Search Results for: calvinball

Industry Canada published the list of applicants for those companies that would like to bid in the upcoming 700 MHz auction.

The biggest surprise appears to be that there are no surprises. Despite its best efforts, no new foreign companies have been attracted to Canada’s mobile market.

Industry Canada will need to examine relationships between the bidders (and the companies behind the bidders) in order to ensure that there is no potential for bidding collusion or circumvention of the rules, but there are no new deep pockets threatening to disrupt the Canadian wireless marketplace.

As I described last week, we do not know anything about where these companies plan to bid, or which companies plan to bid for more than one block.

There are 14 different geographic areas that cover the whole of Canada; initial bid prices depend on the population and the amount of spectrum being acquired. Each bid point requires a deposit of $130,000 and covers about 100,000 people per block of 5 or 6 MHz. The paired blocks of spectrum have increased bid points required in the more populous geographies so 1,221 bid points are required for a national paired block license, versus 334 bid points for an unpaired block. A 5% down payment had to be submitted with the application last Tuesday; the remainder is due on October 29. Links to the relevant sections of the Industry Canada rules can be found in last week’s blog post.

It was widely reported last week that none of the major US carriers (AT&T, Verizon, T-Mobile, Sprint) were planning to participate in the Canadian auction. Perhaps some of them were unwilling to face the regulatory risk of being unable to sell at some point in the future. When the federal government denied the TELUS request to acquire Mobilicity, it changed the rules set out in the original AWS auction. As I wrote in late July, “Had the government simply said that the original AWS rules called for a 5 year hold and the acquisition was premature, that would be one understandable, and consistent message.”

Instead, the government continued its game of Calvinball, keeping us all guessing on what the rules will govern multi-billion dollar investments. A favourable investment climate doesn’t just mean that foreign money is welcome. Investors need to be confident about the rules are for taking their money out again.

In its zeal to prevent “undue spectrum concentration—and therefore diminish competition”, did the government’s June 4 announcement diminish the attractiveness of investment in Canadian wireless?

Industry Minister James Moore is on a cross country tour, defending the government’s position for its wireless policy.

Various sides of the wireless debate have been lining up soundbites, trying to encapsulate complex issues into 140 character tweets.

It isn’t the way policy for critical digital economy infrastructure should be developed.

It is good that Canadians are getting engaged in the issue. It is important for economic development, for rural services, for our federal treasury.

So I am not sure Minister Moore is correct in stating that the major telephone companies have been unsuccessful in their publicity campaign.

As the National Post wrote:

He characterized the telcos’ campaign as “impressively unsuccessful” and said it has not, in his view, resonated with Canadians, but added it has stirred up enough questions that he felt the need to defend his government’s policy aimed at, he said, promoting competition for the benefit of consumers.

While the telco’s campaign may not resonate with consumers, it appears to have played well with editorial boards across the country. It is the newspaper editorials that may have created the urgent need for the government to respond with a defensive campaign.

Phone companies are an easy target. In my early days working in the telecom sector, we used to be thankful for the post office – it was the institution that people hated even more. These days, who cares about the mail. So that leaves the phone companies.

We all pay a phone bill every month and everyone wants that bill to be lower. I wrote a blog post years ago about a poll that clearly had a problem. The poll was reported as saying three quarters of Canadian consumers wanted lower prices for internet services. C’mon, now. Do you really believe 1 in four Canadians don’t want a lower price? Of course we want a lower price on something we buy monthly. But at what cost?

The issues are more complex and not well suited to simplistic solutions, as Industry Minister Moore has stated in interviews from this week. But Minister Moore also answered the question of why Canadian prices are not among the lowest in the world:

Canada is the second largest country in the world in size but 34th largest in population. We do have expectations and obligations to rural parts of this country to ensure that there is some comparable level of service

I have asked the question before: If Canadian wireless prices are so high vis a vis costs, doesn’t that create a great business opportunity for new entrants? Why aren’t competitors lining up to enter the market? Around the world, carriers get the same reports that show world leading average revenue per user (ARPU), but the carriers also understand that Canada also has world leading capital dollars per customer being invested by Canadian carriers.

Investors want to maximize their returns and perhaps as important, they would like some certainty they can exit a market when they choose to take their profits or cut their losses. This is where Canada’s ever changing policy framework creates the greatest risk.

In some of his interviews, Minister Moore has pointed out that the major carriers were comfortable with the rules set out in March. As he told IT World Canada:

The incumbent big three, by the way, were originally quite comfortable with our policies (announced March 7), they said good things about it. It’s only because in May Verizon made noises about exploring coming into the Canadian marketplace that the incumbents decided to put out a big joint effort to stop Verizon from coming into Canada.

I would suggest that the biggest issue wasn’t the new rules set down in March 2013, or the compromises found by “Solomon cutting the baby” with the 700MHz rules in March 2012. Our summer of wireless discontent was kicked off with the June 4 announcement that turned down TELUS acquiring Mobilicity.

