How do you put concepts such as telecommunications policy, spectrum caps and foreign investment restrictions in the same sentence with “supporting Canadian families”? The federal Government has cracked that nut with the March 14, 2012 announcement by the Minister of Industry to shake up the rules in the telecom sector with a view to “providing Canadian families with more choices at low prices for wireless services”. The announcement is significant in that it has addressed some long-standing issues that stakeholders in the telecommunications industry have had before this Government and previous governments.
Among the Government’s stated objectives in announcing the new rules are to ensure sustained competition and robust investment and innovation in the wireless telecommunications sector.
The key measures announced by the Minister are:
1. Changes to the telecom foreign ownership rules
The government will amend the Telecommunications Act to exempt telecommunications companies with less than 10 percent of total telecommunications Canadian market revenue from foreign investment restrictions in the Act. According to the Government, this change will “promote competition by improving access to capital…and encourage long-term investment in Canada's telecommunications industry.”
But the devil is in the details:
- This measure is aimed directly at benefiting new entrant wireless players such as Wind Mobile whose market share is significantly under the newly announced 10 per cent threshold. On the other hand this 10 per cent solution is a significant policy loss for the incumbent telcos who have argued vehemently for competitive equity with respect to changes in the foreign ownership rules.
- Companies that grow their market shares in excess of 10 percent of total Canadian telecommunications market revenues other than by way of merger or acquisitions will continue to be exempt from the restrictions.
- Based on the wording of the Government’s announcement, the changes in the ownership rules would extend to all “telecommunications companies” not just wireless companies notwithstanding that the overall announcement is oriented to the wireless sector.
- Restrictions on foreign ownership under the Broadcasting Act would remain for all companies with broadcasting distribution activities. So any company with less than a 10% market share who enters the broadcasting business (either as a content provider or a broadcasting distributor, will have to ensure that these businesses continue to comply with the more restrictive ownership rules which preclude non-Canadian control and limit the amount of voting interest by non-Canadians in a domestic broadcaster.
- The provisions of the Investment Canada Act will continue to apply as is the case with any direct foreign investment.
2. Spectrum caps not “set aside”
The government will apply caps in the upcoming spectrum auctions that will enable four or more service providers in each region to obtain spectrum in both the 700 MHz and the 2500 MHz bands. Here are the key details on the spectrum caps:
- The 700 MHz band is “prime real estate” spectrum that has been re-harvested from analog broadcasters: services using this part of the spectrum have the ability to penetrate buildings and travel longer distances.
- A limit will be imposed on the incumbent wireless providers for the 700 MHz spectrum.
- While the Government has stated that its adopted approach of caps will be equivalent to a “set-aside” of spectrum (which it implemented in the 2008 Advanced Wireless Spectrum auction), the spectrum cap approach is clearly not the preferred approach of the new players, such as Wind Mobile and Mobilicity who have lobbied the Government to set aside spectrum that only they could bid on. Many are now speculating that the caps will push companies in the sector to merge, effectively introducing more market uncertainty in this sector.
- Unlike a set-aside, the measures will not require Industry Canada to identify specific blocks of spectrum, allowing companies to bid according to their business plans.
- The 700 MHz auction will be held in the first half of 2013, followed by the 2500 MHz auction within a year.
- The Government has stated its expectation that companies will begin rolling out network coverage—and delivering benefits to Canadians—in a timely fashion after acquiring this new spectrum.
3. Spectrum licence obligations
The government will require companies having access to two or more blocks of paired spectrum in the 700 MHz band to cover 90 percent of the population of their current high-speed population coverage within five years and 97 percent within seven years of licensing. In addition, general rollout requirements will be applied to both the 700 and the 2500 MHz bands, as in previous auctions (requiring between 20- and 50-percent population coverage, depending on the region, within 10 years).
4. Roaming policies
Industry Canada will improve and extend current roaming policies. In the 2008 Advanced Wireless Spectrum auction, the Government required all carriers to offer roaming, including some provisions that were only available to new entrant service providers. These requirements were put in place for five years and are set to expire in 2013. In the March 14th announcement, the Minister has extended roaming provisions indefinitely and expanding them to all carriers. It will also shorten the timelines for initiation of arbitration and the arbitration process between companies negotiating roaming agreements.
5. Antenna tower sharing
In the 2008 auction, Industry Canada mandated antenna tower and site sharing. This policy was introduced to reduce the proliferation of antenna towers and to facilitate the entry of new competition into the wireless market. The Government will continue these measures and will take steps to improve the current policies by requiring carriers to make available basic information on all towers to improve transparency and expedite the sharing process. It will also require shortening the timelines for initiation of arbitration and the arbitration process.
Stakeholder input will be sought on the proposed changes to roaming and tower sharing policies.
The new framework for mobile broadband services for the 700 MHZ band can be found here. The Proposed Revisions to the Frameworks for Mandatory Roaming and Antenna Tower and Site Sharing can be found here.