700 MHz Spectrum Auction in Canada: To Set Aside or not to Set Aside?!

The rules for the upcoming 700 MHz spectrum auction are set to be announced soon after parliament returns from its two months winter recess on January 30th. In the lead up, we’ve had an amazing debate raging between the incumbents (Rogers, Bell and Telus) who back an open auction and the new entrants (Wind, Mobilicity, Public Mobile and Videotron) who’re on the side of set asides. Let’s take a closer look at the issue.

The 700 MHz spectrum includes a total of 108 MHz of which 84 MHz is available for commercial mobile services (the remaining 24 MHz is designated for public safety). The amount of useful paired spectrum will depend on how Industry Canada will architect the band plan. If the US band plan is followed, the result is 46 MHz of paired spectrum of which only 40 MHz will be used for LTE (this is because LTE channels are multiple of 5 MHz while the US band plan is based on 6 and 11 MHz channels). In short, the useful spectrum can be small indeed especially when LTE is better operated in 2×10 MHz mode. Other band architectures would result in higher useful spectrum, but nevertheless most operators engaged in this auction will end up with 5 MHz paired channels. In conclusion, there is not a lot of paired spectrum in 700 MHz to satisfy everyone’s need.

Hence the bitter battle rages on claims and counterclaims, some valid, some not. Rogers for instance says that setting aside spectrum hurts rural coverage, which in my opinion doesn’t hold water: after all rural areas are sparsely populated which means carving out spectrum for LTE operation is feasible. Mobilicity says that incumbents have a lot of spectrum already which they don’t use: true, but the unused spectrum is in high frequency bands such as 2.3 and 3.5 GHz. Incumbents say new entrants should use 2.5 GHz spectrum for their urban deployments: though a sound idea as LTE is about data services and capacity, it still places new entrants at a relative disadvantage.

So, what to make of all this? The Canadian wireless market is a relatively closed market (completely closed until Wind began operation!). Statistics do show that Canadians pay more than other developed countries for wireless services.  Moreover, the market behaves as a duopoly with Bell and Telus with complementary coverage and network sharing practice as shows in the figures below. Since new entrants began services, prices did go down, but perhaps not as much as consumers would have liked. New entrants are surely struggling as they have not made significant inroads into the market (consider that the largest of which, Wind, has around 360k subscribers while Rogers has over 9.2 million).  Even with access to 700 MHz spectrum new entrants may not survive, but without it, their odds of success would be almost completely eliminated. The pie chart below showing their relative holdings to incumbents speaks volumes! Surely setting aside spectrum is a form of subsidy, but I don’t believe it’s a high price to pay to promote greater competition.  Otherwise, the government’s pretension to encourage competition on this market will be torn to shreds!

Canadian 800 MHz Spectrum Holdings

Cellular 800 MHz Spectrum Holdings

Canadian PCS Spectrum Holdings

PCS Spectrum Holdings

Canadian AWS Spectrum Holdings

AWS Spectrum Holdings

Canada Commercial Mobile Spectrum Holdings by Operator

Commercial Mobile Spectrum Holdings by Operator (Weighted by Population)


About Frank Rayal
Technology strategy, markets and M&As

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