Had the government simply said that the original AWS rules called for a 5 year hold and the acquisition was premature, that would be one understandable, and consistent message. But the government went further when it said:

Our government has been clear that spectrum set aside for new entrants was not intended to be transferred to incumbents. We will not waive this condition of licence and will not approve this, or any other, transfer of set-aside spectrum to an incumbent ahead of the five-year limit,” said Minister Paradis. “Our government will continue to allow wireless providers access to the spectrum they need to compete and improve services to Canadians. We are seeing Canadian consumers benefit from our policies and we will not allow the sector to move backwards. I will not hesitate to use any and every tool at my disposal to support greater competition in the market.

In addition, the Government also outlined improvements to the policy on spectrum licence transfers that will be released in the coming weeks, which followed consultations launched in March 2013. Going forward, proposed spectrum transfers that result in undue spectrum concentration—and therefore diminish competition—will not be permitted. This policy will apply to all commercial mobile spectrum licences, including the 2008 AWS licences.

That June 4, 2013 policy changed the AWS investment rules in the middle of the game. When the government set down the rules for its $4.2B AWS auction in 2008, it had effectively bet that 5 years would be long enough for the new entrants to disrupt the marketplace through increased competition. The licenses all had the same transfer condition:

Licences acquired through the set-aside of spectrum may not be transferred or leased to, acquired by means of a change in ownership or control of the licensee, divided among, or exchanged with companies that do not meet the criteria of a new entrant, for a period of 5 years from the original date of issuance.

On June 4, 2013, two weeks after Industry Canada met with Verizon on May 21, the rules got changed. Investors in Canada’s telecom sector – new entrants as well as incumbents – got the rug pulled out with another change that I like to call Calvinball.

That isn’t how any game is supposed to be played, and especially not where the stakes are measured in billions of dollars.

Despite billions of dollars in Canadian equity value being played with, the level of hyperbole by both sides has gone over the top. When John Cruickshank, publisher of the Toronto Star said Prime Minister Harper “betrays the interests of his country for a foreign power“, it is difficult to take anything else in his commentary seriously. “Leninist economic planner”?

Really?

Such a sophomoric level of discourse is perhaps driven by responding to those who think Verizon is the white knight to fight “Big Telecom”. I have been unable to get a response to a question about whether Verizon is also part of the “Big Telecom” clique. As I wrote on Twitter:

It is time to raise the level of the debate, stop the name calling, deal in issues at the level of depth that it deserves.

The government knows very well that Canada actually has lower concentration of its wireless market than most countries. Nearly half the OECD has 100% of their wireless in the hands of 3 or fewer carriers. The OECD average is 93% share among the top 3, so Canada has more competition already despite what the Minister acknowledges as a small population across a large landmass.

Petitions from the Conservative Party or Open Media are going to do nothing but build a mailing list for their partisan fundraising. If Canadians want more competition in wireless, people should sign up for services from the competitive providers that are already out there.

It would be helpful to see the scorecard by which the government is measuring the state of competition, as implicit in its June 4 policy announcement.

It would also be helpful for people outside our urban centres to understand the lack of meaningful obligations to extend networks to rural communities under the current 700MHz framework.

I continue to believe it is time to push the reset button.

Minister Moore told Cartt.ca that the spectrum auction has been delayed twice already and it will not be delayed again.

We are playing a high stakes game; opening bids in the auction will be just shy of a billion dollars. With Parliament prorogued, is there really no time to take a breath, get everyone to dial down the rhetoric and ensure that we get it right?

As Tim Harper wrote in The Toronto Star, Minister Moore is well within his rights to decide against, or even ignore, the arguments being set out. But it is unseemly, on both sides, to turn this important debate into a white hats – black hats showdown.

Is the public interest best served by pushing ahead?

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.

Canada’s wireless policy, like our national digital strategy, has been characterized by inconsistency and uncertainty.

In the past, I have referred to it as Calvinball, from the Calvin and Hobbes comic strip. A game where no one really knows the continually changing rules.

This week’s carrier appeal of the CRTC’s retrospective application of the Wireless Code highlights more of the uncertainty facing the sector as it prepares for “back to school” sales beginning next month.

Consumers and the industry alike don’t really know what the CRTC intended for implementation timing because of imprecise language used in the Wireless Code decision, and the contradictory clarifications [here and here] that have been provided subsequent to the Decision.

A number of carriers have filed with the Federal Court of Appeal because the CRTC appears to be asserting a power to retrospectively apply the Code to contracts that existed before the Decision, contrary to an Opinion that was filed as part of the proceeding that led to the release of the Wireless Code.

Even if an expedited schedule is granted, there is no way for the Federal Court of Appeal to make a determination before the summer is out. Uncertainty is bad for consumers, it is bad for the carriers and it is bad for the economy. It is hardly a satisfactory introduction for the national Wireless Code.

