming proceedings.

I also noted that this situation would, in fact, be the worst of both worlds. Rogers would be increasing TELUS’ or Bell’s (and, thus, consumer) costs, while likely still not maximizing government revenues.

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Still unclear on 700MHz outcomes.

I’m currently in the process of finalizing my Major Research Project proposal, so I kinda wish that the 700MHz spectrum auction had finished sometime next week (or the week after!). I’d much rather be analyzing the results and reading others analysis of outcomes than finding some additional sources to support my methodological approach — though I’ll be happy to also tackle a bunch of readings that are contributing to my literature review. 

But seeing as carriers and government officials weren’t working on my schedule, I’ll just throw out some quick thoughts.

I think Vidéotron is perhaps the clear financial winner. They picked up prime spectrum in major Canadian markets and did it in a very fiscally advantageous manner. Peter Nowak has a good overview of some of the broad options to Vidéotron and attributes the ability to pick up the licences on the cheap due to lack of auction competition other than the Big 3. Mark Goldberg highlights that in 2008, Vidéotron spent $555M to acquire AWS spectrum primarily in Quebec, on a 10 year license. In  2014, they spent just $233M for a 20 year license in Quebec, Southern and Eastern Ontario, Alberta and British Columbia — 60% less.

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Vertically Integrated Studies

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In Fall 2012, I took CC 8844: Intro to Broadcast Management (Managing In The New Broadcast World) with Doug Barrett. While not an out-of-program course, its home is the Schulich School of Business’ MBA program — so not the standard ComCult course. My aim was two-fold, add a course with a strong, practical component to my MA and provide an increased holistic understanding of the Canadian telecommunications market. It has been one of the best courses in my program and fully achieved both goals.

Going into the course, I knew that I had a strong foundation in the carriage-side of things but I really wanted to ensure that I had a strong grasp on the content-side. Most other students (from the MBA program) had a content background (work with production companies, reporter for a major newspaper, etc), so I was able to effectively provide some technical input when we discussed topics like OTT services. I also was able to provide a pretty detailed response as to why moving to completely wireless home connectivity was unlikely with current infrastructure/business models.

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Still pondering capacity…

I’ve been busy working on a specific work project — writing copy for a spectrum/telecom primer website — so haven’t gotten as far along with my own capacity project as I’d like. Though this probably speaks to one of the best benefits that professors have mentioned about grad school, the space and time to just think about things.

Part of my reflecting on capacity issues is thinking how the surplus value is captured and how the benefits are disseminated amongst society. Is there an ideal split between industry, consumers and citizens? Does having the first two groups in competition naturally result in positive benefits for the third? How do power asymmetries influence those outcomes? What kind of policies can be created/instituted that results in the ideal outcome? Is it better for innovation to steadily improve all groups simultaneously or do alternating periods of over- and under-capacity trigger rapid improvement that have better long term outcomes? After all, if necessity is the mother of all inventions…

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Business Lobbying and Canadian Telecom Governance

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Another recently completed selection of my winter reading was Cornelia Woll’s Firm Interests: How Governments Shape Business Lobbying on Global Trade. Woll explored the relationship between government economic policy and business lobbying interests, suggesting in complex and transitional periods where business may not have clearly articulated — or even internally known — positions, government can have quite a bit of influence to shape interests. Once business internalizes government goals, the businesses eventually generate objectives within that framework and execute on the strategies.

Woll uses liberalization of telecommunications service in the 1990s and open skies arrangements in the 2000s as case studies, primarily focusing on US and European actors. She argued they presented strong examples, as they consisted of companies that had been (or, in some cases, still were) monopolies/oligarchies that had traditionally operated in highly protected domestic markets. Woll charts the move from resistance to acceptance and then championing of liberalization by firms with a historical bias towards protectionism, demonstrating in these industries how government — especially US trade policy of the late 80s and 90s — started influencing companies thoughts on international competition. The triggering point, Woll suggests, was in part the changing nature domestic economic affairs.

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Email amongst Friends leads to Musings about Telecoms

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A graphic designer/illustrator friend of mine emailed to ask of my thoughts were regarding the new branding for Sportsnet due to my interest in the Canadian telecom sector. Thought I’d make some additions and edits, and turn my reply into a post.

James brought up it’s positioning vis-à-vis TSN, Canada’s leader in sports broadcasting, and some potential latent Americanization with the red, white[-ish] and blue colour scheme. I wasn’t actually aware of the re-brand being busy with school and not having TV. And as I primarily play attention to the distribution side of things instead of content, my regular news feeds didn’t have anything on it. Googling brought up a Globe & Mail article that stated it was a Hollywood firm that did the new logo but they also did SportsCentre on TSN.

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Fragmented markets, higher costs

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You would be hard pressed to find anyone unwilling to acknowledge telecoms importance in supporting economic, political and social development in both advanced and emerging countries. Shifts to knowledge-based economies and greater global integration of newly industrialized states — even agricultural economies — all benefit from increased broadband (both wired and wireless) penetration and available bandwidth, even if that benefit is currently uneven. The impacts of globalization allows for immense economies of scale that can help drive down infrastructure costs.

With LTE’s emergence as the de facto 4G infrastructure of choice over WiMax, benefits should be able to pass along to consumers but one of the remaining challenges for international travellers will be the variation of frequencies for technologies. Another, related, will be the amount of networks phones will need to support over the next little while. 2G, various 3G technologies and the new LTE-Lite (and eventually LTE-Advanced).

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One way to speed up advanced network deployments

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While I haven’t had much chance to start on another book, I’ve been increasing the amount of telecommunications feeds to my information stream. It’s stimulating questions and areas of inquiry for me to be thinking about as I look to start classes in the fall. I’ve requested CC8940 – The Political Economy of Communication and Culture and should be joined by at least one friendly face.

While reading, I came across this story from Engadget, noting Ericsson is testing an LTE-Advanced network achieving mobile 1Gbps downloads in trials.

Not only is Ericsson cranking up the speed, it’s also endeavoring to make the new network more efficient by offering 8×8 MIMO (Multiple-Input, Multiple-Output) functionality, which enables data to be retrieved and sent faster regardless of network congestion.

Of course, these test results are taking advantage of 60MHz available bandwidth, as opposed to the global max of 20MHz and the US standard of 10.

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Evolution of my “Considerations”

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So, it looks like I may have been a little unfair to Gruber in my last post. Or, at the least, a bit premature. I took advantage of the sun’s emergence this afternoon to sit outside and finish reading the final chapter in The Economics of Mobile Telecommunications. Though I had assumed that a final chapter before the Appendix would offer a conclusion and not a lot of further analysis, I found some very interesting observations and Gruber addressed many of the concerns I raised at the end of my last post.

The final chapter, ‘The evolution of market structure in mobile telecommunication markets’, also reinforced my acknowledgment that I’m not a natural economist. It took me about half an hour to really wrap my head around about 3 pages of material. To be fair to me, some of that was while in transit, which is not the easiest way to think about the implications of formulas like Π(n*, s, F) > 0 > Π(n* + 1, s, F) — the zero entry condition used to help determine the Cournot equilibrium number of firms in a homogeneous goods industry. [Note to self: need to read up more on industrial organization and oligopoly theory.]

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