Industry quarrels over coverage size of 700 MHz spectrum licences

As incumbent telcos and regional mobile carriers quarrel over whether the 700 MHz spectrum should be broken up into small or large geographic areas for bidders, one industry analyst says offering different sizes may be the best solution. “If you’re giving the market what it wants and you’re making the as attractive as they can be to the bidders—and that in some cases could be smaller or bigger—that’s going to drive revenue,” Ian Munro, an independent telecom consultant, said in an interview. Last November, Industry Canada opened a consultation on a policy framework to auction off the 700 MHz band. Parties issued their final reply comments on April 6, and one of the most controversial issues has been whether the department will apply set-asides to the auction, putting spectrum aside for new entrants and small players. But the issue of “tier size,” or the size licence coverage areas, has now emerged as a point of contention. Tiers refer to the geographic break down of service areas. Right now, there four sizes of tiers: Tier 1 is a national service area covering the whole country; Tier 2 consists of 14 large service areas; Tier 3 consists of 59 smaller regional service areas; and Tier 4 is 172 localized territories. Tier 1 and Tier 2 are the most common tier sizes for mobile services, but the AWS spectrum, which the department auctioned in 2008, was licensed in Tier 2 and Tier 3 chunks. In the United States, the 700 MHz spectrum was auctioned off in 2008 in blocks resembling Tier 3 service areas. Bell Canada and Quebecor Media Inc. (QMI) have come out in favour of large Tier 2 service areas, but other providers are calling for smaller tiers, arguing that rural areas will be forgotten if they are included inside large tiers. In its original submission, Telus Corp. recommended a mix of Tier 1, Tier 2 and Tier 3 service areas and the application of roll-out requirements to ensure the spectrum is used. Munro said that mixing small and large tiers may be the best solution to reach a compromise. “In some cases, that can be the best of both worlds because you can cater to everyone in one auction,” he said. But he cautioned that each tier size comes with its own advantages and disadvantages. Larger tiers require less frequency coordination and lead to less interference with neighbouring carriers, but they also allow carriers to focus on urban centres, leaving rural areas disadvantaged. Smaller tiers allow small players more opportunities to acquire spectrum, but make it harder for national carriers to acquire a full footprint of spectrum. Using several small tiers across the country also runs the risk of complicating and stretching out the auction process, but Munro pointed out that other jurisdictions have successfully favoured mixed-tier auctions. “If there were only national licences, some players wouldn’t even show up … Conversely, if they’re all Tier 4, which is all pretty small areas, you could also have people saying … they’re not going to show up for the auction,” he said. Barrett Xplore Inc., EastLink, SSI Micro Ltd., the Ontario Telecommunications Association (OTA), the British Columbia Broadband Association (BCBA) and the Peace Region Internet Society, wrote in their original comments for the consultation that they generally support using Tier 4 licences for rural areas. “While the incumbents all point to Tier 2 or 3 as the best option … ural ISPs are in complete agreement with Barrett that Tier 2 or 3 will not get the job done with respect to addressing the digital divide. As such, the Department must consider a Tier 4 solution,” Barrett wrote in its final reply comments to the department. Barrett, a rural broadband provider, said the department should unbundle rural from urban areas for some portions of the spectrum. Regional cable provider Cogeco Cable Inc.’s position is in line with Barrett’s. The company wrote that applying smaller tiers would allow providers to acquire rural spectrum at a lower price than what it would cost if it were bundled with urban coverage. Although EastLink supported Tier 4 licences in its original comments, the company said in its reply comments it had reviewed its position, noting the former approach could complicate the auction process. Instead, Eastlink proposes using Tier 2 or 3 service areas, but with rollout requirements based on Tier 4 areas. That would mean each purchased tier would be broken up into smaller tiers for rollout objectives, in which providers would be required to cover at least 50 per cent of the population within five years. “EastLink believes that such an approach may be an appropriate compromise between the efficiencies of auctioning the spectrum using larger tiers and the need to ensure that the valuable 700 MHz spectrum is not hoarded or wasted,” the company wrote. Rogers Communications Inc. said it supports Tier 3 service areas, arguing they strike the right balance between efficiency and optimal rural deployment. “The use of larger tier areas would disadvantage smaller regional operators while Tier 4 areas would make it unnecessarily difficult and complex for operators to assemble … geographical footprints,” Rogers wrote. Rogers said in its initial submission that it also supports spectrum subleasing in rural areas to support deployment. But EastLink took issue with Rogers’ proposal, interpreting it as an indication that the company may “avoid” serving rural areas. “EastLink opposes Rogers’ proposal as it would put the control and decision making with the incumbent, who would scoop up spectrum with no intention of using it. It is far better to have an auction format that allows those who intend to use the spectrum to acquire it,” EastLink wrote. But Rogers spokeswoman Jan Innes said by email that the company plans to serve rural areas. “Tier 3 includes all rural areas of the country,” she said. Quebecor and Bell support a smaller tier size than Rogers. “The 700 MHz spectrum band is simply too valuable to have it degraded by excessive and unprecedented geographic fragmentation,” Quebecor wrote, expressing support for Tier 2 licence territories. The company also suggested imposing rollout requirements on Tier 3 service areas to encourage efficient use. Bell said it supports Tier 2 licence territories because they are efficient and minimize interference. The company also supports rollout requirements for Tier 3 coverage areas. But SaskTel has told the department that build out requirements do not necessarily meet the needs of customers in areas like Saskatchewan, where the requirement could be met by serving only a collection of small cities such as Moose Jaw or Prince Albert. SaskTel wrote that Industry Canada should segregate urban areas from truly rural areas for a portion of the spectrum, or apply a more aggressive build out requirement of 90 per cent coverage. Robert Hersche, SaskTel’s director of regulatory affairs, said in an interview that the provider supports Tier 2 coverage areas, but “could live” with smaller tiers. Hersche said SaskTel’s main concern with small tiers is that some rural areas could be left out. “People will tend to focus on urban areas because that’s where you make your money,” he said. “Most new entrants aren’t interested in serving rural areas.” Hersche said the best way to ensure rural areas have access to services is to enforce spectrum utilization requirements and mandatory roaming policies. Fellow regional service provider MTS Allstream Inc. also wrote in its reply comments that it supports Tier 2 and 3 service areas, arguing that Tier 4 sizes could lead to unoccupied or uncontested licences in certain areas. news@thewirereport.ca

Industry quarrels over coverage size of 700 MHz spectrum licences

News | April 21, 2011

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