Telus says new entrant moratorium affected AWS bidding strategy

Telus Corp. would have bid more aggressively on wireless airwaves in a 2008 Industry Canada spectrum auction had it known its ability to acquire smaller mobile providers would be restricted beyond a five-year moratorium, the head of the company’s 2008 auction strategy team said in court documents filed this week. “In developing TELUS’ bidding strategy, TELUS relied on the Minister’s representation that the moratorium would expire after five years and that, in 2014, TELUS would therefore be free to obtain additional spectrum by acquiring control of or forming alliances with any new entrants,” Stephen Lewis, Telus’ vice-president of corporate strategy, said in an affidavit filed with the Federal Court on Tuesday as part of the company’s challenge of new Industry Canada spectrum transfer rules. “This influenced my decision as to how aggressively TELUS would bid for the full 20 MHZ of spectrum that TELUS had identified as necessary to meet its medium and longer term business needs,” he added of the 2008 auction. Telus launched in July an application seeking a judicial review of the Industry Department’s new spectrum transfer rules released in June, charging that the industry minister overstepped his authority when he imposed rules that will require companies to apply for ministerial approval of “deemed” spectrum licence transfers, or those in which spectrum assets are acquired through the purchase of a company. The company argued in its court application that it is outside the minister's legal powers to add a requirement for ministerial approval of all acquisitions of companies with spectrum assets. Such a provision, the company said, prevents incumbent wireless providers, such as Telus, from purchasing new-entrant competitors even after a five-year moratorium on them acquiring the smaller providers’ spectrum licences expires next year. The licences themselves are for 10 years. Lewis said in the Sept. 5 affidavit — which The Wire Report obtained from the court Wednesday — that Telus wanted to obtain 20 MHz of AWS spectrum in the 2008 auction. The company “could not accept holding only 10 MHz” of AWS spectrum in key markets such as the heavily populated Toronto-Montreal corridor, Lewis added, and would need to increase its spectrum holdings in other ways if it could not acquire 20 MHz in the auction, during which 40 MHz of the 90 MHz of available spectrum was “set aside” for new entrant competitors. Lewis said the company’s understanding was that it would be able to acquire the new entrants and their spectrum following the five-year moratorium, which was also part of the auction rules. He said this caused Telus to bid on a 10 MHz block of spectrum that was adjacent to one of the blocks set aside for the new entrants, so that it “could later be conveniently combined” with the new entrant spectrum. Telus spent more than $1.6 billion in the AWS auction and won 10 MHz of spectrum in every region of the country plus another 10 MHz in parts of Quebec, Ontario, Manitoba, Saskatchewan, Alberta and British Columbia. That total included $234 million to gain 20 MHz of AWS spectrum in Montreal and $103 million to gain 10 MHz in Toronto. Had it known that the minister would later require the company to seek ministerial approval of any deal to acquire a new entrant, Lewis added, the company would not have “settled” for the 10 MHz it obtained in the Toronto area, “and instead would have bid more aggressively for a 20 MHz block of spectrum.” Peter Hill, director general of spectrum management operations at Industry Canada's spectrum management operations branch, said in an Oct. 25 affidavit that Section 5 of the Radiocommunication Act gives the minister “broad powers” to establish spectrum-licence conditions, and to amend those conditions “on an exceptional basis and only after consultation.” Most spectrum licences awarded by Industry Canada “have included a condition dealing with transferability and divisibility,” Hill said, adding that the AWS spectrum licences auctioned in 2008 contained a condition that the department must approve of all proposed licence transfers. “Under the Act, spectrum can only be used in accordance with an authorization issued by the Minister and only the Minister can issue spectrum licences,” he said in the affidavit. “Therefore, an existing licensee cannot allow a different party to use spectrum. The proposed transferee must obtain its own authorization from the Minister.” Hill said the department consulted with industry players on its proposed new framework for spectrum transfers before releasing the final rules. Telus, he added, said during that consultation that it agreed with the department that deemed spectrum transfers should be treated the same as transfers that don’t involve a change in ownership of a company, and should be subject to a review before they can be completed. Industry players have, in the past, asked the minister for permission before acquiring other companies that hold spectrum licences, Hill said. The new rule for deemed transfers, he added, “was intended to make explicit the requirement, long observed by licence holders” to seek the minister’s approval before completing those deals. “Nobody thought of what a deemed transfer was,” Hill said during a Nov. 13 cross-examination by Christopher Rootham, a partner with Nelligan O'Brien Payne LLP in Ottawa representing BCE Inc., which is listed as a respondent to the Telus challenge. “Everybody just figured it was a transfer and they knew they needed to come in for approval,” he said, according to a transcript of the cross-examination filed with the court. Industry Canada said in June that the new spectrum transfer rules would allow the minister to block deals that could result in mobile providers acquiring “an undue concentration” of spectrum. Those rules, then-industry minister Christian Paradis said, were designed to support the government’s policy objective of having a fourth wireless provider in each region of the country to compete against incumbents Telus, BCE Inc. and Rogers Communications Inc. Telus said in a memorandum of fact and law relating to its challenge that the minister’s job does not involve regulating wireless competition, and that the responsibility to regulate the industry falls to the CRTC and the federal Competition Bureau. Hill said in his affidavit that Section 4 of the Department of Industry Act allows the minister to “initiate, recommend, coordinate, direct, promote and implement national policies.” In its memorandum, Telus asked the court to quash the minister’s decision to implement the new spectrum transfer rules, arguing that the authority to create those rules falls to the federal cabinet instead. The company also asked the court to “estop” — or prohibit — the minister from implementing the new rules on the grounds that the department “clearly represented” that incumbents would only be prohibited from acquiring the new entrant carriers for five years. Telus was in court last week for a separate application for judicial review in which it is challenging the industry minister’s authority to restrict large wireless providers’ ability to bid on more than one block of the best spectrum in each region of the country in an upcoming auction of 700 MHz airwaves. That case is filed with the Federal Court under case number T-1405-13. The company’s challenge of the new spectrum transfer rules is filed under case number T-1295-13. — With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

Telus says new entrant moratorium affected AWS bidding strategy

News | December 12, 2013

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