UPDATE 2-Canada sets new wireless auction in bid for competition

Fri Jan 10, 2014 4:36pm EST

By Randall Palmer and Louise Egan

OTTAWA Jan 10 (Reuters) - Canada will auction off another set of airwaves for wireless use in April 2015, structuring the rules in a way designed to boost competition and lower consumer prices, Industry Minister James Moore said on Friday.

The announcement on details of the 2,500 megahertz auction comes as the Conservative government prepares to open the bidding process for the 700 MHz spectrum on Tuesday.

The rules for both auctions limit the amount of spectrum the dominant three telecoms players - Rogers Communications Inc , Telus Corp and BCE Inc - can acquire in a bid to encourage at least four providers in every region.

"What's important for Canadians to know about the 2500 MHz auction is that it features rules that are specifically designed to put consumer interests first, including spectrum caps and smaller geographic license areas," Moore told a news conference in Vancouver.

The Conservative government, facing re-election next year, has placed great emphasis on the consumer, even though questions have been raised as to how successful it has been at increasing competition in the wireless sector.

The government has allowed foreigners to buy telecoms companies with less than 10 percent of the market, but not BCE, Rogers and Telus.

It has also said it was open to following the recommendations in a 2008 report on competition policy it commissioned that suggested easing foreign ownership limits on both telecom and broadcast companies.

But Moore told Reuters on Friday he was not focused on that right now. Instead he was "actively looking" at the upcoming spectrum auctions and legislation to cap wholesale wireless roaming rates that companies can charge each other - which he expects to introduce in the spring.

He declined to comment on the possibility that if foreign limits were eliminated, major global players like Verizon Communications Inc could swallow Canada's largest companies whole.

While the spectrum auctions will raise some welcome cash for the government as it pushes to balance the budget, he said they were not structured to maximize revenue, for example, by making several companies compete for just one or two blocks.

"The main policy is to take this public asset of spectrum and deploy it as aggressively as we can across the country and with as much competition associated as possible to the maximum benefit of Canadians," he told Reuters.

In his news conference, Moore said caps on how much each player could acquire at auction meant that four or more providers would have the opportunity to have spectrum in each region.

"Smaller geographic license areas will give Internet service providers in rural areas a greater chance of acquiring the spectrum and to use it to offer new and improved wireless broadband services to both homes and businesses," he added.

USE IT OR LOSE IT

If companies fail to use the spectrum they acquire, they will lose it, Moore said.

Some analysts, however, have said the list of bidders for next week's auction and the absence of big foreign players points to little change in the current landscape and suggests the government's plan to shake up the market is failing.

"While the government is still pursuing a wireless policy centered around giving spectrum to new entrants ... this has not fundamentally changed industry dynamics, and new entrants have generally struggled," Canaccord Genuity analyst Dvai Ghose said in a research note.

Moore, a rising star in Prime Minister Stephen Harper's Cabinet, argued that the two spectrum auctions, along with other policy changes such as the wholesale roaming rate cap and cellphone tower sharing, would reduce wireless prices for consumers. He said prices had already fallen 18 percent.

Shares of Canada's Big Three wireless providers were all higher following the announcement. Ghose noted that uncertainty about Moore's announcement had weighed on some Canadian telecom shares on Thursday, given the risk he could announce changes that would affect their results.

Last year, the Big Three engaged in highly public war of words with Moore over his telecommunications policies.

Ghose said Rogers and BCE would not be able to bid for the 2,500 MHz spectrum because they are already at or above their cap, but they might be relieved because the new rules do not require them to return spectrum even if they exceed the cap in certain regions.