OTTAWA – Spectrum set asides and caps appear to be clearly on the table for the next spectrum auction, according to documents released by Industry Canada this week.
While the documents, which relate to spectrum auctions and the renewal of cellular and PCS licences (click here for list), don’t specifically say that the government will use either of these methods in upcoming auctions, the way in which it describes their potential use leads one to believe Industry Canada is seriously considering them.
Set asides of spectrum and caps will be used, according to the department, when it’s determined that the benefits of restricting access to certain bandwidth for certain parties outweighs the benefits of holding open auction.
There are three conditions for using a set aside:
• the entity possesses market power in the supply of one or more telecommunications services in a region covered by the licence to be auctioned;
• a new entrant is likely to use the licence to provide services in competition with the entity’s existing services;
• and the anti-competitive effects of the entity acquiring a licence are not outweighed by the potential economies of scope arising from the integration of the spectrum in question into the entity’s existing network.
With respect to spectrum caps (or aggregation limits in regulatory parlance), there are two conditions for spectrum caps:
• a bidder that acquires an amount of spectrum beyond a certain level would not face effective competition from providers of closely substitutable services;
• and the anti-competitive effects arising from the acquisition of an amount of spectrum beyond a certain level by a single bidder would not be offset by lower prices or higher valued services resulting from a single entity holding this amount of spectrum.
Just as the spectrum set asides and caps won’t be welcomed news to the incumbents, the decision by the department to impose licence fees on spectrum beyond their initial term acquired in an auction will be panned. The government has decided that a fee of $0.03512361 per MHz per population will apply. As well, it says that future licences obtained through an auction will be subject to licence renewal fees.
While talk of spectrum caps, set asides and ongoing licence fees beyond the initial auction term is a hit to incumbent carriers, the decision to extend cellular and PCS licences and those obtained in an auction to 20 years will be broadly applauded by incumbents and new entrants alike.
According to the department, “licence terms in excess of 10 years would create greater incentive for financial institutions to invest in the telecommunications industry and for the industry itself to further invest in the development of network infrastructures, technologies and innovation.”
In situations where spectrum usage is unlikely to change, licences will be granted for 20 years. But for those where there might be changes as a result of spectrum reallocation, terms won’t be as long. As well, Industry Canada has committed to ensuring that all spectrum licences purchased at an auction “have a high expectation of renewal.” Again, the department says this provides added certainty for investment purposes.
Satellite change of mind
With respect to the competitive licensing process used for satellite orbital resources, the department has had a change of heart. It says the current satellite licensing regime may be outdated and “will undertake a comprehensive review of the satellite licensing policy framework to ensure that the framework is adapted to today’s environment. This review will involve an analysis of licensing framework options to determine best practices in other administrations and to ensure that Canadian satellite operators are not disadvantaged when competing domestically and internationally.”
In the past, Industry Canada had ruled out auctioning satellite licences due to their international nature, but now believes that in certain cases where “spectrum is pre-assigned to Canada” or “when Canada has priority access to the spectrum internationally” an auction may be an appropriate mechanism for licensing satellite bandwidth.
Some parties to the spectrum auction consultation, mostly notably Barrett Xplore Inc., wanted the department to ensure companies only interested in rural licences had a better chance of getting the desired spectrum. Industry Canada didn’t completely rule this out, but decided to largely to stick to the current four 4 tiers.
However, “should compelling evidence be provided that the introduction of an alternative tier is socially desirable as well as economically and technically feasible for a specific auction/band, Industry Canada would consider establishing another tier.”
With respect to the R&D spending condition of licence, Industry Canada says it will soon issue a decision on this matter.
