HillNotes

With the growing popularity of mobile broadband–enabled devices, global data usage has tripled over the last four years.

Currently, more than 9 million Canadians subscribe to smartphone voice/data plans. As a result, Canada’s current mobile telecommunications infrastructure is facing strong demand for capacity, of which radio frequency spectrum is a key component.

On 14 March 2012, the Minister of Industry, the Honourable Christian Paradis, announced the reform of foreign investment restrictions under the Telecommunications Act and the organization of spectrum auctions in the near future.

The 700 MHz auction will occur in the first half of 2013, and the 2500 MHz auction within a year after that.

The 700 MHz spectrum band is considered "beachfront property." That is, this low-frequency spectrum offers significant improvements in download speeds; better penetration of buildings and other obstacles; and wider coverage, important in addressing the digital divide between rural and urban Canadians.

Hence, this auction will shape the near future of Canada’s wireless services.

Allocation of radio frequency spectrum

Industry Canada manages the radio frequency spectrum under the guidance of the Spectrum Policy Framework for Canada  (150 kB, 14 pages). This framework has a single policy objective: “To maximize the economic and social benefits that Canadians derive from the use of the radio frequency spectrum resource.”

Industry Canada has used several methods of allocating spectrum. In the early 1980s, allocation was made by comparative assessment, with the assessment based on proposed levels and quality of service.

In 1995, spectrum caps were introduced in an effort to promote competition. Some personal communications services (PCS) spectrum was held in reserve.

In 2001, the reserve spectrum was auctioned, and in 2004, the caps were removed. Industry Canada has also tried several methods to allocate spectrum for use in unserved and underserved areas.

AWS spectrum auction

Canada’s most recent spectrum auction occurred in 2008. The advanced wireless services (AWS) spectrum auction was a competitive process, but with some blocks set aside for new entrants in the wireless industry. The auction raised over $4.26 billion, which went into general revenue.

The set-aside was used to bring more players into the industry in which, prior to the auction, three firms dominated market share and revenue, and cellphone charges were among the highest in the world.

The new entrants increased competition, resulting in lower prices and improved contract terms for most consumers.

700 MHz announcement

With the March 2012 announcement, the federal government has tried to balance the demands of several parties: small firms, the new entrants in the AWS auction and potential new entrants in the 700 MHz and 2500 MHz auctions; large incumbents (Bell, Rogers and TELUS); urban consumers; and rural consumers.

Given the occasionally conflicting demands it faced regarding this auction, the government has established the following objectives: sustaining increased competition, which the new entrants in the AWS auction had introduced to the industry; promoting continued investment and innovation that the incumbents, by their size, brought to the industry; and making AWS available to all Canadians.

A backgrounder issued at the time of the announcement listed four measures chosen to balance demands and meet the government’s objectives:

• Foreign investment restrictions will be lifted for companies that have less than a 10 percent share of the telecommunications market, promoting competition by improving new wireless entrants' access to capital.
• Caps in upcoming spectrum auctions will effectively ensure that new wireless entrants and regional providers have access to prime spectrum.
• Tower sharing and roaming policies will be improved and extended.
• Obligations will be imposed on 700 MHz spectrum licence holders to see advanced wireless services quickly delivered to rural Canadians.

Companies that acquire spectrum at these auctions will not be able to sell their licences to other providers for five years. This measure promotes competition and prevents consolidation in the industry in the short term.

There has been no estimate of how much revenue the federal government expects to receive from auctioning the 700 MHz and 2500 MHz spectrum segments.