Giving telecoms access to more wireless real estate in the form of the 700MHz spectrum might be good news for rural British Columbians who don't have access to mobile broadband.
But analysts say Industry Canada's recent decision to sell the 700MHz spectrum in an open auction next year is bad news for other British Columbians, because it will limit the ability of independent wireless companies to compete and offer lower cellphone rates.
The spectrum auction will mean the "new entrants" – like Wind Mobile and Mobilicity – will have access to only 25% of the 700MHz spectrum, said Steve Anderson, founder and executive director of OpenMedia, a Vancouver-based Internet and telecom watchdog.
"It doesn't provide the new entrants enough spectrum for them to meaningfully compete at a national level," Anderson said.
The 700MHz spectrum – freed up when TV moved off the airwaves – is highly coveted because it travels farther, penetrates buildings and thereby reduces infrastructure costs.
Canada's big three telecoms lobbied to have it sold on open auction; the small, independent mobile-phone carriers lobbied for preferential access, arguing that there's no other way for them to compete with the big players, who can afford to buy up all the spectrum, even if they don't use it.
Telus (TSX:T) has argued it needs access to the 700MHz spectrum to extend 4G LTE (long-term evolution) wireless service to rural B.C.
"If we're going to launch LTE in rural areas in British Columbia, 700MHz spectrum is the only way you can efficiently and economically do it," said Chris Langdon, Telus vice-president of products and services.
"Telus, as an organization, is at spectrum exhaust in every single one of our urban markets across Canada, so we have a definitive need for additional spectrum," Telus CEO Darren Entwistle said. "Our need for spectrum is borne out of consumers and their demand for data-rich devices."
Michael Geist, Canada Research chairman of Internet and E-commerce Law at the University of Ottawa, is not convinced Telus, Rogers Communications Inc. (TSX:RCI) and BCE Inc. (TSX:BCE) will use the 700MHz spectrum to serve rural Canada.
"I think the benefits in rural Canada are really uncertain," Geist told Business in Vancouver.
Although Industry Canada plans to restrict the spectrum sale to ensure it is used to service rural Canadians, Geist doesn't believe those restrictions are strong enough.
"I'm not saying it's not going to happen," he said. "What I would say is, if we take a look at where the buildup has happened, for most of the larger players, they've tended to focus on urban areas. It makes more economic sense to double down on your investment in an urban area than it does to move into a rural area."
B.C. might be the exception because Telus has a multimillion-dollar agreement with the B.C. government to extend wireless and broadband Internet to some of the province's unserviced areas.
Both Wind Mobile and Mobilicity have invested in B.C. and have wireless infrastructure in key areas, like the Lower Mainland. Wind CEO Anthony Lacavera wants to expand his company to become Canada's fourth national carrier. He still thinks a new national carrier is possible, but not through expansion.
With limited access to new spectrum, he said the only way a national carrier can be created now is if his company merges with others.
"I believe this is a catalyst for new entrant consolidation," Lacavera told Business in Vancouver.
"We can't do it on a stand-alone basis. We have to work out developing relationships with other new entrants."
He predicts there will be mergers and acquisitions among the smaller players in advance of the spectrum auction set for mid-2013.
But bridging the gap across the Prairies to create a national carrier could be a problem, according to Telecom Trends analyst Mark Goldberg.
As Goldberg points out, regional carriers – SaskTel and Manitoba's MTS – are also likely to bid on the 700MHz spectrum, which could limit the ability of a new national carrier to be created.
"There really can't be four national players because of the hole in the middle of the country," Goldberg said. "Manitoba and Saskatchewan will most likely not have a new entrant acquire any of the prime spectrum holdings." •
