Rogers Communications Inc. 333 Bloor Street East Toronto, Ontario M4W 1G9 rogers.com Tel.: 416.935.2525 Fax: 416.935.2523 [email protected]
Ken Engelhart Senior Vice President - Regulatory
February 28, 2011
Manager, Mobile Technology and Services DGEPS Industry Canada 300 Slater Street Ottawa, ON K1A 0C8
Re: Canada Gazette, Part I, November 30, 2010 Consultation on a Policy and Technical Framework for the 700 MHz Band and Aspects Related to Commercial Mobile Spectrum (SMSE-018-10)
The above noted Consultation Paper, invited comments on general policy considerations related to commercial mobile broadband spectrum use, competition issues and on the use of the 700 MHz band; and comments on spectrum use for public safety broadband applications and the relative timing of the auction of the 700 MHz and 2500 MHz bands. Rogers Communications Partnership (“Rogers”) appreciates the opportunity to provide the attached comments on this important consultation.
All information contained paragraphs 125-129, in Attachment 1 (Responses to Questions 4-2 to 4-5, inclusive) and Appendix B of the Rysavy Research Report “Operator Spectrum Requirements for Mobile Broadband”, which are included in Rogers’ submission are filed in confidence.
Rogers requests that Industry Canada treats all information contained in the above noted attachments as confidential, pursuant to subsection 20(1)(b) of the Access to Information Act, and sections 38 and 39 of the Telecommunications Act. For competitive reasons, Rogers would never “publicly” disclose the information contained in either the attachment or appendix other than to Industry Canada. The information submitted contains detailed operational forecasts and its release would enable potential and existing competitors to use the information against Rogers. Rogers submits that any possible public interest in disclosure of the information in this document and all its
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accompanying attachments is greatly outweighed by the specific direct harm that would flow to Rogers.
The documents are being sent in Adobe PDF Version 8.0. Operating System: Microsoft Windows XP.
Yours very truly,
Kenneth G. Engelhart Senior Vice President - Regulatory
Comments of
Rogers Communications Partnership
Consultation on a Policy and Technical Framework for the 700 MHz Band and Aspects Related to Commercial Mobile Spectrum (SMSE-018-10)
February 28, 2011
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Table of Contents
Executive Summary 3 Introduction 8 General Need for Additional Spectrum 10 Rogers Needs 700 MHz Spectrum 14 700 MHz LTE is a Vitally Important Ecosystem 14 Site Acquisition Challenges are Increasing 18 700 MHz Spectrum is Required for LTE Outside Large Urban Centres 19 Relative Holdings of Mobile Spectrum 22 Band Plan 24 Guard Bands 27 Public Safety (D-Block Spectrum) 29 Tier Sizes 32 Transition for LPTV Stations 33 Low-powered Licensed Devices 34 Canadian Table of Frequency Allocations 34 Spectrum Utilization Policy 34 Promoting Competition 35 7-1 (a) in general 36 Overview of the Canadian Wireless Industry 36 Competitors in the Canadian Wireless Services Market 39 New AWS Licensee Market Share 44 Confidential Section 46 7-1(b) in terms of its contribution and interaction to the broader 47 Canadian telecommunications service market The Benefit of the Wireless Industry to the Canadian Economy 47 The Future is Wireless 48 7-1 (c) in comparison with the wireless markets of other jurisdictions 51 Number of Wireless Carriers Per Country 51 Population Density 52 Canadian Providers Adopt the Latest Technologies Despite 54 Spectrum Release Delays Canadian Wireless Pricing 56 Impacts of Government Measures Adopted in the AWS Auction 63 Need for Measures to Increase or Sustain Competition 67 No Further Measures Needed to Increase Competition 67 Unviable Entry 68 Number of Market Competitors in Comparison to Other 69 Countries No Measures Needed to Sustain Competition 71 Foreign Investment Considerations 75 Consequences of Mechanisms to Promote Competition 77 Set-asides 78 Spectrum Caps 81 Auction Caps 84
