By Ahmad Hathout
OTTAWA – Innovation Canada “repeatedly encouraged” the sale of Xplore Mobile’s spectrum licences in Manitoba to Quebecor, according to a company executive, after CEO Pierre Karl Peladeau sent a letter to the department urging it to push for a sale to subsidiary Videotron to maintain its four-player competition policy.
The department denied the July 14 joint request to transfer the five licences worth $30 million to Telus in September on the grounds that it would hinder the ability of “fourth” players to compete because of the high concentration of spectrum control by Telus, Rogers and Bell, especially in the lower frequency bands. The proposed sale was part of Xplore’s exit that summer from the mobile wireless business – the only “fourth” mobile wireless player operating in the province.
Xplore challenged the decision in Federal Court in October, arguing that selling the spectrum to a “fourth carrier” – as opposed to one of the big three – was not a requirement under the conditions of owning the licences. It was revealed during discovery earlier this year that the Quebecor CEO sent a letter on July 22 urging Innovation Minister Francois-Philippe Champagne to deny the sale to the Vancouver-based telecom and instead sell it at the same price to its subsidiary Videotron.
“I won’t hide from you, Minister, that this announcement is of the greatest concern to us,” said Peladeau in the French-language letter. “First, it is distressing for Manitoba mobile service consumers, as it signals the disappearance of the fourth wireless player that has been fighting fiercely in this province since 2018 against the three national mobile service providers.”
Peladeau reminded the department that Xplore Mobile’s acquisition of the licences was a requirement of Bell’s acquisition of MTS in 2017 to bolster competition. He noted that the Competition Bureau ruled that MTS was the stimulus for competition in the region, and that Xplore Mobile’s entry reduced wireless prices “significantly” in the province.
Last month, Videotron became the presumptive fourth national carrier after its acquisition of Freedom Mobile – a result of the sale of Shaw to Rogers.
“We are of the opinion that it is obvious that the transfer of Licenses to the [national players] would cause an excessive concentration of commercial mobile spectrum for the benefit of the latter, since this would only exacerbate the dominance which they already enjoy, in particular in Manitoba, in spectrum assets in all commercial mobile spectrum bands,” Peladeau said in the letter.
“Only the Ministry can prevent this undesirable scenario from materializing by refusing to approve the transfer of Licenses to the [incumbents] and instead facilitating their transfer, at the same price offered by the [incumbents], to Videotron, a strong regional competitor with demonstrated expertise,” he added.
An ISED official responded to the letter on behalf of the minister in an early August email: “Competition is a driver of innovation and efficiency in the telecommunications sector, and is part of a firm commitment by this government. We continue to encourage affordable prices for consumers and, like you, we promote an industry driven by competition. These are essential objectives for today’s society and economy, and are at the heart of our work. These objectives continue to form part of the Minister’s assessment of any spectrum license transfer requests associated with the withdrawal of Xplore Mobile inc. of the market.”
Court documents also revealed that Xplore Mobile’s corporate secretary said in an affidavit that “ISED officials repeatedly encouraged Xplore Mobile to transfer its spectrum licences to Quebecor Inc.” But the secretary said Quebecor “was not genuinely interested in acquiring Xplore Mobile’s spectrum licences in Manitoba, which Quebecor officials later confirmed.”
Xplore said it canvassed all potential spectrum recipients and Telus “was, and remains to this day, the only market participant with a genuine interest in a transfer of Xplore Mobile’s spectrum licences,” according to a court filing, saying only the national players expressed interest.
ISED’s Marc-Andre Rochon and other officials have denied any connection between the letter and its transfer denial to Telus. Rochon said under deposition that during one summer meeting with Xplore last year, ISED gave the company three options: allow the review to continue and wait for a decision, give the licences back to the department without being compensated, or withdraw the application and amend it with a new proposal. Xplore counsel emphasized that the latter option could have allowed the company to change its sale target away from Telus.
In a document recommending the transfer denial, the department said a “new competitor may emerge over the longer term, especially with the federal government’s ongoing commitment to competition in the wireless sector.” That same document noted that Telus holds more spectrum in Manitoba than Rogers and Bell, but has a “low in comparison” number of radio sites – in other words, Telus would not need additional spectrum to provide services, it said.
