Bell Warns of Loopholes in Ottawa’s Wireless Policy, Says Verizon Would Exploit Them at the Expense of Canadians

by Istvan Fekete on July 26, 2013

It didn’t take long until Bell joined Telus and Rogers and called on the federal government to close the loopholes in its wireless policy framework that currently favours U.S. carriers rather than Canadians.

Compared to the other two major players, Bell went as far as writing an open letter to all Canadians signed by George Cope, the company’s CEO, to make sure they “clearly understand a critical situation” impacting the wireless industry.

While Bell welcomes competition — just like the other two: Telus and Rogers — the federal government’s wireless policy framework for the forthcoming 700MHz spectrum auction would create unintended advantage for American giants like Verizon. It is known that Verizon is a $120 billion telecommunications giant with 100 million subscribers, with $56.13 ARPU reported for the last quarter. By contrast, Bell is an $18 billion company with roughly 7.6 million subscribers, and $55.92 ARPU reported for the Q1 2013 quarter.

“Federal wireless policies intended to help small startup competitors unintentionally give the same advantages to major US wireless companies that want to enter Canada – advantages paid for by Canadians and denied to the country’s major wireless carriers. With the potential impact on the country’s airwaves and infrastructure, it’s an unprecedented situation that affects all Canadians,” said George Cope, President and CEO of Bell Canada and BCE.

Cope points to three loopholes the government needs to fix as soon as possible, before the September 17 deadline for bidders to submit application papers and initial deposits.

From Bell’s (Telus&Rogers included) perspective, the three loopholes are:

  1. Buy twice as much new wireless spectrum in the upcoming auction of Canada’s 700 MHz airwaves as Canadian carriers at a lower overall price. Canada is getting ready to auction 700 MHz spectrum – the best airwaves for carrying your future mobile calls and data. Able to operate equally well in both rural and urban areas, 700 MHz is the most technologically advanced spectrum ever auctioned by the Canadian government. There are 4 prime blocks of this spectrum available. Canadian carriers like Bell can only buy 1 each – but big US carriers like Verizon can actually buy 2. The way the auction is structured, American companies would pay less and get more spectrum, reducing the government’s auction revenues at the expense of Canadians. As well, one of Canada’s own major wireless carriers could be shut out of the auction for our country’s airwaves entirely.
  2. Get a free ride on the world-leading networks funded and built by Canadians. Government rules give a company like Verizon the option to offer wireless service simply by riding on the networks of Canadian carriers, world-class wireless infrastructure funded by Canadian investors and built by Canadian workers over the last 30 years. Verizon would not need to build its own network throughout Canada, invest in rural communities or support job growth as Canadian companies do. Verizon can easily afford to build its own networks and should do so if it wants access to Canada’s airwaves.
  3. Acquire smaller Canadian wireless companies at fire-sale prices. If wireless start-ups are financially distressed and looking for buyers, government rules prohibit them from being sold to Canadian carriers large enough to buy them like Bell, Rogers or TELUS. That depresses the value of the startups – and lets a US company like Verizon acquire them at cut-rate prices and gain all their assets, including their existing wireless spectrum already subsidized by Canadians.

And it also offers a solution that the government could adopt to rewrite the rules of the 700MHz spectrum auction:

  1. Canadian wireless carriers should be able to bid for the same amount of Canada’s airwaves as Americans can.
  2. US operators entering Canada should roll out wireless service across the country, just as Canadian companies have.
  3. If a small Canadian wireless company seeks a buyer, Canadian carriers should be allowed to bid, just as the Americans can.

Now, as you can see, their biggest concern is to secure a block of spectrum for each of the three incumbents because the current rules could leave one big player out of the game. That is in case it fails to outbid the wireless startup, which can buy one or two blogs of spectrum. And it could be hard to outbid Verizon’s endless money sac. In other words, it happens exactly the opposite of Cope’s claim: the competition for a spectrum block would raise wireless block prices, not lessen it.

Secondly, another painful point of the government’s current rules forbids incumbents to purchase wireless startups, or the wireless spectrum set aside for startups, despite that they aren’t using it. And, as we pointed out recently, there are a couple of pending deals out there that include spectrum transfers from startups toward incumbents.

It remains to be seen how the government will react to the incumbents’ outrage.

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Written by: Istvan Fekete. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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