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Spectrum Aggregation Limits 86 7-6 (a)(i) Should the cap apply to the 700 MHz band only or be 86 broader? 7-6 (a)(ii) What should the size of the cap be? 86 7-6 (a)(iii) Should bidders and their affiliates or associates share a 87 cap? 7-6 (a)(iv) How long should the cap remain in effect? 87 Set-Aside 88 7-6 (b)(i) Who should be entitled to bid in the set-aside block(s) and 88 should the entitled bidders be restricted to bidding on the set-aside only? 7-6 (b)(ii) How much spectrum should be set-aside and which block(s) 89 should be set-aside? 7-6 (b)(iii) If the set-aside were to include multiple blocks of spectrum, 90 should they be contiguous? 7-6 (b)(iv) What restrictions should be put in place to ensure that 90 policy objectives are met (for example, should trading of the set-aside spectrum be restricted for a given period of time? Roll out Requirements 90 Changes to Foreign Investment Restrictions 91 Deployment in Low Density Rural and Remote Areas 91 Regulatory Measures for Rural and Remote Deployment 92 Incentives to Deploy in Rural and Remote Areas 94 Open Access (C-Block Spectrum) 95 Timing of the Auction of 700 MHz and 2500 MHz Spectrum 99
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Executive Summary
1. Rogers’ 9 million customers are demanding faster mobile broadband services to satisfy their growing need to stay in touch and access the information and content they want, any time, any where, on any device. In response to this demand, Rogers is using all of its available mobile spectrum to implement Long Term Evolution (LTE) technology in Canada’s top markets. LTE technology will allow Rogers to provide the unprecedented data speeds that are necessary to support lightening fast mobile broadband services. At the same time, Rogers is undertaking a network densification program in order to add further capacity to our network in major urban markets through the installation of new cell sites. Despite these substantial efforts, Rogers will require some 700 MHz spectrum to provide additional spectrum capacity in order to keep pace with the unprecedented demand for mobile broadband services that will continue over the next several years. Perhaps more importantly, additional 700 MHz spectrum is needed so that Rogers can provide ubiquitous LTE mobile broadband coverage to Canadians living and working in urban, suburban and rural Canada. In addition to these important considerations, an advanced technology ecosystem is developing for the 700 MHz band in North America and 700 MHz spectrum is needed so that we can be part of that ecosystem and provide our customers with the best and most advanced LTE devices.
2. The licensing of the 700 MHz band presents a truly unique opportunity at a very important time. This low-band spectrum can cover a much wider area than all other mobile spectrum bands with a developing LTE ecosystem. This means that LTE services can be implemented more economically using 700 MHz spectrum. This is particularly important with respect to parts of Canada outside of large urban areas where it will simply not be economic for Rogers to implement mobile LTE services without 700 MHz spectrum. At the same time, the 700 MHz spectrum band will enable large urban LTE deployments which allow customers to experience continuous LTE coverage (without dropping down to HSPA+ coverage). The 700 MHz band is therefore an important prerequisite for the ubiquitous implementation of LTE and mobile
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broadband services throughout Canada and it will be a crucial component for achieving the objectives of the federal government’s Digital Economy Strategy. Implementing LTE services outside urban centers will be a key factor in closing the digital divide between Canadians and businesses in urban and rural Canada. It will also be a critical enabler of Canadian productivity, innovation and competitiveness for years to come.
3. There is absolutely no need or justification for a spectrum set-aside in the upcoming spectrum auction. AWS new entrants have entered the wireless market and are already making inroads in major Canadian cities. These new competitors include some of the most successful media and communications companies in Canada, as well as one competitor that is part of the Orascom empire.
4. The Canadian wireless market has gone from being highly competitive to hyper- competitive. Moreover, the number of competitors in most Canadian markets matches or exceeds what is observed in wireless markets around the globe. In the context of this hyper-competitive wireless market, a spectrum set-aside is completely unwarranted.