ISED’s decision came during the time it was reviewing Rogers’s proposal to buy Shaw, which was approved on March 31 this year. In August 2022 – the same month ISED officials were talking to representatives from Xplore and Telus about the Manitoba spectrum – Rogers and Shaw agreed to sell Shaw’s Freedom Mobile to Videotron as a condition of the deal. The goal was to convince regulators that Videotron would be a strong fourth national competitor.
Counsel to Xplore have tried to link the Manitoba licences decision to ISED’s consideration about Rogers-Shaw, so as to suggest ISED’s spectrum transfer denial decision was unfairly made. Rochon denied any connection.
As a condition of acquiring Freedom, Videotron signed a legal agreement with ISED this year committing it to rolling out a mobile wireless service in Manitoba. The company will look to the mobile virtual network operator model, allowing it to ride on the national players’ wireless networks so long as it has spectrum and invests in infrastructure in the area over the seven-year period the regime is in place, per CRTC rules.
Xplore counsel probed Rochon about how Peladeau – who said in the letter he was aware of Xplore’s spectrum sale agreement with a national player – knew about the confidential agreement to sell the spectrum to Telus. Rochon acknowledged that it is unusual for a party to send an unsolicited letter with knowledge of a matter held by ISED that should have been confidential.
Xplore’s counsel were also wowed about the fact that ISED’s reasons for denial — concern over a viable fourth player — also emerged in Peladeau’s letter.
Rochon was grilled by the counsel about alleged meetings Peladeau held with department personnel before the July 22 letter but after the application to transfer the licences to Telus. They raised concern over several meetings registered in the federal lobby registry.
During one deposition, Rochon acknowledged that Manitoba spectrum was discussed during a meeting with Videotron officials between May and September 2022.
Last month, Xplore filed a motion with the Federal Court to bring that same ISED official for further cross-examination. The official, through his counsel, agreed to answer additional questions about discussions between Videotron and the department related to the Manitoba spectrum and other documents, including ISED’s response to Peladeau’s letter and its application of the fourth player rule in making the denial decision.
Specifically, Xplore wants to know the basis for ISED’s “20-percent guide” when making spectrum transfer decisions. The department determines “concentration concerns” when only 20 per cent or less of all spectrum – or of all low-band or all mid-band spectrum – is held by a fourth player in the area after the transfer.
A concern of ISED’s was whether there was enough spectrum to allow smaller players to compete in the provincial market. The applicants argued that there was “ample comparable spectrum” – outside of the five licences up for sale – available for a fourth player to compete in the province at the time of the department’s decision. They said other fourth players in other parts of the country compete on less low-band spectrum than is available in Manitoba, and that Telus’s proposed haul would still be much less than competitors in the area.
But ISED officials disagreed with the availability of spectrum in the province, arguing in part that other spectrum bands don’t address the low-band concentration issue. On the broader argument about the decision, department officials told representatives from Xplore and Telus that it has jurisdiction on spectrum transfer decisions to fulfill the government’s policy objective of maximizing the economic, social and competitive benefits of the public resource.
Xplore, which is owned by New York private equity firm Stonepeak Infrastructure Partners, warned ISED that if it couldn’t move the spectrum, it would default on its debts with creditors by the end of August 2022 and that the decision would deter future foreign investment in the Canadian market.
In a late August briefing note recommending rejecting the transfer to Telus, the department said private matters are not factors in its spectrum transfer reviews but acknowledged that denying the sale would leave the spectrum temporarily unused in Manitoba. In fact, it said approving the transfer would positively mean a continuation of service.
Xplore and Telus argued that it “is against public policy to deny this transfer and instead force the return of [Xplore Mobile’s] spectrum to ISED to be warehoused for an indeterminate period of time in the hopes than a hypothetical new entrant may someday appear” and that there is no “fourth” player in the province coming on the horizon.
The department, however, said in the note the policy objective “is best served when ISED helps ensure that existing and future competitors have access to sufficient spectrum to provide services and compete effectively with NMSPs over the longer term.”
Globalive, which previously owned Videotron’s Freedom business, said earlier this year it bid on the Manitoba licences to hop back in the mobile wireless space.
ISED will hold its 3800 MHz spectrum auction later this year and millimetre wave auction next year, which it said is expected to intensify the rollout of the 5G network in Manitoba.
In the spring of 2022, the Federal Court denied an application by Telus to block ISED from issuing blocks of the 3500 MHz 5G mobile wireless spectrum to Videotron in British Columbia, Alberta and Manitoba on the basis that the Montreal company allegedly didn’t satisfy the eligibility requirement that it be actively serving customers out west.
