McNally on the 2500 MHz Band Spectrum Auction Framework

Here is a guest posting by Michael McNally analysing the recently announced 2500 MHz Band Spectrum Auction Framework:

This past Friday (Jan 10, 2014) Industry Canada released the Licensing and Technical Framework for the Broadband Radio Service (BRS) – 2500 MHz Band, for the 2015 auction (not to be confused with the 700MHz auction that begins this Tuesday).  At the same time as the formal Industry Canada document, came a Harper Government press release including a statement by Industry Minister, James Moore.

Unsurprisingly the government claims that this auction, along with its previous actions will put consumers first, but do these claims stand up to scrutiny?

The government claims that this auction will make use of spectrum caps (spectrum aggregation limits) in order to ensure that four or more providers have access to 2500MHz spectrum, thus fostering competition.  Similar caps will also be used in the 700MHz auction.  While more competition beyond the big three (Rogers, Bell and Telus) is certainly laudable, the fact remains that most Canadians (54%) already have access to four or more wireless service providers (see table 5.5.11 from the CRTC’s Communication Monitoring Report 2013).  Although increasing the number of providers should increase competition, the fact remains that any competitor outside of the big three (with the exception of SaskTel in Saskatchewan and MTS in Manitoba) is still dwarfed by the dominant market share of the big three, which have a combined 90% share of the wireless subscribers and 92% of the wireless sector’s revenues (figures 5.54 and 5.5.5).  Furthermore the 2008 AWS auction had more aggressive measures to promote competition. Rather than rely on caps, the auction used set-asides to ensure the big three would not have access to certain blocks of spectrum. Despite its intent, the AWS approach has been a relative failure with several of the new entrants either failing to enter the market (Shaw) or being unable to compete against the entrenched providers (Public Mobile and Mobilicity).  Simply put, if the Harper Government really valued wireless competition, then it would have used set asides in both the 700MHz and 2500MHz auctions in addition to further policy initiatives (earlier and more robust roaming, and antenna site and tower sharing requirements) to strengthen the AWS new entrants.

The government suggests that by using smaller geographic licensing areas (known as tiers) that there will be greater opportunity for rural providers.  For those not familiar with spectrum licenses, Industry Canada uses four tier sizes (for an illustration see page 195 of the Radio Spectrum Inventory) to allot licenses across the country ranging from a single national tier (Tier 1) to smaller localized areas of which there are 172 (Tier 4).  While smaller tier sizes do allow greater opportunity for rural providers (as they result in licenses for less populated areas which are cheaper at auction), it is worth comparing the government’s approach in the 2500MHz auction against the 700MHz auction, the latter of which is for superior spectrum.  In the 700MHz auction the decision was made to use Tier 2 sizing, which results in 14 different geographic regions.  Thus for the superior 700MHz spectrum, a frequency that is particularly suitable for rural broadband, the government opted for larger tiers making it harder for smaller, regional players to be successful.  Conversely for the less valuable 2500MHz auction the government has gone for smaller tier sizes.

Also with regard to rural Canadians, it is worth noting that the requirements for the deployment of services (roll-out requirements) are for some areas exceedingly low.  For example in the Kootenays successful license holders will only have to offer 15% of the population service, and will have 10 years to meet this target.  Canadians in the territories, who already suffer most from the digital divide, can take comfort in knowing that successful 2500MHz auction winners will have until 2025 (10 years) to ensure that 20% of the population has service (table 6 form the Licensing Framework).  Clearly these targets are low, but you don’t have to take my word for it.  During consultations even Telus suggested the roll-out requirements were unambitious.  Rural Canadians deserve better.

The government also celebrates its, “strict provisions on transfers on the 2500MHz spectrum so that Canadian consumers continue to benefit from competitive market forces.”  This claim largely speaks for itself, and underscores the incoherency underpinning Canadian spectrum policy.  The government seems ready to celebrate to contradictory policy paths – its preference for market forces and its preference for interference and regulation in the market.  This confused policy approach underscores the fundamental issue in the Canadian wireless sector.  The 2007 Spectrum Policy Framework for Canada clearly states that market forces are to be relied upon to the maximum extent possible; however, the futility of this policy (evinced by the failure of the AWS new entrants) underscores the importance and need for regulation in a sector that is oligopolistic.  Though market forces may serve consumers in competitive markets, market forces are doomed to failure in non-competitive oligopolies such as the Canadian wireless market.  Finally, it should also be noted that while the government wants to trumpet its actions for Canadians, as recently as March 2012, it was still estimating that the 2500MHz auction would occur in early 2014 (not April 2015).  Afterall, the Spectrum Policy Framework for Canada only notes that spectrum should be made available in a timely manner in three different places.

While the licensing framework for the 2500MHz auction will fade into the background with the 700MHz auction, careful attention needs to be put on the government’s claims.  Simply put, the government’s actions demonstrate that spectrum management has been mismanaged in recent years.

Michael McNally is an Assistant Professor in the School of Library and Information Studies at the University of Alberta. He is working on Canadian Telecommunication Policy issues as a Collaborating Network Investigator in the Graphics,  Animation and new Media (GRAND) NCE.