Ottawa sets up next spectrum auction to favour small players in telecom industry

The Conservative government wants Canada’s smaller telecoms and Internet companies to increase their wireless spectrum and plans to foster that goal in another auction next year that include rules to limit how much big players such as Rogers and Bell can buy.

Industry Minister James Moore said Friday that the government will auction licences for 2500 megahertz spectrum in April 2015 as it continues to promote lower telecom bills for consumers.

However, the government has put caps on how much 2500 megahertz spectrum companies can own, something Moore says will largely shut out Rogers (TSX:RCI.B) and Bell (TSX:BCE).

“The goal here is to allow more competition and to put into place capacity for new players to come forward and to have the opportunity to expand their businesses,” Moore said in an interview after he made the announcement in Vancouver.

Big carrier Telus (TSX:T) hasn’t exceed the cap for the 2015 auction and will participate.

“The announcement is consistent with the government’s previous statements about this spectrum and their policy of fostering competition in the wireless industry by ensuring multiple winners in each region of Canada and capping the total spectrum any company can hold,” Telus spokesman Shawn Hall said.

Word of the 2015 auction came just days before the auction of 700 megahertz spectrum, which begins on Tuesday, and follows a year in which the government announced several other policies to create more competition in the wireless industry.

The auction will come with caps to ensure the spectrum is divided up among four or more carriers and licences will cover smaller geographic areas, a move designed to allow smaller carriers serving rural Canada and smaller cities to participate. The 2500 spectrum can be used to build faster networks for mobile phones or Internet use.

Moore said he doesn’t see any way for Rogers and Bell to get the rules changed for the 2500 auction. In each of the three regions where licences will be available, they have already hit the auction cap of two blocks of 2500 megahertz spectrum.

However, both insisted they will still have a chance to bid.

“In those parts of the country where we are below the cap, we will be able to participate in the auction,” Rogers spokeswoman Patricia Trott said.

Bell also said it will bid where it can.

“In the locations where our 2500 megahertz holdings exceed the cap, we simply would not bid there,” said spokesman Mark Langton.

Canaccord Genuity analyst Dvai Ghose said other carriers will benefit, citing Telus, Videotron (TSX:QBR.B) and Manitoba Telecom Services (TSX:MBT).

Ghose also said smaller Internet providers have complained in the past they’ve had to buy large regional blocks of spectrum.

“Consequently, rural broadband providers have not been able to purchase rural-only spectrum in the past,” Ghose said in a research note. “This seems to have been addressed by the 2500 megahertz auction, as the geographic licence regions are a lot smaller and so could benefit rural wireless broadband deployment.”

Chatham Internet Access in southwestern Ontario said it’s equipment isn’t designed for the spectrum that will be auctioned in 2015, but welcomed the caps on the radio waves up for bidding in that auction.

“The big guys are the ones that are hoarding and buying it all and then sitting on it,” said general manager Wally Romansky.

The licences awarded from the 2015 auction will also include strict conditions to ensure carriers must put them to use quickly or lose them.

Moore called that policy “hard and fast.”

Last fall, Moore said telecom companies hoarding airwaves that could be used to provide more high-speed Internet service to rural Canadians have to “use it or lose it.”

Moore also defended the government’s TV ads promoting wireless competition, saying Canadian are frustrated with the high costs of wireless service.

“They want to know their government is in their corner, going to bat for them.”

The government has repeatedly said its goal is to ensure there is a fourth national player in every region of the country to give consumers more choice. Small startups, such as Wind Mobile and the indebted Mobilicity, have struggled to attract customers.