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Canada’s Moore Says No Change to Spectrum Auction Rules

Canadian Industry Minister James Moore, facing criticism from phone companies, business groups and unions, said he’s not convinced changes are needed to the rules or timing of the government’s wireless spectrum auction.

The rules, which limit the country’s three largest carriers to 25 percent of the most valuable spectrum each and allow new entrants to buy as much as 50 percent, have led BCE Inc. (BCE), Telus Corp. (T) and Rogers Communications Inc. (RCI/B) to call for changes or a delay to the January auction amid concern that New York-based Verizon Communications Inc. (VZ) may bid for it.

“The rules will not be changing,” Moore said in an interview in his office in Ottawa. “For a company to establish itself in the Canadian marketplace, that’s a scale of spectrum they would require to compete across the country.”

The market value of Montreal-based BCE, Canada’s largest telephone company, Rogers, based in Toronto, and Vancouver’s Telus has fallen a combined C$14 billion ($13.4 billion) since their 2013 highs, partly on concern Verizon may enter the Canadian market. Verizon said June 18 it’s considering buying small Canadian operator Wind Mobile, which would give it a toehold in the Canadian market.

The government divided the most valuable parts of the spectrum in the 700-megahertz band into four blocks and capped the amount of prime spectrum the incumbents can buy. Companies must apply to bid for the January auction by Sept. 17.

Lobbying Efforts

Canada’s three largest phone companies have ramped up lobbying efforts and started a public relations campaign against the government to promote their case, including taking out newspaper ads and setting up a website.

Regional players such as Montreal-based Quebecor Inc. (QBR/B), which operates a phone company in Quebec, have also called for the government to change the rules to set aside some of the spectrum for them.

Business and labor groups have also supported the industry, as well as the editorial boards of some of the country’s biggest newspapers, such as the Toronto Star and Globe and Mail.

The governing Conservatives responded with their own website, and Moore has been giving interviews to press his case. Moore said in a message on Twitter yesterday that he gave 24 interviews in Toronto on the subject, and is heading to Montreal tomorrow.

Moore said the government has already consulted stakeholders and their concerns have been taken into account. “We’ve delayed the auction twice, we’re not going to delay it a third time,” Moore said. “We’re moving forward with the rules as they are.”

Squeeze Rivals

Without measures to promote competition through the spectrum auction, the largest phone companies could squeeze out the smaller rivals, Moore said in the Bloomberg interview. The alternative to the current rules is “to have three companies with 90 percent of the market just consume up that spectrum,” he said.

Verizon wouldn’t face any regulatory hurdles “beyond what’s evident” if it decides to enter Canada, Moore said, adding the government will move ahead with the auction even if a new carrier doesn’t express interest.

“It could well be an incumbent smaller player has a business model that means a larger national footprint,” he said.

Faster Networks

Companies like BCE and Rogers say that they need the spectrum to feed data-hungry smartphones and tablets.

The 700-megahertz band is coveted by wireless providers because devices using that frequency are better able to receive signals inside buildings and in rural areas.

Having Verizon take up half the prime spectrum would be acceptable to the government, Moore said. Alternatively, all the blocks could go to Canadian companies.

“For the government, our success or failure of our policy is not defined by Verizon coming or not coming,” Moore said. “It’s defined by over the long-term having more competition.”

The spectrum being auctioned aligns with frequencies used in the U.S. by AT&T Inc. (T) and Verizon, which will give the winning bidder access to the same supply chains of the larger U.S. companies. It would also simplify equipment sold on either side of the border to work on other carriers’ networks.

Two of the four prime blocks are harmonized with AT&T’s spectrum, while the other two are aligned with Verizon’s U.S. holdings.

Sale Blocked

Canada’s government also is preventing the major carriers from acquiring previously auctioned spectrum to prevent further market concentration. The government in June blocked Telus’s purchase of smaller Mobilicity until a moratorium on the sale of airwaves auctioned in 2008 expires next year and warned transfers of spectrum rights won’t be approved if it hampers competition.

Harper’s government has sought to foster greater competition in the nation’s wireless industry, including setting aside a certain amount of spectrum in the 2008 auction for emerging providers to bid on. Last year, it loosened ownership restrictions to allow foreign companies to buy carriers with less than 10 percent market share.

The government has said it wants four wireless providers in every region of the world’s 11th largest economy.

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Andrew Mayeda in Ottawa at amayeda@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net

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