Canada to auction more PCS licenses

The decision from Industry Canada, the country's telecom regulatory agency, regarding auctions for 40 MHz of spectrum in the 2 GHz band is garnering mixed reactions from Canadian wireless operators. Industry Canada will auction four blocks of 10 MHz to any company that chooses to apply. No spectrum will be set aside for new entrants.

Unlike the U.S., Canadian spectrum is divided into large geographies. Canada's current wireless family tree consists of two operators with coast-to-coast PCS licenses, two with licenses that only cover opposite halves of the country and one with nationwide cellular and PCS spectrum.

"We're delighted with the decision," said Ed Prior, director of public policy issues for Telus, one of the operators with licenses that cover only half of Canada. "Our position that we put forward to the government was that current carriers should be eligible to get spectrum anywhere in the country."

Telus also didn't want the government to set aside spectrum for new entrants mainly because the amount of spectrum available at this auction is small. "If they set aside half for new entrants, there wouldn't be enough for the incumbents," Prior said.

Likewise, Clearnet, which has national PCS licenses, lobbied against opening the auction to everyone. "Our basis was that there is plenty of competition in the urban centers," said John Phillips, executive vice president of carrier relations for Clearnet. If a new operator enters an urban center, Phillips argues, an existing operator will pour more of its resources into defending its base, rather than build out its network into less developed areas.

"To foster national policy objectives of getting the new economy into non-urban areas, it's important to allow the capability for deployment and expansion into those markets," Phillips said.

That said, Clearnet doesn't actually have that much at stake in the auctions. "We need the spectrum the least - we have the most spectrum in Canada," Phillips said. Clearnet has 30 MHz of PCS spectrum nationwide and 15 MHz at 800 MHz.

The auction might be a difficult place for new entrants to win spectrum. "Although it's open to new entrants, they didn't set aside spectrum for [them]. So the big incumbents will be able to outbid new entrants," said Jeremy Depow, research analyst with The Yankee Group in Canada.

Several companies, however, submitted comments encouraging Industry Canada to open the auctions to all and to give new entrants separate treatment. It's still too early to tell if they will participate, though. "They don't get into the game until they know the rules," said Johanne Lemay, co-president of Lemay Yates Associates.

While a partnership might be the best way for a new company to enter the auctions, such deals have a foreign ownership barrier, Lemay said. Canadian operators cannot be majority owned by a non-Canadian company.

Despite the debate over this auction, it's relatively small. Canadian operators expect future auctions to make more spectrum available, allowing new companies to compete in the third generation world. Participants also don't expect this auction to garner the astounding amounts of money seen at the recent U.K. universal mobile telecommunications system auction.

According to Bell Mobility research, the average density in the U.K. is 241 people per square kilometer, said Brian O'Shaughnessy, vice president of wireless technology for Bell Mobility. In Canada, the average density is three people per square kilometer, which increases to nine in more populated regions.The revenue per customer also is lower in Canada. "It's more likely to be more reasonable than in the U.K.," O'Shaughnessy said.

Depow expects the auction to bring in $2 billion to $4 billion. Because this is only the second auction in Canada, some still criticize the method for distributing licenses. High license prices ultimately affect consumers, Depow said. "It's an indirect tax on users," he said.

"We don't think auctions are the right way to deploy a government resource," Phillips said.