A peek behind the curtain

I’m not a lawyer. My legal training comes from watching legal themed shows on TV, so I am probably better trained for criminal law in California, or New York and I think would probably be able to hold my own, discussing cases with William Shatner on a Boston office patio with a scotch.

The writers for those shows never seem to look at the excitement of telecom law. It’s too bad.

There are interesting insights on the inner-workings of government that can be found in the Federal Court ruling that dismisses a judicial review of permitting Videotron to bid on set-aside spectrum in the $8.91B 3500 MHz auction last year.

Let’s start by stepping back to review the “pro-competitive measures” that were established in the Policy and Licensing Framework for Spectrum in the 3500 MHz Band. ISED defined national mobile service providers (NMSPs) as “companies with 10% or more of national wireless subscriber market share”, a euphemism for Bell, Rogers and TELUS. ISED decided that there would be set-aside spectrum and “Eligibility to bid on set-aside spectrum will be limited to those registered with the CRTC as facilities-based providers that are not national mobile service providers, and that are actively providing commercial telecommunications services to the general public in the relevant Tier 2 service area of interest, effective as of the date of application to participate in the 3500 MHz auction.”

The various license tiers describe the geographic size of a spectrum license. The entire country is Tier 1. The country is subdivided into 14 Tier 2 license areas and this continues to cascade down into 59 Tier 3 regional service areas, or 174 Tier 4 local service areas. The 3500 MHz auction was conducted at the Tier 4 level.

Also important as background is this section of the Framework:

  1. In its assessment of a bidder’s eligibility to bid on the set-aside spectrum, ISED will determine whether commercial telecommunications services are actively being provided to the general public in the service area by the potential bidder. Potential bidders will be required to demonstrate this by providing relevant documentation to ISED, which will include, but not be limited to, descriptions of:
    • the services being offered in the service area;
    • the retail/distribution network; and
    • how subscribers access services and the number of subscribers in the service area.

A few paragraphs earlier, ISED determined that the term general public “can include businesses, enterprises and institutions, as well as ‘traditional’ residential consumers.”

As described by the Court [at paragraph 24], “Videotron applied, and was ultimately determined eligible, to be a set-aside bidder in the Tier 2 service areas in question for this judicial review, Manitoba, Alberta and British Columbia, on the basis of services provided by its affiliate, Fibrenoire Inc. [Fibrenoire]. On July 29, 2021, Videotron was the successful bidder for 128 set-aside licenses across 45 license areas in Western Canada.”

TELUS, the number one mobile provider in the west, immediately (August 3) challenged ISED on Videotron’s eligibility, asking ISED to produce the documentation filed. In a letter a week later, ISED refused to disclose Videotron’s documentation but said that it had verified Videotron’s eligibility.

Two weeks later, TELUS launched the judicial review that ultimately ruled (somewhat predictably in my view, but no one asked) that “the set-aside eligibility assessment process and the Minister’s decision to have been fair and reasonable”. As the judgement observed,

It is especially telling that TELUS is not joined in pursuing this application by any of the set-aside eligible bidders who participated in the Auction, who would have had a relatively greater interest in seeing set-aside eligibility determinations being made fairly, and who would have been even more directly affected by bidding directly against Vidéotron for set-aside spectrum. Their silence in this application has not gone unnoticed.

Despite the ruling, and a bit of reading between the lines (due to the judge trying to navigate between partially confidential filings from TELUS, Videotron and the government), we can see that bureaucrats wanted to ensure that Videotron – perhaps anyone – would be approved as a bidder in Western Canada.

Stepping back again for a minute, one can imagine that the folks developing the “procompetitive measures” for the auction must have been scrambling somewhat when it became evident that Shaw would not be participating in the auction. After all, the rules clearly favoured the regional mobile providers in each area, and were designed to try to avoid spectrum squatting and flipping. It would have been an embarrassment for the set aside spectrum to attract no bidders, so Videotron’s application to bid in the west must have been viewed as helpful.

However, we see that ISED wanted to verify Videotron’s claim that it offered services in each of Manitoba, Alberta and BC through its affiliate, Fibrenoire, but couldn’t using the company’s website. Videotron explained “Except in some areas of Toronto where Fibrenoire operates its own backbone Internet network, these fibre access facilities are sourced from business partners operating networks in the areas in question.” So, other than in Toronto, Fibrenoire uses wholesale services from other service providers in order to provide service to customers in the West, acknowledged by Videotron as “most often branches of large Quebec companies that already have a well-established business relationship with the company.”

I found it somewhat entertaining to read how ISED placed “mystery shopper” calls to verify that Fibrenoire would actually take orders from a mythical customer for services in a few Western cities. Very few notes were kept. At the bottom of the form confirming Videotron’s eligibility, the manager wrote “Provides internet services to business through Fibrenoire as wholesaler.”

On that basis, it seems the bar was not set very high for virtually any service provider registered with the CRTC as “facilities-based” anywhere in Canada to have been considered eligible to bid anywhere in the country.

While some people may see the outcome as a vindication of the government’s decision, a careful read of the Court’s ruling reveals what I think is an embarrassing lack of rigour in processes and record-keeping for administering multi-billion dollar spectrum auctions in Canada. I am left with a feeling of a certain amount of arbitrariness in Videotron’s approval as a bidder. Would ISED have reached the same conclusion had Shaw decided to bid in Western Canada? What if it had been Iristel?

At the end of the day, as noted in the decision, the Minister has considerable discretion in these matters and “the degree of procedural fairness owed by the Minister to TELUS was minimal and was limited to complying with the process it had set out for itself.”

At last week’s IIC conference, delegates heard a number of speakers say “regulatory stability is key for future of Canada’s telecom networks”.

With service providers making $9B investments in spectrum, and tens of billions more in deploying networks, a consistent (perhaps even predictable) policy framework should be a priority for leadership at ISED, and the industry in general.

To what extent will Cabinet’s disposition of the appeal of CRTC 2021-181 continue to advance that “Canada’s future depends on connectivity”?

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