Yesterday, TELUS filed an expert economic study by NERA [pdf, 2.24MB] that concludes that a flawed auction design drove AWS spectrum costs up by an extra $2B.
That is $2 Billion transferred from the telecom industry that won’t be available for enhancing the speeds of broadband connections, accelerating wireless rollouts or serving remote and rural markets.
The study set out to answer two questions:
- Why did the Canadian AWS spectrum sell at a significant premium over U.S. AWS spectrum when prior economic evidence suggests the opposite?
- What are the economic consequences of the record high spectrum prices?
NERA posits that if the auction design was responsible for driving supernormal prices of the spectrum licenses, that this could confound the very policy objectives that Industry Canada sought to achieve.
As evidenced in the UK 3G (third generation) auction and other 3G auctions in the early 2000s, excessively high spectrum prices can negatively affect competition, as investors tend to sell their holdings when earnings decrease and/or debt ratings drop. In severe cases, it can lead to market exit (as evidenced by the fallout of the UK 3G auction) or market consolidation because weaker market participants go bankrupt or are acquired by a more solvent company, all of which has a direct effect on competition.
It also criticizes the definition of “new entrant”, as we had pointed out the day the rules were released.
Hard to say what will be done with this report. Is it more than a $2B “I told you so?”
Will incumbents be looking for relief to assist stimulating investment from other sides of their business?
If NERA is correct, how do we correct the impact of sucking $2B out of the industry that is supposed to be laying the foundation for Canada’s next generation economy?