A comment by a financial analyst in Friday’s National Post made me think of an old Canadian Tire ad series: “more than just tires”.

Blackmont Capital Markets was commenting on TELUS’ acquisition of Emergis and their analyst said he was caught completely off guard and doesn’t see the fit.

If you call Telus to buy a phone and after that, they try to offer you an electronic medical record, it just doesn’t jive.

Huh? Is it really possible that a telecom analyst thinks this is a likely outcome of the transaction with Emergis? That TELUS is just in the retail phone business (and presumably the same holds for the other players in the sector)?

Let’s try to look past such an incredibly simplistic perspective.

Surely Blackmont would agree that the health care system could benefit from improved electronic communications? For examples, see my post from 2 weeks ago or take a look at the supplement that accompanied Friday’s Globe and Mail.

So, if you are following along, health care might be an attractive vertical for a carrier to target. How could a telecom carrier help?

Why are diagnostic labs still producing radiological films and using couriers or patients to move them around? Why do we still see faxed lab reports in our files with doctors squinting to read through the poor resolution?

Do you think there might be a systems approach to reduce our health care costs and maybe improve the quality of service delivery?

Maybe Blackmont had been surprised from the perspective that Bell couldn’t make a go of integrating Emergis, so they had trouble seeing the difference with TELUS. I could understand that view – at least intellectually. But to suggest that they have trouble seeing how medical records jive with a retail sale of phones? Either Investor Relations needs to do some educating, or Blackmont needs to learn more about the telecom sector.

I can see the ads in my mind (after the holiday season, of course): more than just phones.

In an article analysing the impact of the new spectrum auction rules on Rogers, Forbes seems to completely misunderstand what is up for grabs in the upcoming Canadian spectrum auction.

Forbes says:

Shares of Rogers plunged on Thursday after a Canadian government agency issued new auction rules that will boost competition in the cable and Internet service industry.

Boosting competition in cable and internet? Shares in Rogers fell, but it should not have been due to future cable and internet competition.

In Canada, potential new entrants will have the best opportunity to win 40 MHz of spectrum (broken up into a 20 MHz slice and two 10 MHz slices) to establish a new mobile wireless carrier.

No wonder John Henderson of Scotia Capital says (in the same article):

The market is overreacting… The auction will have very little impact for the next two years.

This auction is about mobile wireless. While other social and environmental factors may be at play for TV and internet, the auction rules should have no impact whatsoever on cable and internet.

It isn’t surprising that Industry Canada will require mandated tower sharing as part of its new rules for the AWS spectrum.

A series of articles in recent days in a variety of community papers points to a trend that had to have been considered: people don’t want towers in their backyards.

My local community paper spoke of local councillors looking into developing a comprehensive plan to deal with cell phone towers. The Toronto Star writes about residents of a Toronto neighbourhood challenging an agreement between a church and a carrier to build a “non-eyesore” 35-metre-tall communications tower – it will look like a flag pole, only taller.

We all want 5 bars of signal. We want capacity to be there when we want to make a call, send a message, pick up email. We want carriers investing in infrastructure. Just not in our backyard.

Carriers that have existing towers recognize the difficulty in building new sites and may be less willing to share their existing space because of concerns that they may need the capacity for their own requirements.

We want towers within sight of our cell phones; just not within sight of our eyes.

Industry Canada has launched a new consultation in order to work out the amendments to licenses for existing spectrum holders. We will want to see if imposing the tower sharing requirements – a new condition on current licenses – will be able to pass a challenge. How is it not a form of expropriation?

There are a couple interesting twists that emerge from a closer review of the AWS spectrum policy announcement. These are beyond the serendipitous observation that the spectrum auction should be wrapping up just in time for The 2008 Canadian Telecom Summit.

One twist reveals a perverse definition for new entrants that will see the least competitive provinces stay that way; the other thing I noticed is the creation of a potential poison pill for new entrant spectrum winners.

As I mentioned earlier, new entrants are defined as:

An entity, including affiliates and associated entities, which holds less than 10 percent of the national wireless market based on revenue.

So, MTS and Sasktel are defined as new entrants, and that definition will allow them to bid on the new entrant spectrum – even in their incumbent province – despite enjoying 60% and 80% market share at home respectively!

While the intent of the government policy was to be introduce more competition, this part of the policy appears to be ill conceived, because the two provinces with the least evidence of competition will have the least opportunity to have that situation changed.

Oops! Don’t consumers in those two provinces deserve the same benefits of new entry?

Now, if you are a successful new entrant winner of spectrum, that spectrum will serve as a poison bill to ward off Bell, TELUS and Rogers as potential future suitors:

While all licence transfers must be approved by the Minister, licences obtained through the set-aside may not be transferred to companies that do not meet the criteria of a new entrant for a period of 5 years from the date of issuance.

How will this kind of poison pill influence shareholders?

Shaw had been looking for favourable auction conditions to help it decide on whether to bid in the auction. Will the risk of poisoning a future acquisition influence its decision?

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Update [November 29, 3:10 pm]
I appeared on BNN [clip available here] this morning with perspectives on the auction rules. Be generous: I had to get up early to get downtown to be in make-up for an 8:15 appearance!

Earlier today, Industry Canada warned us about “an important announcement” that was released at 4:00 pm today.

The full rules were announced in front of a banner claiming “Putting Consumers First”.

For the major incumbents, the government nearly completely rejected their arguments against a spectrum set-aside, against tower sharing and mandated roaming. 40 MHz of the total 105 MHz will be set-aside for new entrants. The 40 MHz could yield 3 new carriers since it is divided into 14 provincial blocks of 20 MHz each, 14 blocks of 10 MHz each and 59 regional blocks of 10 MHz.

Even the definition of new entrants runs against what the incumbents might have hoped:

An entity, including affiliates and associated entities, which holds less than 10 percent of the national wireless market based on revenue.

That definition allows current incumbents MTS and Sasktel to bid as new entrants, but will keep Bell from bidding on spectrum in Manitoba, despite the fact that Bell owns no spectrum there and MTS enjoys a 60% market share within the province.

No liberalization of foreign ownership rules, so we’ll wait to see how potential new entrants raise sufficient capital to bid on the spectrum, let alone build out their networks.

The mandated roaming rules are pretty generous as well – we’ll comment further over the coming days.

The complete 19 page book of spectrum rules can be found here.

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