New Canadian Framework for 700 MHz and 2500 MHz Auctions

by A.J. Burton in Washington, DC

Industry Canada has released its Policy and Technical Framework (Framework) for the upcoming auction of spectrum in the 700 and 2500 MHz bands. Notice of the publication was published in the Official Gazette on March 24, 2012.  Back in November, when Industry Canada was seeking comments for this framework, we wrote: “the issue of how much spectrum will be set aside for new[] entrants looms large.”  With its new framework, including a spectrum cap and a separate promise to relax foreign ownership restrictions, Industry Canada has left the door open for new entrants.  Industry Canada’s Framework also includes rules to promote rural broadband deployment and sets aside spectrum for public safety use. 

In his speech introducing the Framework, Industry Canada Minister Christian Paradis explained that the auction “will apply caps for both 700 MHz and 2500 MHz to facilitate four or more companies in each license area securing this spectrum.”  In the 700 MHz auction, each of the three incumbent telecom operators (Telus, Rogers, and Bell) will be limited to purchasing one of the four prime blocks of spectrum at the auction. This prime band cap seeks to ensure that a new entrant will purchase at least one prime 700 MHz band, which could enable that entrant to deploy an LTE network. Similarly, in the 2500 MHz auction, Industry Canada has created an in-band spectrum cap of 40 MHz, which will effectively ensure that four or more service providers can access the 2500 MHz band in many areas of Canada.

Industry Canada also added rules to promote deployment of broadband in rural areas. Providers that gain access to two or more blocks of paired spectrum in the 700 MHz band in a particular license area (through winning auction bids or through later spectrum sharing) “will be required to deploy services to 90% of their existing broadband mobile coverage area within five years, and 97% within seven years of licensing.”   Recognizing that a similar heightened build-out standard for 2500 MHz spectrum would be “overly burdensome” based on the 2500 MHz band’s propagation characteristics, Industry Canada maintained the same rural build-out requirements that it has adopted for previous auctions.  For the 2500 MHz spectrum (and for providers that gain access to only one prime 700 MHz band), Industry Canada will apply its general build-out requirements requiring between 20- and 50-percent population coverage, depending on the region, within 10 years.

Industry Canada also allocated 10 MHz of spectrum (the 763-768 MHz and 793-798 MHz bands) for public safety use. Industry Canada held off on deciding whether it would allocate a further 10 MHz of spectrum (the D block) to public safety, with the United States only allocating that spectrum block to public safety earlier this year. Whether or not Industry Canada allocates the D Block to public safety, this spectrum will likely be interoperable with public safety broadband operations in the United States, allowing cross border communications.

In addition to the Framework, Industry Canada agreed to relax foreign investment restrictions to promote additional competition from new entrants. As Minister Paradis announced, Industry Canada “will lift foreign investment restrictions for telecommunications companies that hold less than a 10-percent share of the total Canadian telecommunications market.” This foreign-ownership rule change will apply to all new entrants (the three incumbent providers control upwards of 90% of the market). Thus, for the new entrants, foreign investment will no longer be capped at 46.7 %. And if, after attracting foreign investment, a carrier captures more than 10% of the market, the carrier can retain its foreign ownership, as long as it doesn’t merge with a rival. 

Despite the promised change to the foreign ownership rules and the spectrum cap, at least one new entrant thought Industry Canada did not go far enough in promoting competition. Wind Mobile has threatened to boycott the auction.

Industry Canada plans to auction the 700 MHz spectrum in the first half of 2013 and the 2500 MHz spectrum in 2014.

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