Lower cellphone rates ahead?
Ottawa opens up wireless competition
Nov 28, 2007 05:16 PM
Chris Sorensen
Business Reporter
The federal government is opening up Canada’s wireless communications industry to more competition, a move that could lead to lower cellphone rates.
A three-week auction of wireless spectrum – or capacity – to be held next May should foster competition between telecommunications companies and ultimately result in lower prices, better service and more choice for consumers, Industry Minister Jim Prentice said today at a news conference in Toronto.
In the auction, about 105 megahertz of new spectrum will be made available for bidders, with 40 megahertz of that set aside for newcomers to the industry. Foreign companies will not be able to make independent bids on spectrum, but may do so in partnership with a Canadian firm.
“A more competitive wireless market is in the best interests of all Canadians,” Prentice said.
“The amount of spectrum takes into account the need for new entry in all regions of Canada while considering the interests of incumbent operators and their current spectrum holding.”
To be eligible to compete for bandwidth set aside for new players, companies must currently hold less than 10 per cent of the national wireless market based on revenue.
Prentice’s move comes amid rising concern about the state of wireless competition in Canada, where there are only three major national players. They are Rogers Communications Inc., BCE Inc. and Telus Corp.
In a bid to challenge what some have referred to as an oligopoly, Quebec media and communications giant Quebecor Inc. and Manitoba-based MTS Allstream Inc. have both expressed interest in entering the wireless market on a national basis, and were among a handful of players hoping Ottawa would set aside spectrum for new entrants.
Cable firms may also be among the bidders as they look to add another element to their businesses, which already include home phone and Internet services in many regions.
Toronto Hydro Telecom had also spoken out in favour of setting aside spectrum.
Amit Kaminer, an analyst with consulting firm The SeaBoard Group, said in an interview in advance of the announcement that a spectrum set aside was a historic “opportunity to change the landscape” and that nearly every sizable phone or cable company in the country was likely to consider a bid.
“Having a wireless play in your company is a great thing,” Kaminer said. “Profits are huge and there’s so many other advantages such as the ability to bundle (different) services.”
Kaminer added that he wouldn’t be surprised if the government quietly makes it more difficult for the incumbents to simply purchase a smaller upstart as was the case in 2000 when Telus bought Clearnet Communications, or in 2004 when Rogers bought the parent company of Fido. “I can’t see Ottawa liking the idea that all their ideas will go down the drain with a post-announcement purchase.”
Proponents of a set aside had argued that an open auction for airwaves would allow the deep-pocketed incumbents to gobble up the additional spectrum in a bid to keep competition out.
In addition, potential new carriers had asked the government to mandate “reasonable” roaming arrangements and cellphone tower sharing practices in order to give them time to establish their own networks.
Rogers, Bell and Telus, by contrast, had argued that a set aside would be nothing more than an unfair subsidy since several of the companies planning to bid on spectrum were multi-million dollar businesses.
Rogers, for example, said it would bid on spectrum because it needs more airwaves as customers migrate to things like wireless video and email, which eats up bandwidth.
While the wireless segment is widely-considered to be a promising growth business, critics have complained that a lack of competition means Canada is lagging several other developed countries, and even some developing ones, when it comes to offering consumers innovative wireless pricing and services.
A recent study by J.D. Power and Associates found that overall customer satisfaction with their contract service fell nearly 3 per cent in 2007, compared to a year earlier. The study’s authors blamed the year-over-year decline on a perception among cellphone users that they are paying too much compared to people in the United States and elsewhere.
Another study, published earlier this year, by consulting firm The Seaboard Group suggested that “average” cell phone users in Canada pay up to 33 per cent more than their U.S. counterparts, while “heavy users” pay up to 56 per cent more.
In fact, the Seaboard study found that the only category in which Canadians were better off were so-called “light” or “survival” users, which paid about 27 per cent less on average than they would in the U.S., but still more than in some European countries.
However, a recent follow-up study by the Seaboard Group found that the price of transmitting wireless data such as email and browsing the Web was beginning to fall at two of the big three Canadian carriers, a finding the study’s authors attributed to the inevitable arrival of data-hungry devices such as Apple Inc.’s iPhone in Canada.
