Last week, two contenders dropped out of the Canadian wireless spectrum auction. MTS Allstream, a Manitoba-based telecom company, announced that its partnership with private equity firms Canada Pension Plan Investment Board and Blackstone Capital Partners was dissolved, making its chances to win the wanted spectrum unlikely. Just a few days ago, a joint venture which was initially led by Novacap, a Montreal-based private equity firm, also withdrew from the race. It was announced that the proposal didn’t meet federal laws concerning foreign ownership in a holding, capped at 46% in Canada.

The story behind the last flop is of course much more complicated than that; Novacap teamed up originally with US VC firms Columbia Equity Partners and M/C Venture Partners. One month later though, the venture’s capitalization changed, with 3 other investors magically appearing, Rho Canada Partners, Cyntech Holdings Ltd., and BMO Capital Corp; and this is where they didn’t comply anymore with federal regulatory laws.

I have no comments about all this backstage action; but I hate to see the direction where the auctions are going. The only serious companies left are Shaw Communication, Québecor, and Globalive Wireless. [see initial list]

When you go through the list, the amount of deposit required just to participate in the auctions are staggering. Contenders to nation-wide licenses are putting in hundreds of millions of dollars, and we haven’t started the auctions yet.

It occurs to me that these auctions are going to worsen the state of the Canadian mobile telecom industry. We are currently in a state of oligopoly, with 3 big carriers running the market and charging the highest prices in the world to their customers. As a result, Canada is lagging behind every other developed country now [except broadband Internet avalaibility]. With these auctions, where the price of entry is well beyond the means of most firms in this country, new players, if we’ll have any, are going to protect that investment; with even higher prices.

This isn’t any good for anybody. We reached the point where mobile phone and mobile data accessibility is essential to any developed country, as essential to economic developmnent as basic infrastructure such as roads or higher education.

As such, I think all barriers to entry to entry should be removed; by beginning with these auctions. Of course, there is the argument that frequencies are scarce, and to decide who is going to own it, the most natural thing to do is auction them off. But the Canadian telecom space is not the US’s, or Japan’s, and does not have the luxury of behaving the same way. If it wants to get back in the race, it must:

  • kill off the wireless auctions,
  • in exchange, add a clause that any new mobile company must allow open access to their network; so that any other company can become an operator very easily,
  • find a way to let small players in, even if they do not have the resources to launch a nation or province-wide mobile network,
  • enable quick & total number portability for users, between different companies,
  • forbid early termination fees,
  • also separate network services from content, and prevent carriers from locking their users to a pre-constrained set of applications and websites on their handsets.

The model will essentially free the current mobile market; will stop a telco to lock down a customer for years; remove all barriers of entry; ultimately driving prices down but also driving mobile usage up, making it a win for everybody, customers and companies alike. And in my opinion, that’t the only way we’ll close the gap.

Picture: Freedom by Almighty_Fotografie

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