5. Because of the unique opportunity presented by this spectrum, the 700 MHz auction must allow those who value the spectrum the most to put it to its most productive use. This will ensure that the spectrum is fully exploited to produce the maximum economic and social benefits for Canadians. Setting aside spectrum for new entrants, or capping incumbents at the level of their existing spectrum holdings, will not achieve this outcome and will almost certainly have significant unintended costs. Set-asides, spectrum caps and auction caps will artificially restrain Rogers, one of Canada’s largest, most successful and innovative wireless service providers, from acquiring the spectrum we need to implement mobile broadband services across Canada, and to cope with the unprecedented growth in mobile broadband traffic that experts and regulators around the world are forecasting for the next several years. Interference with Rogers’ ability to obtain one of the most important inputs – the spectrum resource – will hamper our ability to invest and innovate for our 9 million customers, and threaten the mobile broadband revolution in Canada.
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6. In light of the fact that 700 MHz spectrum will be a critical enabler of mobile broadband services, especially outside urban centers, Canada’s 700 MHz policy must discourage hoarding of this vital resource. Canada cannot afford to let 700 MHz spectrum lie underutilized in the hands of spectrum speculators while its major trading partner has already begun to exploit this spectrum and to unlock the economic and social benefits arising from its use. To prevent spectrum hoarding, successful bidders must be subject to rollout requirements. This will ensure that the use of 700 MHz spectrum is not limited to major markets and it will guarantee that Canadians living and working outside urban areas will be able to benefit from the mobile broadband revolution and the Digital Economy.
7. Canada should harmonize with the U.S. band plan, since there is a vitally important ecosystem developing on the basis of this band plan. By aligning with the U.S. technology ecosystem, Canada will benefit from significant economies of scale, wider equipment availability and cross-border roaming. However, in order to provide for more potential licensees of scarce 700 MHz spectrum, Industry Canada should split the upper C block into two paired blocks. This would not violate the fundamental structure of the U.S. band plan and would still allow Canada to benefit from the U.S. LTE ecosystem. It would also not preclude bidders from bidding for and aggregating both paired blocks into a single larger block in order to support their business plans.
8. There is a considerable amount of uncertainty in the U.S. regarding D block spectrum and whether it will be licensed for public services, commercial services, or a combination of the two. In the meantime, there is no ecosystem for this spectrum. Industry Canada therefore should defer any consideration, decision and licensing of D block spectrum until the situation in the U.S. has been resolved. Once the situation has been clarified, Industry Canada should initiate a separate consultation to consider the licensing of D block spectrum in Canada.
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9. There is no need for imposing any open access requirements in the 700 MHz band or any other mobile spectrum band. The commercial mobile market has evolved to a more flexible and open model with respect to consumer devices and applications since the time that open access requirements were initially mandated for the upper C block in the U.S. several years ago. Canada’s wireless carriers already cater to a variety of consumer devices, operating systems and applications and they do so to remain competitive in a very dynamic market.
10. Because the 700 MHz band and 2500 MHz band are complementary bands that are required for the implementation of ubiquitous LTE services across Canada, the Department should auction the 700 MHz band and 2500 MHz band at the same time, in mid-2013.
11. Attached to Rogers’ comments are the following expert reports which support the foregoing recommendations:
a. Spectrum Policy as Competition Policy: A Good Choice for Canada?, Jeffrey Church, February 28, 2011.
Jeffrey Church was commissioned to comment on the framework for the 700 MHz auction, focusing on key policy levers (set-aside and caps) that IC could use to promote and sustain competition. A key conclusion of the report was that set-asides and caps based on the size of a firm’s aggregate spectrum holdings are unjustified in the Canadian wireless context. Church’s report also concluded that by repeatedly setting aside substantial amounts of spectrum Industry Canada may be doing far less to increase competition, and far more to create resource waste and unnecessary scarcity. Overall, it was noted that the best spectrum policy for Canada is to make as much spectrum available with as few restrictions as possible.
