Paradis’ four-carrier policy may mean blocking Wind or Mobilicity sale, and new incentives

Industry Minister Christian Paradis would have to block the sale of Wind Mobile or Mobilicity to an incumbent to maintain at least four wireless carriers in British Columbia, urban Alberta and southern Ontario, according to an analysis of wireless coverage by The Wire Report. Under the minister's policy objective of ensuring at least four competing carriers in each region, he would also have to encourage at least one new entrant or regional carrier in other rural parts of the country, the analysis shows. “It doesn’t make sense,” Roberta Fox, a telecom analyst and chief innovation officer at consulting firm Fox Group in Toronto, said in a telephone interview. “There is not enough revenue to have every part of Canada have four providers … I think it’s an unreasonable expectation to put on the industry.” Fox said many areas of the country are unlikely to ever see that level of competition and the government would have a lot of work to do to achieve its policy goal even if all of the new entrant carriers continued to operate. Paradis said in March that the government will devise new rules to govern the transfer of spectrum licences and reiterated that, as the industry prepares for a 700 MHz spectrum auction in the fall, his department's spectrum management policy is to ensure the presence of four carriers in each “region” of the country. Since then, new entrant companies Wind Mobile (owned by VimpelCom Ltd.), Mobilicity (owned by DAVE Wireless Inc.) and Public Mobile Inc. have come up for sale, prompting speculation that they could be sold to incumbents BCE Inc., Rogers Communications Inc., or Telus Corp., which had 24.8 million combined subscribers at the end of 2012. The new entrants could also be sold to a foreign buyer, which would solve the government's issue. Accelero Capital, a Paris-based investment firm owned by former Wind Mobile investor Naguib Sawiris, is so far the only foreign bidder now interested in buying into the Canadian wireless market. On a conference call with reporters this week, Paradis said he is confident of achieving the objective of four carriers in each region, despite possible consolidation with the new entrants, which bought reserved “new entrant” spectrum in a 2008 wireless auction. “Consolidation might occur. On the other hand I think we put the best policies in place in order to enhance and the fact that we can have a fourth player in terms of competition and more investment,” Paradis said. “I think we are on the right track in terms of policy. Of course, it's a work in progress. We will see what's going on. I still remain confident we will achieve our goal,” he said. If the incumbents sought to acquire the three new entrants, Paradis would have to block the sale of either Wind or Mobilicity to preserve four competitors in the few parts of the country where that level of competition exists. If not, competition would be reduced from five to three carriers in Calgary, Edmonton, and most of lower British Columbia, where new entrants Wind and Mobilicity now offer services, and from six to three operators in Southern Ontario, where all three of those new entrants have services. Amit Kaminer, a research analyst with the Seaboard Group, said it would set a bad precedent if Paradis blocked the sale of Wind or Mobilicity to an incumbent while allowing the sale of another new entrant. “You can’t block one and approve the other,” he said.” “That creates uncertainty in the market and that’s something nobody likes.” Scotia Capital telecom analyst Jeff Fan said in a research note this week that the government may also face court challenges from the new entrants if the government blocked them from selling to an incumbent. Kaminer said Paradis would have to review proposals to buy the new entrants based on the purchaser “and go from there.” Fox pointed out that some parts of the country do not have four wireless carriers while others have four only in cities. The Wire Report’s analysis shows that four of the 14 “Tier 2” spectrum licence areas in the country, as described by Industry Canada, now have only three wireless providers. Those licence areas are Newfoundland and Labrador, Northern Quebec, Northern Ontario, and the northern territories. In its analysis, The Wire Report broke down Canada into “regions” based on these Tier 2 licences, despite Industry Canada's different definitions of “region,” the word used by Paradis. “A 'region' may have a number of definitions,” Michel Cimpaye, a spokesman for the department, said in an emailed statement. “The defined region may or may not follow IC 's Tier 2 areas that are used for licensing. However, as all Tier 2 area can be broken down into smaller areas—Tier 3 or 4—it would be possible to use our Tier areas to match a 'region'.” Eastlink (owned by Atlantic Canada cableco Bragg Communications Inc.), holds spectrum in Newfoundland and Labrador and may extend its wireless services to the province following the launch of service in Nova Scotia, Prince Edward Island, and Sackville, N.B., earlier this year. Videotron (owned by Quebecor Media Inc.) holds spectrum in Northern Quebec though the company but has not yet launched wireless services in that service area, according to its online coverage map. Fox said the areas where regional carriers operate and four carriers compete would be mostly urban. The “near-urban” areas, she said, represent a roadblock to Paradis’ vision of four carriers competing for mobile subscribers, due to the higher costs and lower returns of servicing those areas. “And that’s sort of across Canada. It’s not just B.C., Alberta and Southern Ontario,” Fox said of the near-urban areas. To foster competition, Fox said, the government could provide tax credits to wireless carriers that roll out infrastructure and launch services in high-cost areas. She said the government could also do a better job of forcing carriers to share mobile wireless towers on reasonable commercial terms to reduce the new entrants’ costs of expanding. Kaminer said consumers benefit in areas where four or more competitors exist and Paradis would be faced with a difficult decision if one of the incumbents reached a deal to purchase a new entrant carrier. The minister would have to choose whether to allow consolidation or to force the new entrants to remain independent from the Canadian incumbents. “The last thing the government would like to see now is all their hard work—in terms of spectrum allocation, bringing new frameworks to the wireless markets, and enabling new contenders—to go down the drain,” Kaminer said. “So the question is, what do you do? Industry Canada and the minister are in a tough spot.” Companies wishing to participate in Industry Canada's 700 MHz spectrum auction have until June 11 to submit their applications and deposits. —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Simon Doyle at sdoyle@thewirereport.ca

Paradis’ four-carrier policy may mean blocking Wind or Mobilicity sale, and new incentives

News | April 18, 2013

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