Spectrum auction a prime opportunity to introduce new competition: SeaBoard

A new report from the SeaBoard Group says the upcoming auction of advanced wireless services (AWS) spectrum represents a key opportunity for the government to introduce more competition to the wireless industry. But an executive with one of the ILECs dismisses the report as missing the mark. The report urges government intervention because it claims Canada’s wireless industry isn’t as competitive as those of other Organisation for Economic Co-operation and Development (OECD) nations. SeaBoard says that Canada lags significantly behind the United States, its main trading partner, in wireless penetration – 58% here compared to about 75% south of the border. The telecom consultancy also points to the higher rates that Canadians pay for wireless services – about 33% more for the average user – as evidence that the government has to step in. Michael Hennessy, VP of broadband and video policy at Telus Corp., tells Report on Wireless the report and its impact "taints the success of everybody in the industry" by minimizing the existing rivalry between Canada’s three national carriers, as well as the rise of potential competitive wireless offerings from regional players such as Vidéotron ltée and Shaw Communications Inc. Besides, he says it’s difficult to compare things like penetration and pricing because this type of comparison doesn’t look at the underlying reasons for the differences: "I think everybody starts cherry-picking the OECD or StatsCan for their own interest to see if they can get the government to intervene one more time in getting the market just right before they leave it to market forces." For the last number of years, wireless carrier hopefuls and some industry observers have criticized the Canadian wireless industry as being a comfortable oligopoly. They suggest the government should take steps to allow a new national wireless competitor to enter the Canadian market – something, they say, will shake up the industry and promote a more competitive environment. Opponents of this approach – namely the incumbent providers – say government intervention will only allow for the uneconomic entry of new players and will distort the market. The government has in the past reserved spectrum for new entrants in the past, but the beneficiaries of that policy – Clearnet Communications and Microcell Telecommunications – have since been swallowed up by incumbent operators. The incumbent cell phone companies, along with many industry observers, believe that Canada is on track to eventually achieve penetration rates of 75% and higher – it’s just going to take a little longer. And it’s not because the industry is lagging, it’s because wireless didn’t become available in Canada until a few years after its launch in the US (see chart on page 3 for comparison between Canada and US). Hennessy also questions other aspects of the report, including the claim that low-usage customers, who pay 27% less than their Americans counterparts, are "survival users." Hennessy says many consumers are at this lowend of the usage scale and, if rates are 27% lower than the US, that should be considered a success. "When we win, it’s inconsequential. When we fall behind, it’s a national disgrace," he says of the report’s conclusions. The Telus executive also takes aim at the comparison between Europe and Canada. "The European numbers are highly inflated because people are using multiple SIM cards to avoid the outrageous roaming fees over there, as anyone who’s ever traveled in Europe knows," he says. Rules specifically for entry not requiredSetting aside spectrum is one key provision that can allow new entrants to acquire bandwidth and eventually enter the market. But Hennessy says government intervention isn’t required to encourage more players in the wireless market. He points to the proposed spectrum blocks and multi-tier approach in the auction consultation document as being the appropriate tools to promote entry. The most likely new entrants will be the cable companies, as they possess the financial resources required to acquire spectrum, particularly on a regional basis. The way the rules have been constructed should give confidence to the investment community that a regional cable player could be viable as well. Hennessy points to the cable companies financial and subscriber results over the past year as evidence that they don’t need any help in entering the market. "If you’re encouraging entry of a Vidéotron or Shaw, you don’t have to tilt the marketplace," he says of the spectrum auction rules. "A regional cable company may because they can take advantage of the scale of operations and the bundles they have in their other three lines of business, and so you don’t have to intervene there," Hennessy says. "And I think it’s very clear that cable would have no problem raising money."

Spectrum auction a prime opportunity to introduce new competition: SeaBoard

News | March 12, 2007

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