Videotron pulls back from cap proposal, pushes for set-asides

Quebecor Media Inc. has changed its position on the policy framework for the upcoming 700 MHz spectrum auction and now says it opposes the type of cap-based framework it once supported. Instead, Quebec’s largest media and telecom company now supports the set-aside framework that other new entrant carriers previously called for, Quebecor said in a January backgrounder submitted to The Wire Report. “It is not an exaggeration to say that the survivability of Canada’s wireless new entrants depends in large part on their ability to acquire licences and deploy services in a portion of this spectrum,” Serge Sasseville, the company’s vice-president of corporate and institutional affairs, wrote in the backgrounder. “As a result, we strongly recommend that the government establish a set-aside for new entrants in the 700 MHz band.” As recently as last August, Quebecor and its telecom subsidiary, Vidéotron Ltée., called for a cap auction rule that would limit incumbent carriers to one block of 700 MHz spectrum per market and all other carriers to a maximum of two blocks. But Sasseville said recent developments in the U.S. wireless industry have caused significant changes in the North American wireless ecosystem, leading the company to “re-evaluate” its position. He said spectrum consolidation efforts by U.S. telecom giants Verizon Communications Inc. and AT&T Inc. have reduced the viability of an “independent AWS technology ecosystem” by reducing the number of players that own AWS spectrum. In December, Verizon purchased nearly 150 AWS spectrum licences, mostly from large cable companies that had purchased the spectrum during a 2006 auction in the U.S. AT&T also signed a long-term roaming agreement with competing carrier T-Mobile USA, which was announced in December, Sasseville noted. “All of these developments have a profound impact on the opportunities available to Canadian wireless operators, especially new entrant operators,” the note said. “Simply put, a single band strategy, based solely on the AWS band, is no longer viable.” In an interview with The Wire Report Thursday, Sasseville said the developments make it less likely that manufacturers will continue to build wireless devices that support voice communications for LTE technology on AWS frequencies. “We live in a North American economy, and the manufacturers, when they manufacture the handsets, go first with the biggest market which is the States,” he said. “There’s no big player now in the states that would develop LTE with AWS supporting voice.” Other new entrants, which operate on the AWS frequency band they licensed during Industry Canada's 2008 auction, previously argued that changes to the U.S. spectrum layout could impair their ability to secure LTE-enabled devices that operate on the AWS spectrum. Last year, when AT&T announced a deal to acquire T-Mobile USA (which the company has since withdrawn), insiders predicted that the spectrum consolidation arising from the deal meant Apple Inc. may not develop 3G wireless products for the AWS band. But Michael Hennessy, Telus Communications Co.'s senior vice-president of regulatory and government affairs, said in an email to The Wire Report that Videotron's argument appears to underestimate how much of an LTE evolution will happen this year, prior to the auction. "LTE over AWS works. We have already seen the launch of LTE in Canada over AWS networks so there is obviously an ecosytem with a growing list of vendors. In fact we have been building just such a network," Hennessy wrote. He suggested that Verizon is buying AWS because the company sees a future in it, and noted that there will also be 2500 MHz spectrum available for use with LTE technology. "etween 60 to 150 MHz of this spectrum is slated for auction in Canada at about the same time as the 700 MHz auction," Hennessy wrote. In a research note released in December, Dvai Ghose, an analyst with Canaccord Genuity, similarly wrote that Verizon's AWS spectrum acquisitions could benefit Canada’s new entrants. “While Verizon Wireless and AT&T Wireless have been focusing on deploying LTE at 700 MHz, this deal should help allay fears regarding large carrier support for the AWS bands,” he wrote. “This suggests to us that Verizon could deploy extensive network operations over their AWS bands over time with potentially positive implications for Canadian AWS new entrants in the form of vendor and device support.” Ghose said in an interview Thursday that the Verizon spectrum purchases are good news for all AWS licence holders. “It’s certainly better than a bunch of idle cablecos who were doing nothing with it,” he said. Either way, he added: “It doesn’t negate the need for 700 MHz or the value of 700 MHz.” Sasseville wrote in a follow-up