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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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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