By Bronwyn Howell, a fellow at think tank American Enterprise Institute with a PhD in economics and public policy, an MBA, and a BA in operations research, all from Victoria University of Wellington in New Zealand. She has undertaken contract work for Telus.
Canada and Australia are similar in many ways, but one area of significant difference is mobile telecommunications. While both countries share similar geographic and demographic features – vast territories very sparsely populated on average, yet highly-urbanised first-world economies, so likely face similar telecommunications costs and demands, Canada has fared less well in comparison to Australia in prices and more recently in speed to market of 5G technologies.
Cross-country telecommunications market comparisons are fraught with difficulty. However, key differences in the countries’ approaches to spectrum policy beyond simply the timing of auctions plausibly account for observed industry differences. Canadian policy-makers could learn from Australia’s pro-active spectrum policy by removing set-asides, allocating more spectrum in a more timely manner, and repackaging already-allocated spectrum into more efficient bundles.
Spectrum is a scarce resource, essential for providing telecommunications services. The more of it that is available, the lower the expected price of acquiring it at auction will be – provided that the auction is well-designed to optimise overall social benefit and not just to maximise government revenue. Artificial scarcity created by constraining its availability will lead to higher prices at auction and ultimately for services provided to consumers. Moreover, spectrum should be bundled to allow operators access to sufficiently large contiguous chunks of frequencies to enable more efficient network operation and faster network services.
Canada differs from Australia in its use of “set-asides” – spectrum reserved for smaller regional operators with less than 10 percent market share. The thinking is that this will stimulate competition for the large national carriers, but so far, no nationwide competitive entry has emerged. Instead, set-asides have artificially constrained spectrum available to large operators, who serve the vast majority of Canadian consumers and are better-placed to bear the risks of investing in new technologies. Hence they will attract more investment and deploy new services sooner than smaller ones, albeit at higher costs than if more spectrum was available to them. Set-asides thus offer one plausible explanation for Canada’s higher prices and later 5G deployment than Australia’s.
Furthermore, Canada was very late to the party in assigning access to 3.4GHz–4.2GHz band spectrum for 5G deployment, beginning only in July 2021. Australia began releasing this spectrum in 2017, with a second tranche being auctioned in 2018 and a third planned for late 2022. Canada’s weighted average price, at CAD 2.41 per MHz/population exceeded Australia’s (0.53 per MHz/pop in 2017 and 0.40 per MHz/pop in 2018). However, this average conceals a much higher price paid by Canada’s three national carriers of CAD 3.44 per MHz/pop.
Moreover, Canada has released far less new 5G spectrum (37%) than Australia, and in much more fragmented bundles. Its July 2021 auction allocated 200MHz of 3.4GHz–4.2GHz band spectrum. However, of this only 64MHz of additional spectrum was available to the national carriers, after taking into account the 47MHz set-aside and the 89MHz already acquired by incumbents between 2004 and 2009 for WIMAX and fixed wireless services. By contrast, the Australian auction in 2018 released 175MHz of 3.6GHz spectrum to four bidders, in addition to 77MHz of 3.4GHz made available in 2017. Inevitably, Australian providers will be able to offer more, and more cost-effective 5G services using their larger additional new spectrum holdings than Canadian operators.
The costs of deploying services are also affected by the frequency ranges of the spectrum bundles allocated. Operators with larger amounts of contiguous spectrum face lower costs than those with more fragmented bundles. Canada’s allocations have led to national operators with much more fragmented bundles than in Australia, again likely leading to higher costs.
Spectrum fragmentation has occurred in part due to the repurposing of spectrum already held by operators. By contrast, Australia could package its spectrum in larger contiguous bundles. Moreover, 5G is different to other telecommunications network generations because it allows operators to mix and match operational components using different spectrum frequencies, both statically and dynamically. Existing spectrum bundles may not be packaged or allocated efficiently for 5G purposes. Pro-active rebundling and reallocation (as done by Australia for 850/900MHz spectrum in 2021, and planned for 3.4 to 4.0GHz later in 2022) facilitates 5G deployment efficiency.
Removing set-asides, allocating more spectrum in a more timely manner, and repackaging already-allocated spectrum into more efficient bundles will greatly improve Canadian spectrum policy. While it may be too late to address the current high costs and late deployment of 5G, these policies will surely serve the country better in the future.
Cartt accepts commentary from informed observers of the telecommunications and broadcasting industry. The views reflected in these pieces do not necessarily reflect the views of Cartt. Pieces for consideration should be sent to editorial@cartt.ca.
