OTTAWA – “Combined, the new entrants spent about $3 billion to acquire spectrum, build networks and go after subscribers,” said John Bitove, the chairman of foundering wireless company Mobilicity – as well as the yet-to-launch Feenix Wireless, which purchased spectrum in this year’s 700 MHz spectrum auction.
He was speaking to delegates at the Law Society of Upper Canada’s Biennial National Conference on New Developments in Communications Law and Policy held in Ottawa last week in a session on the success, or failure, of Canadian wireless policy. Panellists, which also included economist Steven Globerman, Rogers’ Ken Engelhart, and lawyer George Addy concluded the federal government’s wireless policies show a lack of long term planning and a knack for blowing in the direction of the political winds.
Most know about Mobilicity’s creditor protection and the various issues it faces, most especially an uncertain federal government decision on whether it will be able to transfer its AWS spectrum to Telus in the most recent deal announced by the companies. When Bitove’s company purchased spectrum in 2008, it was part of the bands which were set aside just for new entrants to purchase and could not be sold for five years. Well, that five years is over for Mobilicity, and yet the federal government has said it wants more wireless players in the Canadian market and will likely not approve the transfer of that spectrum to any of the big three incumbents, Telus, Rogers or Bell, regardless of the expiry of the five-year moratorium.
"We will not approve any spectrum transfer request that decreases competition in our wireless sector to the detriment of consumers," Industry Minister James Moore said last fall.
“1.6 million subs would be a nice, healthy business.” – John Bitove
The way in which wireless policy has been pursued in Canada has been unpredictable at best and innovation-killing at worst and Bitove was direct in his criticism of the government, which did not follow-up the spectrum set aside for new incumbents with strong backup policies like cheaper domestic roaming and robust tower sharing rules, until it was much too late. “The policy was probably first and foremost about raising money,” he said. “The guys at Industry Canada should probably get the Order of Canada because between the two auctions, there was almost $10 billion raised” when expectations were more in the $2-$3 billion range, Bitove explained.
However, he added, if you look at the wireless business as a whole, about 1.6 million Canadians are now customers of a new entrant (either Wind, Videotron, Mobilicity, EastLink and Public Mobile, before it was bought by Telus). “Had we done a beauty contest type of auction, similar to how Cantel was formed… it might have been a lot more successful,” Bitove said. “1.6 million subs would be a nice, healthy business.”
But, where are we now? Asked Bitove. “Policy-on-the-fly is not sustainable at all. We definitely bought spectrum with an understanding that at the end of five years, we could do whatever we wanted to do with it, provided we did the build-out, which we did.
“When it’s just populist policy on the fly and nothing has ever been done to remediate or mediate some of the issues, whether it’s on the towers or roaming or whatever else… I understand why it takes policy makers and governments time to do things, but when you’re burning cash every month, you can’t wait 18 months to go through a policy hearing and then a ministerial decision, and etc. etc. and before you know it, you don’t have cash, which is pretty much what happened to all the new entrants.
The shifting political sands which has led to the government’s stated reluctance to stick to the AWS moratorium rules it set has also hit the capital markets hard, making it difficult to raise money to invest in the business as an independent. “When it’s policy-on-the-fly, it’s impossible to attract any kind of capital and I think that’s one of the problems Industry Canada and this government has created.
“It’s going to take a while to repair the damage in the capital markets after what we’ve gone through in the last 5-6 years.” – Bitove
“We raised a lot of debt and if the sale to Telus were to go through, there’s a good chance they’d get back a significant portion… they were under the assumption, as we were, that after five years if it didn’t work and as long as we did the build out we could sell the spectrum… it’s going to take a while to repair the damage in the capital markets after what we’ve gone through in the last 5-6 years.”
As for what’s next in wireless competition? It may be too late, Bitove added, for any of the newcomers. Expectations at Mobilicity’s launch was a network providing 90% voice traffic and 10% data. Now those numbers are reversed and data “has become more and more an essential service,” which may necessitate very serious changes in how we think about wireless broadband in general.
“My personal view… is, just like water and electricity over time were first luxury services and became essential and were strictly regulated by governments, I think that’s where we’re going to be with respect to wireless because I think data is becoming essential.”
