The news of a $26B Rogers – Shaw merger will likely generate a lot of commentary on a lot of issues over the next year as the transaction moves through the approvals process.
One of the more immediate questions is how the transaction impacts the upcoming 3500 MHz spectrum auction in Canada.
The deadline for applying to participate in the auction is April 6.
Under the Policy and Licensing Framework, once again the Department considered what are termed “Pro-Competitive Measures”, such as spectrum set-asides and spectrum caps. In the end, it determined not to implement a cap, but to set-aside up to 50 MHz of spectrum (not every license area has sufficient unencumbered spectrum available due to wireless internet service providers operating in that band).
The discussion and determination on eligibility to bid on the set-aside spectrum was also interesting: “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 area of interest, effective as of the date of application to participate in the 3500 MHz auction.”
Which brings us to understanding who are “National Mobile Service Providers”, defined as “companies with 10% or more of national wireless subscriber market share,” which effectively means Bell, Rogers, and TELUS.
The rules also discuss associated and affiliated entities, “relating to the participation of affiliated and associated entities in order to ensure that each bidder is an independent bidder.”
Associated Entities are defined as “Any entities that enter into any partnerships, joint ventures, agreements to merge, consortia or any arrangements, agreements or understandings of any kind, either explicit or implicit, relating to the acquisition or use of any of the spectrum licences being auctioned in this process will be treated as associated entities.”
Under that definition, the announced “agreement to merge” appears to make Rogers and Shaw “associated” for the purpose of the auction. In most circumstances, Associated Entities are presumed to be non-independent bidders, but paragraph 265 states “Associated entities may apply to participate separately in the 3500 MHz auction. ISED is of the view that allowing associated entities that are competitors in the market to bid separately would not have an adverse impact on the integrity of the auction provided that auction participants comply with the information disclosure and anti-collusion rules.”
The anti-collusion rules are one gate, and Paragraph 266 sets out a second gate: “To obtain approval to participate separately in the auction, associated entities will be required to demonstrate to ISED’s satisfaction that they intend to separately and actively provide services in the applicable licence area.” Following statements by the companies in the wake of the merger announcement, it is difficult to imagine that Rogers and Shaw “intend to separately and actively provide services” anywhere.
If Associated Entities wish to bid separately, they must apply two weeks prior to the April 6 application deadline. That happens to be tomorrow, March 23.
Will Shaw participate separately in the 3500 MHz auction in June? Likely not, given statements when the merger was announced last week. “With telecom companies making multibillion-dollar investments to upgrade networks to 5G technology, chief executive Brad Shaw said he decided his Calgary-based company could no longer go it alone and agreed after years of takeover pitches from Rogers to embrace a $20.4-billion acquisition.”
Given restrictions on eligibility, that bidders must currently be offering telecom services in a license area to participate, it is possible that some set-aside spectrum may end up unsold, while vigourous competition drives up prices in the remaining bands.
Should we consider this a bug in the auction design or a feature?
Given Spectrum is a precious commodity; in that it is the foundation and key enabler for broadband to reach as yet unconnected rural communities, it is necessary to support the volume traffic of major urban conurbations and it facilitates super fast ul/dl speeds to connected devices. Spectrum pricing, will dictate the service pricing for the users, the more the auction process inflates the cost to deploy and the availability to network operators, the higher end-user pricing is forced to be. Allowing Spectrum to go unused as set-aside and not fully deployed to eligible parties, or allowing those same eligible parties to bid up the non set-aside bands, will further exacerbate the problem and limit the effective and fast deployment of this precious national resource. Even now when significant bands of previously auctioned spectrum have yet to be deployed and remain unused in the hands of set-aside recipients; further enabling this situation is of the utmost folly and a demonstration of incompetent regulation governance. The proposed Rogers takeover of Shaw must not allow the combined parties to unfairly gain from or game the upcoming auctions. The new single entity should not be allowed to retain the combined wireless assets fully or receive spectrum set-aside, to achieve unfair market gain. Canada’s competitive advantage is resting on smart and effective Spectrum deployment.