email to The Wire Report that the large carriers will incorporate new AWS holdings into a multi-band strategy. "f there is no voice over LTE in the AWS band, that is fine, they will fall back to a voice network in another band," he wrote. "Or if rural deployment in the AWS band is expensive, that is also fine, they will piggyback on their low frequency holdings in another band. The problem for single band AWS carriers is that they have no other options." In the Quebecor backgrounder, Sasseville said it is important to ensure Canada’s urban-focused new entrant carriers gain enough 700 MHz spectrum in the next auction to allow them to compete in Canada’s rural markets. “The only lasting way to improve the quality of wireless services in rural Canada is to give rural Canadians more competition, which means more networks, which means more carriers with low frequency spectrum,” he wrote. The note said setting aside some of the best 700 MHz spectrum for new entrants during the upcoming auction is the best way to achieve this. “The specific block or blocks to be set-aside could be in either the upper or lower portions of the band, but should not include the lower A block, as this block currently suffers from technological limitations that impede its deployment,” Sasseville wrote. "If Industry Canada were to impose a cap that in the end leaves Canadian new entrants holding either of these orphaned blocks , the result would be worse than useless." Quebecor has also called for rollout requirements to ensure that carriers use the spectrum to deploy mobile services, particularly in rural and remote areas. Incumbents Rogers Communications Inc., BCE Inc. and Telus argue that they need large chunks of the 700 MHz spectrum, valued for its efficiency and propagation characteristics, to roll out national, next-generation wireless networks and to better serve rural and remote areas. They have urged the government not to use set-asides, preferring an open auction to sell off the 700 MHz spectrum licences. Although Rogers and Bell argue for an open auction, Telus has said it would settle for the “fair” option of caps, which would limit the amount of spectrum one carrier could purchase in a given market. "We submit there are multiple variations for caps. How caps are ultimately set is obviously the Minister's call. It could be auction caps of blocks of 10, or low band caps (a combination of 850MHz and 700 MHz)," Hennessy wrote by email. In an interview with The Wire Report published Saturday, outgoing CRTC chairman Konrad von Finckenstein said spectrum caps “would be a better way to coordinate” the next auction. Two of Canada’s new wireless entrants told The Wire Report in interviews that caps would allow deep-pocketed incumbents to secure the most valuable 700 MHz spectrum licences. “The simple, practical reality is that having caps in this auction would be no different, it effect, than having an open auction,” Simon Lockie, chief regulatory officer at Wind Mobile, said. “I think has probably been misled by the big three if he thinks a spectrum cap would be at all useful in the auction,” Stewart Lyons, Mobilicity’s president, added. Bruce Kirby, Public Mobile’s vice-president of strategy and business development, said set-asides are “better and simpler” but that he could cope with cap-based auction rules, depending on how they are designed. Hennessy wrote that his company opposes set-asides in part because they "create material distortion" in the price of spectrum relative to the U.S. "On the other hand, caps can be designed to ensure entrants get spectrum without bid distortion. The last auction caused payments of over 40% more in Canada than the US for similar spectrum and that gap was confirmed again when Verizon bought AWS spectrum from cable, still at a large discount to our 2008 auction prices," Hennessy wrote. It is also a problem for the government if it has to pick which companies can bid on reserved set-aside spectrum, he said. "If you say Videotron is eligible, then how do you exclude Shaw who reneged on building, or Eastlink which has yet to deploy?" Hennessy wrote. Sasseville wrote that the incumbents' argument that they overpaid in the last AWS auction because new entrants could also bid on non-set-aside spectrum has become a "tired old line." "an they please tell us who was forcing them to keep bidding?" Sasseville wrote. "If they didn't want the spectrum at that price, all they had to do was say no. In reality, what the non-set-aside portion of the AWS auction proves is that the incumbents will always always pay whatever it takes to keep spectrum out of the hands of new entrants." nkyonka@thewirereport.ca

Videotron pulls back from cap proposal, pushes for set-asides

News | 01/26/2012 8:26 pm EST

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