As such, a colleague and I wondered if there may be a solution that could allow the court case to be dropped while achieving most of the consumer objectives.

As I wrote a couple weeks ago, the trouble has been caused by the timing set out by the CRTC in Paragraphs 368 and 369 of the Code:

368. In light of the above, the Commission determines that all aspects of the Wireless Code will take effect on 2 December 2013.

369. The Commission finds that where an obligation relates to a specific contractual relationship between a WSP and a customer, the Wireless Code should apply if the contract is entered into, amended, renewed, or extended on or after 2 December 2013. In addition, in order to ensure that all consumers are covered by the Wireless Code within a reasonable time frame, the Wireless Code should apply to all contracts, no matter when they were entered into, by no later than 3 June 2015.

We wondered what the impact would be of changing the final date in paragraph 369 to 3 June 2016. Superficially, some would say that this provides the wireless carriers with an extra year, but in reality, the change creates the right incentives for the carriers to quickly shift to shorter contracts.

Had the CRTC responded to my June 7 tweet with such an erratum, I wonder if the carriers would have launched their appeal? Contracts entered into after the release of the decision (during the period between 3 June 2013 and 2 December 2013) fall into a grey area that are not as clearly beyond the CRTC’s power to change. Carriers would want to move quickly to shorter schedules for their device subsidies in order to avoid the risk of consumers walking out prior to the device being amortized.

It is a simple change – a single digit – and what is really being lost? Carriers will have the incentive to quickly shift operations to remove 3-year deals well in advance of the 2 December 2013 deadline. Carriers and consumers have the certainty that old contracts stand: a deal is a deal. The government isn’t going to retrospectively apply new rules to old deals. Going forward, from 3 June 2013, deals are being done with the new rules having been published. If carriers don’t want the risk of being left with an unpaid balance, they need to move more quickly to offer shorter amortization schedules, or shorter deals.

Can changing a single digit crack the code? Would the carriers withdraw their motion and focus on introducing innovative new deals for the student market? Would the CRTC consider this a friendly amendment, maintaining the incentives to quickly transition from 3-year contracts?

It is old news that Industry Minister Tony Clement announced last November that the government was going to delay making a decision on changes to the rules on foreign direct investment in the telecom sector. After all, just a few weeks after rejecting BHP Billiton’s takeover of the rock mining operations of Saskatchewan’s Potash Corp., how could the minority government face the opposition on critical telecommunications infrastructure.

So at the International Institute of Communications conference, the Minister stated: 

With respect to foreign ownership, I have been consulting throughout the summer on whether the current restrictions constitute an impediment to growth in the wireless sector. Those consultations will continue as we proceed with our discussions on the 700 MHz spectrum.

And this just makes sense. After all, how spectrum is allocated and who is eligible to compete for it — and pay for it — are interrelated issues. And so we will consider foreign investment rules and decisions around the 700 MHz auction together, as part of an integrated regulatory approach.

Of course it was necessary to understand how foreign investment plays in the 700 MHz auction. But the converse isn’t true. We don’t need to understand who gets to bid on 700 MHz to sort out foreign direct investment in the entire sector – we need clear investment rules that apply to all telecommunications services providers – wireless and wireline. As Terry Corcoran wrote yesterday, in a piece called “Ottawa drives backward down the infoway“, we’re looking at the issue backwards.

When the Minister announced the process to review foreign investment in the sector at last year’s Canadian Telecom Summit, he said:

In the next few days, I will be releasing a consultation paper on this subject as well, and I will be looking forward to hearing your views on this important issue. Let me give you a little taste of what this consultation paper will be about. First of all, we will be confirming that we are intending to move ahead with telecommunications reform when it comes to foreign direct investment, and of the need for that reform. Secondly, we will have a relatively short, but important, discussion period in the next few days, commencing with the release of the report, so that we can get feedback from both the industry and Canadian consumers.

Note the expression “relatively short.”

The Consultation Paper referred to 3 studies that had already examined the issue: a 2003 report from the House of Commons Standing Committee on Industry, Science and Technology; the 2006 report from the Telecom Policy Review Panel; and, the 2008 report from Competition Policy Review Panel. The Department solicited public comments last summer and it received more than 40 submissions from companies and organizations and more from individuals.

We cannot continue to anchor foreign investment decisions solely on spectrum, completely ignoring the impact of delay on the rest of the telecom sector.

Wireline service providers are investing billions of dollars in fibre infrastructure and ISPs seeking to expand to the next stage are caught in purgatory waiting for a decision. Want to mess up the capital markets for a critical sector? Open up a consultation on allowing foreign investment and then keep it festering.

Next week is when comments are due for the 700 MHz consultation. That paper asked for more input on foreign investment – outside of the original process from last summer.

It will be interesting to see which non-Canadian carriers participate in the 700 MHz consultation. Perhaps even more interesting will be to consider which carriers didn’t bother participating because of the uncertainty playing Calvinball in our telecom marketplace.