WHILE THE LOBBYING intensifies here as everyone awaits word on whether Verizon will venture north in advance of the 700 MHz spectrum auction, the American cellco is doing lobbying of its own, Stateside, as the industry there prepares for a spectrum auction in the 600 MHz band.
A research report which is part of the U.S. wireless industry’s lobbying efforts actually casts doubt on our own government’s assertion it is bringing more competition to the Canadian wireless market with restrictive auction rules.
Scotia Capital analyst Jeff Fan noted in a report to clients what could be a glaring inconsistency in the Verizon position on either side of the border, saying “Even VZ (Verizon) does not believe the current Canadian wireless policy will bring sustainable competition,” his report reads. Of course that policy says that of the four blocks of spectrum being made available in the January 2014 700 MHz auction, the three incumbents of Rogers, Telus and Bell are not allowed to purchase more than one, while smaller companies can buy two if they want.
If Verizon does purchase Wind Mobile in Canada, as has been rumoured, the U.S. company could use that to get in the door here and buy two of the coveted 700 MHz blocks, potentially shutting out not only one of the big three, but also the independent regional players such as MTS, SaskTel, Videotron and EastLink in their various home markets.
Fan explained that Verizon is a member of Mobile Future, a Washington lobby group that sponsored a research paper made public last week which analyzed wireless auctions around the world (including two in Canada) and concludes that special rules like spectrum caps and set asides do not stimulate effective competition. “(P)referential or discriminatory auction participation rules (such as set-asides and spectrum caps) have been ineffective and have ‘failed to create the desired outcomes of stimulating sustainable market entry or otherwise altering the market structure’,” writes Fan, quoting the research paper (available here).
The paper says the Canadian 2001 PCS auction (which had a spectrum cap) did not produce a sustainable national carrier (Microcell and Clearnet ended up taken out by Rogers and Telus, respectively, after the cap was rescinded) and the 2008 AWS auction “failed to attract national entrants and resulted in a misallocation of resources,” writes Fan. “Yes, the same potential saviour of Canadian wireless competition, VZ, is saying that the discriminatory Canadian auction rules have been ineffective. Now it may be a participant in the next auction, which has a spectrum cap. One wonders whether VZ truly believes that a fourth Canadian operator is actually sustainable and/or viable, or whether it is simply taking advantage of the Canadian government’s preferential rules to acquire valuable spectrum that have limited build-out requirements for future opportunities.
“One has to question whether establishing preferential auction rules to encourage new entry for the third time in 14 years is efficient way to protect consumer interests,” added Fan. “One also has to question VZ/VZW’s motives because it comprises one of the best management teams in the industry, in our view.”
We’ll find out soon enough what everyone decides as the deadline to make a deposit and declare entry into the January auction is September 17th. Watch for each of Quebecor, Bell Canada and Telus to make a splash on the topic of the auction and Verizon Thursday as all three report their second quarter 2013 financial results.
– Greg O’Brien
