These spectrum auction restrictions became an exercise in futility

editor's corner

To see a disheartening example of what can happen when a government regulator tries to increase wireless competition by keeping spectrum from a nation's dominant operators, shoot a quick glance at the Great White North.

Back in 2008, Industry Canada specifically set aside chunks of AWS spectrum for new entrants who were expected to challenge Rogers Wireless, Bell Mobility and Telus Mobility, which controlled 97 percent of the market.

Six new entrants bought into the offer, including three affiliated with cable TV operators--Quebecor's Videotron, Bragg Group's Eastlink and Shaw Communications--and three standalone entities--Mobilicity, Public Mobile and Wind Mobile. None of these companies can sell the spectrum it won to an incumbent mobile operator until spring 2014.

Shaw bailed early, taking a look at Canada's mobile market and deciding that building a new network at this point would be folly. It signed a contract giving Rogers the option to buy its spectrum next year, provided Industry Canada allows the deal to proceed.

All three standalone startups deployed new networks, and all three are now on the block. Late last month, Mobilicity, legally known as Data & Audio-Visual Enterprises Holdings, received permission from the Ontario Superior Court of Justice to pursue "strategic options," including a possible sale or recapitalization, according to the Globe and Mail. The company has reportedly been in negotiations to sell out to Telus.

Meanwhile, Netherlands-based VimpelCom, a major investor in Wind, has put that Canadian startup on the sales block. And Public Mobile is widely known to be hunting for a new owner.  

Prompting this rush to exit Canada's wireless industry is the nation's upcoming 700 MHz band auction, slated for November. Already under-capitalized and struggling to compete, the three standalone new entrants have apparently realized that they cannot possibly hope to raise the many millions of dollars needed to secure additional spectrum.

The Canadian government may not allow the dominant incumbent operators to buy any part of the besieged startups, and, frankly, that may not matter much. Convergence Consulting has estimated that Rogers, Bell and Telus still hold almost 94 percent of the market.

It's too early to tell about Eastlink, which only recently launched operations, but right now the only new Canadian mobile operator that looks healthy is Videotron.

How pathetic it is that billions of dollars were committed over the past three years for deployment of me-too services over underfunded networks built by startups that, for the most part, never had a chance. I wonder what kinds of innovative services Canada's incumbents might have launched during that time if they had been able to access all of the spectrum that was up for grabs in 2008's auction.

With the Department of Justice urging the FCC to somehow restrict AT&T (NYSE:T) and Verizon Wireless (NYSE:VZ) from fully participating in the upcoming 600 MHz auction, I hope the commission takes a concerted look at the debacle north of the border before it makes any decisions.--Tammy

P.S. Vote in the poll on our home page. What can U.S. regulators learn from Canada's experience?