Incumbents pushing for changes to 700 MHz auction cap rule

BCE Inc., Rogers Communications Inc. and Telus Corp. are lobbying for changes to the 700 MHz auction cap rule that permit foreign player Verizon Communications Inc. to purchase more spectrum than each of the three incumbents, said industry sources and Desjardins Securities analyst Maher Yaghi. In an interview on BNN Thursday, Yaghi said Verizon—which on a conference call confirmed that its interest in a Canadian expansion is currently an “exploratory exercise”—is expected to move north if the market conditions are right. “Verizon needs to make sure that, before they put any dollars into the Canadian market, that the spectrum sale will go on as planned without changes, because currently BCE, Rogers and Telus are trying to change the way the upcoming spectrum auction is going to take place,” Yaghi said on BNN. BCE has expressed concern about the auction cap rules for the upcoming sale of spectrum licences, scheduled to start in January, which limit the incumbents to purchasing one of four available “prime” spectrum blocks per licence area. With only four available “prime” blocks per market, the incumbents are concerned that Verizon could use its deeper pockets to bid for two blocks per licence area, potentially shutting out one of the incumbents from winning licences in some areas. Industry sources, speaking on a background basis, confirmed Thursday that the incumbents are lobbying the government about the auction cap rule, though they do not expect the cabinet to change the rules, especially if it would require another consultation and auction delay. Will Stewart, a consultant at Ensight, told The Wire Report this week that James Moore's replacement of Christian Paradis as industry minister in a cabinet shuffle represents an opportunity for the incumbents to change the cap rule as it applies to a large, well capitalized company like Verizon. On a conference call with analysts Thursday for Verizon's earnings results, Fran Shammo, the company's chief financial officer, acknowledged that regulatory issues are on its radar. “If you look at the spectrum auction, it mirrors up exactly what we launched here in the United States on a 700 MHz contiguous footprint, so we're looking at all of these, but obviously some of the cautions here are the regulatory environment, a foreign investor coming into the Canadian market, and what does that mean?” Shammo said. “So again, cautiously looking at it, not ready to make the announcements today, and we continue to explore and have discussions, but at this point it's really just an exploratory exercise,” Shammo said. He confirmed that Verizon is eyeing the Toronto-Quebec City corridor, and Canada's population bordering the United States market, for a possible wireless launch. “If you look at the population of Canada, about 70 per cent of that population is between Toronto and Quebec. That's adjacent the Verizon Wireless properties,” he said. The Globe and Mail reported last month that Verizon made a $700 million offer for Wind Mobile, owned by Globalive Wireless Management Corp. BNN also reported this month that new entrant Mobilicity, operated by Dave Wireless Inc., delayed a debtholder vote on its recapitalization plan due to merger talks with Verizon. Yaghi said Verizon wants to ensure it can buy both Wind and Mobilicity before announcing any acquisitions, and it does not want a fifth competitor to continue operating if the company enters Canada. In a separate research note Wednesday, BMO Capital Markets analyst Tim Casey said the firm expects Verizon to continue to “quietly negotiate” with the owners of Wind and Mobilicity “with offers that are contingent on favourable regulatory conditions.” “We expect BCE, Rogers and Telus to become increasing vocal with public relations programs that highlight the irony (and in their mind, unfairness) of a regulatory framework that favours a foreign multinational that is twice as large as the entire Canadian industry. We expect the rhetoric to ramp up considerably,” Casey wrote. Telus chief executive officer Darren Entwistle on Thursday met with the editorial boards of The Globe and Mail and the Financial Post, where he called on the government to create "a level playing field" and open up the auction to allow all players to bid for two blocks. Casey added that if any changes happen, he expects it to happen within two months, before initial applications and deposits are due for the auction on Sept. 17. Canaccord Genuity analyst Dvai Ghose said in a note to clients Thursday that Verizon may also be waiting for board approval before being more definitive about its plans for Canada. Shammo's comments showed Verizon is interested in operating in the Quebec market as part of a Canadian expansion, Ghose wrote, adding that the province accounts for 25 per cent of the population. Industry Canada's auction cap policy could have consequences for Quebecor Media Inc.'s Videotron subsidiary, which would be bidding for only four available “prime” spectrum licences against the incumbents each seeking one and Verizon possibly seeking two. “Government’s policy for the 700 MHz auction could end up with Videotron getting no prime blocks of 700 MHz spectrum because a behemoth like Verizon can buy 2 prime blocks,” Ghose wrote. “This is in spite of the fact that Verizon vehemently opposes special treatment for smaller carriers in the U.S. when it comes to spectrum auctions and Canadian carriers do not enjoy any special treatment if they want to bid for spectrum in the U.S. We wonder if Industry Canada has really considered the collateral damage that could be caused to a new entrant like Videotron through its wooing of Verizon,” he said. Scotia Capital analyst Jeff Fan cautioned in a research note Thursday that uncertainties about the regulatory environment for Verizon's entry remain, and that the firm believes stock prices assume “too high” of a probability of a successful entry. The Lobby Monitor reported Thursday that about 10 board members each from Telus and BCE registered with the federal lobbying commissioner on government policies related to spectrum and the auction. The Telus board members who registered included John Manley, president and CEO of the Canadian Council of Chief Executives. The BCE board members registered to lobby on “Telecommunications Policy Framework with regard to the terms and conditions of auction for spectrum licences and the financial and technological implication of government policies,” while the Telus registrations identified spectrum issues, the acquisition of Mobilicity, changes to foreign ownership restrictions, and lawful access legislation as policies for discussion, The Lobby Monitor reported. Catalyst Capital Group Inc., a private equity firm in Toronto and Mobilicity's largest debtholder, has also expressed an interest in getting into the Canadian wireless market. The company has registered to lobby the government and hired Summa Strategies in Ottawa to do government relations work. Former Wind backer Naguib Sawiris' investment firm Accelero Capital Holdings also made an offer to purchase Wind Mobile, The Wire Report reported this spring, and it hired an Ottawa consulting firm in April to talk to the federal government about spectrum regulations. Verizon is not registered to lobby the government, nor is a government relations firm registered on its behalf, according to the federal registry of lobbyists. —With reporting by Simon Doyle at sdoyle@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca --- CORRECTION: An earlier version of this story incorrectly stated when this week's cabinet shuffle took place.

Incumbents pushing for changes to 700 MHz auction cap rule

News | July 18, 2013

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Incumbents pushing for changes to 700 MHz auction cap rule

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