Mark Goldberg


www.mhgoldberg.com





How do we move forward?

When talking about Canada’s wireless policy, almost everyone agrees that it is broken. The government has been making continual changes to the rules and regulations, a pattern that I have called Calvinball, seemingly indicating that even Cabinet isn’t happy with how things are working out.

I thought it might be worth looking at how we got here, in order to contribute to the discussion of figuring out how best to move forward.

Our tale goes back to 2007, when the government held its consultation on the AWS spectrum.

Under pressure from various players, the government chose to set-aside spectrum for what it called “new entrants”, which has been a euphemism for anyone other than Bell, TELUS and Rogers. At the time, we found it bizarre that SaskTel and MTS, each with an overwhelming dominance of their local markets, were to be defined as “new entrants” for the purposes of that auction. Quebecor, parent of Videotron, was particularly effective [see comments, pdf] in making the case for a new entrant spectrum set-aside, and for creating opportunities on a regional basis.

How different the market would have been if the government had instead auctioned a single, national 40 MHz new entrant license. However, the minority government also felt unable to liberalize the foreign ownership regulations, leading to the type of uncertainty and corporate structure surrounding Wind Mobile’s corporate structure.

Again, had the government liberalized foreign ownership in advance of the AWS auction, a completely different market might have emerged. Foreign ownership was finally liberalized last year, but there continues to be considerable confusion among lay people about what is allowed.

To be clear, the remaining restrictions are only relevant for companies that have broadcasting licenses (and unfortunately, that includes all cable companies and telephone companies that offer such TV distribution services), and restrictions remain in place for the acquisition of telecom companies with more than 10% share of total telecom revenues. From a practical perspective, it means that companies with telecom revenues of less than about $4.2B are up for grabs – the CRTC says Canada’s telecom market is $42.7B.

Which firms are bigger than the 10% threshold? You guessed it: Bell, TELUS and Rogers.

The new entrant set-aside included transfer restrictions that were intended to limit consolidation for a period of 5 years. In 2008, five years must have seemed to be an eternity. Five years was supposed to have been enough time to allow the market to shake itself out. The new entrants must have been expected to consolidate among themselves. After all, access to foreign capital was restricted and there was the next huge capital draw required for 700 MHz.

Keep in mind that the industry was told by then Industry Minister Prentice to expect the auction for 700 MHz to take place in late 2009. After all, the US held its 700 MHz auction in 2008; Canada was supposed to lag by just 18 months.

And here we are 5 years later with the auction still at least 6 months away. In 2007, as the seeds for our wireless policy were being planted, it was all supposed to happen so much faster.

It is a very different market today to what might have been part of the master plan in 2007 and 2008.

For that matter, thanks to CRTC and Ministerial intervention, the wireless market operates under a very different set of rules from 2010 when the 700 MHz policy consultation took place.

The policy that was released a year and a half ago satisfied no one. At the time, I called it a case of Solomon cutting the baby. The structure of the auction is such that regional new entrant wireless carriers may be locked out of contention. The very players that were created under the AWS policy are being prevented from getting spectrum to grow in the new auction. Even Open Media said at the time that it was disappointed with the “half-measured approach”.

As I wrote last week:

There have been a lot of forces acting on the wireless sector in the past year and a half; forces acting without the guidance of a stated national digital strategy. As we have pointed out in opening remarks at The Canadian Telecom Summit for many of the past events, nothing can change the profitability of the telecommunications sector faster than a pen stroke in Ottawa.

… Maybe it is time to take a deep breath and examine all of the changes that have already been imposed on the wireless industry, many of which have not yet come into force. Perhaps the Minister of Industry could ask the Competition Bureau to review its submission to the CRTC’s Wireless Code proceeding, examine the state of the regulatory measures that are now in place for the wireless sector, and make recommendations for moving forward.

… [W]e need thoughtful, evidence-based decision making to guide the ongoing development of a sector that is so critical for Canada’s success in a global digital economy.

The past couple of weeks have not provided sufficient thoughtful guidance, with polarization leading many to favour soundbites over insights.

There is a new Industry Minister, able to apply fresh energy to the release of a national digital economy strategy, perhaps starting with a fresh review of the 700 MHz file. Even without a new consultation, a review of the decisions should be reasonable.

I am sure it seemed to be a good idea at the time; surely the sector is worth a brief review to be certain the policy still makes the most sense today.

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