The worldwide press has actively reported on each continuing round of the UK auction which saw total bids reach $50 Billion. The UK is auctioning five licenses, one of which, license A, is specially reserved for bidders that are not currently wireless service providers in the UK. Canadian entrepreneur Charles Sirois, through his firm Telesystem International Wireless Inc. (in partnerships with the Hutchison group of Hong Kong), won the “A” license bidding $10B (Cdn) for the right to build a third generation (3G) wireless network in the UK.
Surprisingly, there appears to be little Canadian media attention to an upcoming auction in Canada for similar 3G services. A wireless revolution is at hand yet little can be found in the press in anticipation of its impact on our everyday lives.
Background
Industry Canada plans to auction spectrum for 3G services in the fall of this year. The four incumbents have asked Industry Canada to keep their club exclusive and limit bidding to only the four of them (Clearnet, Microcell, the former Mobility Canada alliance and Rogers AT&T Wireless). Two possible new entrants, 3664341 Canada Inc. (led by Mike Kedar) and Wireless2Net.com (led by Wispra founder Joe Church) have asked for the auction to be open to newcomers and have argued that, like many countries, Canada should reserve some of the spectrum for new competitors.
Stimulating Competition = Stimulating Innovation
In their comments to Industry Canada, the newcomers encouraged the government to allocate to new entrants half of the bandwidth to be auctioned. In most other countries, policy makers have set aside spectrum for new market players, recognizing the innovation and competitive energy stimulated by fresh industry participants.
In fact, Canada has historically (in both 1983 and 1996) allocated half of the licenses for new entrants. In December 1995, 75% of the available spectrum was assigned to the new entrants, Microcell and Clearnet. At that time, Industry Canada said “Three overall objectives guide the development of Canada’s Information Highway: the creation of jobs through innovation and investment; the reinforcement of Canadian sovereignty and cultural identity; and universal access at a reasonable cost.” On April 7, 2000, Minister Manley echoed similar words: “Jobs, growth, knowledge and innovation are priorities of the Government of Canada” perhaps indicating a predisposition toward a similar encouragement of new entrants.
For internet and wireline telephony, the number of licenses is virtually unlimited and any party can enter the market to compete in accordance with the CRTC’s published regulations. For wireless services, Industry Canada manages spectrum allocations and thereby controls entry more directly than its arms’ length regulatory body. Over the next few years, we will see half of all communications carried over wireless networks. The policy for the 3G auction is therefore expected to have far reaching implications.
As we have seen in other telecommunications markets around the world and in other telecom sectors within Canada, increased competition leads to better variety and improved quality of service for consumers – at lower prices. In this way, everyone wins – consumers, service providers and investors. It is our view that only the new entrants are committed to accelerating the launch of new mobile data services and providing a showcase for Canadian applications developers. We believe that the same incentive to open wireline markets to competition should extend to the wireless sector.
With only 22% market penetration in Canada, the incumbents have plenty of room to grow within their existing spectrum allocation. The incumbents have an incentive to use the auction to hoard spectrum, block entry from new companies and then delay the investment in upgrading their networks to provide the broadband mobile data services promised by 3G technology. In the extreme case, it is clear from submissions written by Bell and Telus that their intent is to simply expand current voice services into each other’s territories. This may add a fifth choice for voice services, but does nothing to stimulate the launch of wireless, mobile internet applications.
The new data networks can be expected to complement the existing voice services and serve to stimulate the incumbents to upgrade their current capabilities to include wireless internet. In fact, 3664341 Canada has suggested that it will open its data network to other carriers in order to permit easy roaming between service providers.
Changing our lives… for the better
The future high growth technology area is the blending of wireless services with the internet. 3G blends the innovation of the World Wide Web with the mobility of personal communications to provide lower cost, always on Internet access at speeds of up to 2 Megabits per second. 3G enables Internet-on-the-go, full mobility with high speed connections. On vacation, we will be able to view local tour guides, make last-minute reservations at hotels, find and call the nearest taxi firm, or send video postcards. Cars can be equipped with map software that is always current and customized with the information needed most frequently. Business travelers can receive multi-megabit updated sales presentations while travelling to their client in the cab from the airport. Checking out could be as easy as leaving the store with a full shopping basket and confirming the charges as you load groceries into your car. While on the subway line, customers can check their stock accounts, pay a few bills and buy tickets for the movie at the theatre coming up at the next station.
If the government gets the rules right, in the next year, 3G services will enter the lives of Canadians in all sorts of ways, giving increased access to information, convenience and safety. We expect to see 3G terminals that replace the myriad of carry-along devices like phones, pagers and personal organizers. We believe 3G appliances will replace credit cards and become a kind of pocket ATM. For this reason, the early introduction of 3G is of great interest to Canadian financial institutions.
Summary
The stakes are high. Beyond the cost of the spectrum being auctioned, winners will need to spend more than a billion dollars in launching a national network. The result will be services representing the ultimate in convenience for consumers. In order to commit to such significant investments with correspondingly creation of thousands of jobs, new entrants need confirmation from the government that Canada will continue its history of encouraging competitive entry. It is our view that Canada needs to stimulate innovation in its domestic telecom services markets in order to maintain its global lead in telecommunications technology development. It is important for the government to ensure that the upcoming auction serves to stimulate competition for third generation wireless, and not serve as a barrier to entry. The best way to achieve this result is by setting aside a portion of the 3G wireless auction spectrum for new entrants.