UPDATE 3-Canada steps in to stimulate wireless competition

Thu Mar 7, 2013 1:07pm EST

* Government sets Nov. 19 to start 700 MHz spectrum auction

* Puts floor on opening bids totaling C$897 million

* Expands roaming, cell tower sharing rules

* No immediate plans to lift foreign limits on big telcos

By Randall Palmer and Alastair Sharp

OTTAWA/TORONTO, March 7 (Reuters) - The Canadian government said on Thursday it would start the process of auctioning more prime wireless spectrum on Nov. 19 and announced other steps designed to stimulate competition and reduce high roaming charges.

In selling carriers the rights to use the additional frequencies for wireless service, Ottawa aims to assure at least four competitors serve each region of the country. To accomplish that, it will limit the three dominant carriers, BCE Inc's Bell , Rogers Communications Inc and Telus Corp , to three of four prime blocks in each area.

"Our government's priority is to provide greater wireless coverage at lower rates for consumers," Industry Minister Christian Paradis said in a statement.

Canada's wireless market, which has some of the highest roaming charges in the world, is dominated by Bell, Rogers and Telus, which together command a 90 percent share.

The government sought to weaken their dominance in a 2008 auction of airwaves in which it set aside some spectrum for new entrants. Among the upstarts that emerged are Wind Mobile, a carrier in the process of being acquired by Amsterdam-based VimpelCom Ltd, and closely-held Mobilicity and Public Mobile.

In another measure to promote competition, Ottawa is indefinitely extending a requirement that wireless carriers provide roaming on their network to rivals, and expanding that requirement to all carriers. When introduced in 2008, the roaming requirement, designed to make upstarts more attractive to customers, applied only to them, and for five years.

But Ottawa stopped short of requiring that networks provide so-called "seamless" roaming, a major win for the Big Three, according to Desjardins analyst Maher Yaghi.

The policy still allows calls to be dropped when a customer strays out of the coverage area, but gives the customer the right to reconnect on the roaming network.

LOWER BILLS

Canadians have paid among the highest roaming rates in the world, according to an OECD report from May 2011, and the highest average bills, according to a September 2010 report from Bank of America Merrill Lynch.

That said, there is some evidence to suggest that the government's overall initiative is succeeding.

Since the 2008 auction, wireless prices for consumers have fallen by 10 percent, Industry Minister Christian Paradis said in announcing the latest wireless initiative.

Iain Grant, the managing director of telecom consultancy Seaboard Group, said the upstart providers had shaken up the industry and forced the established companies to lower rates.

"In urban centers, they have done an excellent job. The entire rate structure has in effect been set by Mobilicity and Public Mobile and Wind," he said, referring to three entrants that have offered cut-price talk-and-text deals centered in the most populous cities.

The established providers have defended the rates they charge, countering that both voice and data usage are higher than average in Canada and that per-minute or per-megabyte comparisons paint an accurate picture.

VALUABLE SPECTRUM

The latest spectrum to be auctioned is highly valued for its ability to penetrate buildings and travel long distances, and is compatible with a new mobile broadband technology known as long-term evolution. LTE is already being introduced into U.S. markets after an auction of the same spectrum four years ago.

Paradis would not say how much revenue he hoped to raise from the auction but said he expected there to be strong investor interest.

"There is no certainty with this. We put a floor with which we are comfortable," he said at a news conference. "We expect there will be interesting competition."

Ottawa set minimum opening bids totaling C$897 million ($870 million) for the auction, with initial applications due June 11. The 2008 spectrum brought in C$4.25 billion.

Analysts expect each of the three main players to pay at least C$500 million to secure more airwaves. Limited resources may stop some of the newer carriers from bidding aggressively.

In another step that could loosen the Big Three's grip, Paradis said the government would review its policy on the transfer of spectrum licenses.

That could lead Ottawa to take a more aggressive stance on proposed transfers, and it could veto Rogers' planned purchase of airwaves owned by Shaw Communications Inc. Shaw bought set-aside spectrum in the 2008 auction before scraping plans to build a wireless network.

WHEREVER THEY MAY ROAM

The new rules also step up the pressure on carriers to increase sharing of antenna towers and sites, and reduce the time it takes to negotiate such deals.

Municipalities are eager to limit the proliferation of cellular towers, while incumbent operators that own existing towers can be slow to reach commercial agreements to share them with the new entrants or one another.

There are seven blocks available in the wireless spectrum auction, but bidders will likely covet four aligned with spectrum bought by AT&T and Verizon Wireless in the United States. Verizon is a venture of Verizon Communications Inc and Vodafone Group Plc.

Those carriers hold more sway with device manufacturers and can push to ensure future smartphones and tablet computers work on those specific frequencies.

The government has said BCE, Telus and Rogers can only obtain one of these prime blocks each, leaving the new entrants and regional cable operators such as Quebecor Inc and Shaw to compete for the fourth.

Last March, Paradis reduced foreign investment restrictions on small carriers that have a market share of 10 percent or less. He said on Thursday it was premature to talk about expanding this to the larger companies.

"What we understand is that we would have to hold public consultations. We're not there yet," he said. "What we sent here is a clear signal that we want to have more competition in the telecom sector."

Shares of BCE, Rogers and Telus slipped between 0.4 percent and 1.7 percent by midday on the Toronto Stock Exchange. Shaw was also down 1.1 percent, while Quebecor gained 0.6 percent.

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