The run-up to Prentice’s decision was characterized by a war of words between would-be entrants and established players.
Pierre Karl Peladeau, the CEO of Quebecor, has accused the big three wireless players of maintaining a “stranglehold” on wireless competition and customers’ wallets.
Ted Rogers, meanwhile, lashed out at potential challengers’ calls for spectrum set asides, calling them “scallywags” that are trying to “rip off the system and get spectrum at half-cost and have taxpayers pay for it.”
However, critics of Rogers’ position noted that the cable giant wasn’t required to pay up front for access to the airwaves when it first started out in the business.
– With files from The Star’s wire services
http://www.thestar.com/Business/article/280679
Ottawa opens up wireless industry to more competition
Last Updated: Wednesday, November 28, 2007 | 6:16 PM ET
CBC News
The Conservative government on Wednesday paved the way for new cellphone companies by announcing new rules for an auction of radio airwaves designed to spur competition in the wireless industry.
About 40 per cent of the spectrum will be reserved for new entrants, with the remainder open to all bidders, including Canada’s big three providers — Rogers, Bell and Telus.
‘This is a grand slam for consumers.’ — Telecom analyst Eamon Hoey
The government will also mandate roaming agreements, which will force existing carriers to share their networks with newcomers for five years, plus another five if the new entrants can build up their own networks nationally. If a new carrier is unable to reach a “reasonable” roaming agreement with an existing provider, an outside arbitrator will be brought in, Industry Canada said.
The government is also forcing existing carriers to rent space on their cellphone towers to newcomers, again at “reasonable” rates, or risk having an arbitrator come in.
In handing down the rules, Industry Minister Jim Prentice gave potential newcomers, including Quebecor, MTS Allstream, Shaw and Eastlink, virtually everything they asked for.
Key numbers
Bell, Rogers and Telus wireless revenue: $11.8 billion (2006 data)
Cellphone subscribers in Canada: 19.3 million (Sept. 2007)
Prentice told a news conference that he agreed with their assessment that prices are too high and the wireless industry needs more competition. “Our goal at the end of the day is lower prices, better services, and more choices,” he said.
Those who had been arguing for more competition were delighted with the ruling. “This is a grand slam for consumers,” telecom analyst Eamon Hoey told CBC News. “It really puts a heavy knife into the oligopolic style of structure we’ve had in the cellular business.”
Chris Peirce, chief regulatory officer of MTS Allstream, was pleased as well.
“They have really gotten their policy right and it’s good to see they were able to resist the arguments” of the incumbents, he said.
But Liberal industry critic Scott Brison was not pleased. “There’s no proof it will lead to lower prices,” he argued, saying regulation would have been better. Brison said the auction decision will result in a $200-million windfall for the new entrants.
New entrants could launch by late 2008
The auction process is to begin on May 27, 2008, and is expected to last several weeks. Industry Canada expects new players will start up by the end of next year, at the earliest.
Attention will now turn to who the new bidders will be, with analysts expecting Quebecor, MTS, Shaw and Eastlink to enter the auction. Prentice said the amount of spectrum reserved for new entrants, or 40 megahertz, is enough to facilitate a new national carrier.
“It’s reasonable to assume that will happen,” he said.
Peirce said the MTS board will now have to decide on what portions of spectrum to bid on. Industry Canada stopped short of applying its set-aside rule on a national spectrum licence, which MTS had asked for, opting instead to apply the special condition only on regional licences.
Prentice said a number of regional players could, however, band together to form a new national cellphone provider.
Foreign companies, although faced with ownership restrictions, could also bid on the spectrum in partnership with a Canadian company.
The auction traces its roots to April 2005, when the Liberal government put together the Telecommunications Policy Review Panel to look at the state of the industry and the Telecommunications Act.
The panel submitted its report in March 2006 to the newly elected Conservative government and, among its broader telecommunications recommendations, suggested several changes to the wireless industry to make it more competitive.
Industry Canada, under then Industry Minister Maxime Bernier, launched a public consultation in February 2007 that incorporated some of the panel’s suggestions.
