Spectrum caps that limit telcos to 10 MHz of frequencies in each market would give BCE Inc. and Telus Communications Co. an advantage over new entrants and rival Rogers Communications Inc., industry insiders say. Bell and Telus share network infrastructure and cooperate on build out strategies in a way that ensures any new spectrum purchased by either company will benefit both of them. If the Conservative government goes ahead with a plan to introduce 10 MHz spectrum caps in the 700 MHz auction, Bell and Telus would end up with 20 MHz of spectrum to share between their customers while Rogers and others would be limited to half as much. “If I were Rogers, I’d be pissed,” Bruce Kirby, vice-president of strategy and business development for new entrant Public Mobile, told The Wire Report in an interview. “It’s surprising that Rogers is not making a bigger deal about it,” Stewart Lyons, the recently appointed president of Mobilicity, added in a separate interview. Telecom observers are speculating that Industry Minister Christian Paradis may announce the rules for next year’s wireless spectrum auction at the International Institute of Communications conference in Ottawa next week. Paradis is a keynote speaker at the conference. A Globe and Mail article this week, citing unnamed sources, said the Conservative cabinet is discussing a proposal for a 10 MHz spectrum cap with a view to encouraging competition in the auction for the valuable 700 MHz band. But caps could be a death knell for some of Canada’s smaller wireless players, analysts say. “ith either an open auction or a spectrum cap, we believe the probability of independent new entrants acquiring meaningful spectrum positions would be very low,” Jeff Fan, an analyst with Scotia Capital Inc., wrote in a research note released Wednesday. “Without additional spectrum, we believe there is a low probability that the independents would remain independent after 2014 when their AWS licences become transferable to incumbents.” Fan wrote it is increasingly important for many new entrants to obtain licences for the 700 MHz spectrum that matches the 24 frequency blocks used by U.S. operator AT&T Inc. This would allow them to upgrade their networks to fourth-generation LTE technology and offer LTE-enabled handsets, he wrote. Kirby said it's vital for the new entrants to obtain 700 MHz licences in the auction, and that “the only issue is how costly is it.” Lyons said Mobilicity is interested in securing 700 MHz frequencies that fall in line with the handset ecosystem. Without 700 MHz licences, Mobilicity and other new entrants would “eventually plateau” and “that will be the end of it,” he said. Wind CEO Anthony Lacavera agreed that the company needs the spectrum to support the use of new devices, and that with its existing spectrum holdings, the company is “in a very difficult position in respect to handsets.” Kirby suggested that the three incumbents be capped at a total amount of combined frequencies and “let fight amongst themselves” for the blocks. In an interview Thursday, Ken Engelhart, Rogers’ senior vice-president of regulatory affairs, said Rogers has complained “pretty consistently” to the government about how a cap would put Bell and Telus at an advantage. “We’ve explained that the cap is not a good idea,” he said, adding that an incumbent would need about 20 MHz of spectrum per market to build out a national LTE network. “Unless the government deemed them to be associated entities … we do not support caps.” Dennis Beland, Quebecor Media Inc.’s senior director of telecom regulatory affairs, said Industry Canada established specific guidelines for the 2008 wireless auction to determine whether two companies are required to bid as a single actor. “Presumably, there will be a similar addition to the new auction policy,” he added. Lacavera said he is concerned that Bell and Telus will work together in the auction at any rate, driving up the costs of competitors while keeping their overhead relatively low. “This whole idea that these guys are competing against each other aggressively in these auctions is not true. That’s just not what’s happening,” Lacavera said. “It’s like we forget that Bell and Telus is ‘Bellus.’” Lacavera said caps would benefit all of the incumbents, Rogers included, because the system would still allow them to spend big to get the most valuable spectrum blocks that best conform to the frequencies that AT&T Inc. is running its newest devices on in the U.S. “Caps are great news for Rogers. They’ll get the AT&T band with little resistance,” he said. Telus did not comment by deadline. Bell spokeswoman Jacqueline Michelis said the agreement between the companies has served the interests of Canadian consumers. “Joint network builds enhance consumer choice and competition by enabling much faster network deployment. It’s also enabled us to quickly build out to rural and remote areas,” Michelis said by email. “Bell obviously needs to supply our own spectrum to serve all of own subscribers, over 7 million Canadians and growing quickly. And while it may be a joint network build, we remain tough competitors in the marketplace.” Telecom consultant Adrian Foster, a partner with McLean Foster and Co., said Bell and Telus' spectrum-sharing agreement could lead to “a giant in the marketplace” if regulators don’t keep a close eye on the players. “It makes sense to get the advantages of sharing from an economic standpoint, but it also makes sense to ensure that these two companies are still, in some respects, competing against each other,” Foster said. “What they have in fact done is combined in a way to increase their market power.” email@example.com --- CORRECTION: An earlier version of this story incorrectly attributed Adrian Foster's comments to another consultant.