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Recent Announcement of Canadian Cell Phone Spectrum Set Aside for Newcomers is Political Bullshit

By crooky | December 3, 2007

In May, 2008, 105 mhz of the 2 Ghz radio spectrum in Canada will be auctioned off to the highest bidders. This spectrum is the spectrum that the new “3G” highspeed wireless services (currently enjoyed predominantly outside of North America) will run on. The Canadian government recently announced that they would be setting aside a 40 mhz chunk of this spectrum to “newcomers” to increase competition. My personal experience and knowledge of past Government of Canada spectrum auctions tells me that any attempt to increase competition in the Canadian wireless sector in this manner is complete and unadulterated political bullshit.

As a side note Telus has come out publicly and said that it’s against Industry Canada setting aside any part of the spectrum for “newcomers” because it’s “bad for consumers”. I almost threw up laughing when I read that bit.

In 2001, Industry Canada auctioned off 40 mhz of this same spectrum to telecommunications companies and was at that time also hoping to increase competition. The result? Telus, Bell Canada and Rogers snapped up the majority of the spectrum real estate. How? In my opinion, it was three factors that guaranteed a continuance of non-competitiveness in Canada’s wireless industry:

1. Section 16 of the Canada Telecommunications Act. This oft controversial section of the Act states that foreign investors can own no more than 46.7% of Canadian telecommunications companies (no more than 20% of the operating company and no more than 33.3% of a holding company that owns part of the operating company). The barriers to entry in this market are huge (thanks, in part, to this Act) and the only companies with sufficient resources to challenge Bell/Telus/Rogers are foreign companies.

These companies already own an average of a third of Bell/Telus/Rogers and it wouldn’t make much sense for them to take less than a majority interest in a new competitor in Canada. Therefore, most of the competitors that bid in these spectrum auctions are numbered companies that are investing in the real estate in hopes to resell it to Bell/Telus/Rogers at a later date or new-ish telecommunications companies that can’t compete with Bell/Telus/Rogers (who, by some estimates, hold 90% of the Canadian wireless market between them).
The previous Minister of Industry (Maxime Bernier) quietly proposed earlier this year that Section 16 of the Telecommunications Act be loosened up to allow more foreign competition in Canada’s telecommunications sector. His replacement – Jim Prentice – has been mute on the Act and instead has suggested that foreign firms should partner up with regional Canadian players who could “band together” to form a national network. That sounds like a simple solution.

2. The sheer amount of capital available to the dominant telecommunications companies in Canada. Even when there is an “incremental” bidding process (an innovation that Industry Canada was very proud of in 2001) to minimize collusion through bid signals, the fact of the matter is that in the major metropolitan cores, the market price of the spectrum is beyond the reach of everyone but Bell/Telus/Rogers and their foreign (US) backers.

3. Finally, there’s the technical issues. We’ve talked about the political and economic reasons why setting aside 40 mhz of 2 Ghz spectrum is not going to result in increased competition or benefit consumers but I haven’t talked about the technological hurdle.

Wireless data travels on proprietary transmission formats over a certain spectrum of the radio frequency. If you have a wireless router for your internet connection (802.11x) in your home or office, what we’re talking about is not unlike that. Some of you may have noticed that certain wireless internet cards and routers will interfere with your cordless phone. That’s because they can operate on the same radio frequency but send very different kinds of information.

After the 2001 spectrum auction, Bell/Telus rolled out “2G” wireless data plans based on a CDMA 1xRTT platform. This communications standard could push data to your cell phone at about 18 kB/second – which is about 0.2% of what your wireless router at home can do and about half as fast as dial-up internet (if you remember those days). In other words – not exactly a broadband killer. Combine that with the fact that using your phone to surf the web costs you about $7 per megabyte of data, it’s no wonder why the uptake of wireless internet hasn’t taken off in Canada.

At the time, CDMA 1xRTT was an established standard but certainly not the fastest technology available to push data to phones. However, Bell/Telus chose to hitch their wagon to CDMA 1xRTT because in order to roll it out, you need to sell handsets with the right chips in them to receive CDMA 1xRTT data and you need to outfit your network to broadcast this kind of data. I have no idea what it costs to set something like that up for a city the size of Vancouver but my guess would be “a lot”.

Earlier this year, Rogers announced that it is going to start rolling out “3G” wireless data networks based on HSPDA that can push data to your phone at up to 800 kB/second. Wow! Only 1/5th the speed of my budget-priced home internet connection! For $7-10 per MB??? Where do I sign up?

I recognize that calling any announcement by the Government of Canada “bullshit” is potentially damaging to my career but I think I have a strong foundation from which to make this assertion. My logic is as follows:

1.

In 2002, the Canadian Government requested that the Standing Committee on Industry, Science and Technology undertake a review of the foreign restriction limitations in Canada . The Committee found that restrictions on foreign investment have impeded capital investment by new entrants as well as the growth and productivity of the telecommunications sector, and recommended that the Government remove the existing minimum Canadian ownership requirements, including the requirement of Canadian control, applicable to telecommunications common carriers.

Source: Cisco.

That means that the government has known what I’m thinking right now since 2002 – Section 16 of the Telecommunications Act is what is hurting consumers. No “newcomer” is going to make a serious competitive play against Bell/Telus/Rogers until this Act is amended.

2. The previous Minister of Industry - Maxime Bernier – also suggested that an amendment to the Act was due and he’s now no longer in the job. His successor is advocating “business as usual” by suggesting “newcomers” are going to be a consortium of regional players backed by foreign firms. This tells me that the government isn’t serious about opening up competition because they’d have people at Industry Canada who could lay out the facts the same way I have, thereby making it obvious that only large, well-heeled telecommunications companies could possibly compete with Bell/Telus/Rogers.

To ignore the fact that the technology required to put 3G technology in the hands of consumers requires a massive technology infrastructure investment over and above securing the spectrum is dishonest. These kinds of expenditures are not only beyond the reach of most newcomers but even if they were, it would involve putting more cell towers in communities – something that draws a lot of fire from residents and can potentially slow or kill a regulatory process.

Therefore, I believe that the Government knows all of this and is setting aside 40 mhz of spectrum to give the appearance of supporting competition in the telecommunications sector while actually actively discouraging it by continuing to do nothing about Section 16 of the Telecommunications Act.

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Aaron “Crooky” Cruikshank is the Principal and Founder of Friuch Consulting. He has written professionally about science and technology for ten years.

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Topics: Policy, Technology |

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