The ministry asked whether special conditions should be imposed on the auction, including whether some spectrum should be set aside for potential new entrants and whether caps should be installed on how much any one company could own.
The framework also asked whether government intervention was needed in the commercial negotiation of roaming deals between cellphone carriers. Roaming agreements allow customers of one provider to connect to the network of a different provider, which allows subscribers to use their cellphones where their carrier doesn’t have infrastructure.
About 90 submissions were made from various industry players, including incumbents Bell, Rogers and Telus, potential new entrants Quebecor, Shaw and MTS Allstream, the Competition Bureau and various consumer and business groups.
Dominant companies wanted free-market auction
The incumbents argued that no special rules should be imposed and that spectrum should go to the highest bidder.
The potential entrants argued that special rules were needed because the incumbents had every incentive to bid up the price of the spectrum to keep new competitors out of the market.
They also said mandated roaming deals were necessary because the incumbents had no incentive to sign reasonable agreements with newcomers. Without the ability to offer roaming onto other networks, the new entrants would have a difficult time attracting customers, they argued.
The potential new entrants cited high prices and the lack of competition between the incumbents as the reason for Canada’s poor showing among developed nations in mobile phone adoption.
Canada’s rank of 29th out of the 30-member Organization for Economic Co-operation and Development was justification for the government to get involved in the otherwise unregulated wireless industry, they said.
The United States held a similar advanced wireless spectrum auction in September 2006 that netted the government $13.9 billion US. The Federal Communications Commission is holding another auction in January of spectrum that will be vacated when analogue television broadcasting is shut down in 2009.
The U.S. wireless industry is moving toward a more competitive framework, with the FCC imposing a number of open-access rules on its upcoming auction. Winners in the auction will be forced to make all cellphones, including those from rivals, work on their networks.
http://www.cbc.ca/money/story/2007/11/28/auction.html
Ottawa’s wireless auction could cut cellphone rates
Updated Wed. Nov. 28 2007 5:56 PM ET
CTV.ca News Staff
Ottawa announced it will hold an auction of the wireless spectrum in May 2008, which could mean more competition and lower cellphone rates for Canadians next year.
Industry Minister Jim Prentice told a press conference in Toronto on Wednesday that about 105 megahertz of spectrum will be sold to bidders. Forty megahertz will be set aside for newcomers to the industry.
“The introduction of new service providers will help to make Canada’s wireless market more dynamic, more competitive, and more innovative so as to meet the needs of Canadians,” Prentice said.
Prentice said that Canadians are currently paying more for wireless service than other countries. Industry insiders say that’s one reason there are fewer wireless users relative to the United States.
Companies who hold less than 10 per cent of revenues in Canada’s wireless market will be allowed to bid for the 40 megahertz that will be set aside.
The industry is dominated by three big players in Canada: Rogers Communication, Bell Mobility, and Telus. During a consultative process, larger companies came out against setting aside bandwidth for smaller companies.
“Today’s announcement will not please some players in the industry,” Prentice said.
“But let us not forget that they already control the vast majority of spectrum for mobile services on the market in Canada. These same players will be able to bid for 65 of the 105 megahertz being put up for auction to augment their already substantial holdings.”
Prentice told CTV Newsnet’s Mike Duffy Live that larger telecommunications companies in Canada benefited from set-asides during similar auctions in the 1980s and 1990s.
Industry analysts say that the amount of spectrum made available is significant.
“More users require more spectrum and the new internet services, of course, will require broader spectrum,” Iain Grant told CTV Newsnet immediately after Prentice’s announcement.
Prentice also announced that the government will mandate cellphone tower sharing. This will force companies to allow other companies to use their towers at commercially negotiated rates.
“I think as a Canadian who doesn’t necessarily want to see a forest of towers outside my house, I really appreciate it if we can have some sharing of existing resources,” said Grant, who is managing director of the Montreal-based telecom consultancy The Seaboard Group.
Grant noted that Canadians will likely not see prices drop for about a year.
Prentice told Mike Duffy Live that he is not sure how much money the auction could raise.
http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20071128/wireless_market_071128/20071128?hub=TopStories