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b. The Impact of 700 MHz Spectrum on LTE Deployment & Broadband in Canada, Lemay-Yates Associates Inc., February 2011.
Lemay-Yates was commissioned to provide a perspective on the issues surrounding the deployment of LTE technology in the context of broadband strategies and the upcoming auctions for 700 MHz and 2.5 GHz spectrum. The report noted the importance of 700 MHz for LTE and boradband deployment in Canada, and that large mobile carriers focusing on broadband services need more spectrum than small carriers. Specifically, large carriers could need in the order of 200 MHz to fulfill expected consumer demand. It was Lemay-Yates conclusions that technology and spectrum bands are intertwined and the option of acquiring 700 MHz spectrum is important, even for carriers who already own substantial spectrum holdings.
c. Operator Spectrum Requirements for Mobile Broadband, Rysavy Research, February 26, 2011.
Rysavy Research was commissioned to analyze operator spectrum requirements in order to meet the growing mobile data demand and the crucial role of the 700 MHz band to address the growing demand. Rysavy developed a spectrum demand model that forecasts the amount of spectrum that Rogers requires to meet the needs of the growing subscriber base and growing data demand. The model predicts that Rogers will experience a spectrum shortfall, even when taking into consideration current spectral holdings, and as such additional capacity through 700 MHz spectrum is critical.
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Introduction
12. The Department has issued a consultation paper titled Consultation on a Policy and Technical Framework for the 700 MHz Band and Aspects Related to Commercial Mobile Spectrum, Canada Gazette, Part I, December 4, 2010, Notice No. SMSE-018-10, (“the Consultation Paper”). In the Consultation Paper, the Department has invited comments on general policy considerations related to commercial mobile broadband spectrum use, competition issues and on the use of the 700 MHz band. The Department has also invited comments on spectrum use for public safety broadband applications and the relative timing of the auction of the 700 MHz and 2500 MHz bands. Following are the comments of Rogers Communications Partnership (“Rogers”).
13. All information contained in paragraphs 125-129 of this document and the accompanying Attachment 1 (Responses to Questions 4-2 to 4-5, inclusive) and Appendix B of the Rysavy Research Report “Operator Spectrum Requirements for Mobile Broadband”, are filed in confidence.
14. Rogers requests that Industry Canada treats all information noted above as confidential, pursuant to subsection 20(1)(b) of the Access to Information Act, and sections 38 and 39 of the Telecommunications Act. For competitive reasons, Rogers would never “publicly” disclose the information contained in either the attachment or appendix other than to Industry Canada. The information submitted contains detailed operational forecasts and its release would enable potential and existing competitors to use the information against Rogers. Rogers submits that any possible public interest in disclosure of the information in this document and all its accompanying attachments is greatly outweighed by the specific direct harm that would flow to Rogers
15. This consultation is extremely important given the substantial opportunity that is presented by the licensing of 700 MHz spectrum in Canada. Rogers’ 9 million customers are demanding faster mobile broadband services to satisfy their growing need to stay in touch and access the information and content they want, any time, any
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where, on any device. The 700 MHz band is one of the three bands for which advanced LTE mobile broadband technology will be commercially available in the near and mid term. Significantly, the 700 MHz band is primarily being used for the launch of LTE by the two largest mobile operators in the U.S. This means that an important LTE ecosystem is developing for the 700 MHz band, and a variety of LTE radio network technology and consumer devices are already available. LTE devices and applications will be used by consumers and businesses to enhance their productivity and allow them to participate in the mobile broadband revolution that is occurring around the globe.
16. However, the 700 MHz band is not simply a springboard for launching LTE and for gaining access to a vitally important ecosystem. It is also currently the only LTE band in which operators can implement ubiquitous LTE services. This is due to the superior propagation characteristics associated with this low-band spectrum. Operators that will be launching LTE must have 700 MHz spectrum in order to provide reliable in-building coverage and ubiquitous urban and suburban outdoor coverage. Otherwise, consumers and business users will drop down to HSPA+ service when they use their LTE services and applications inside buildings and when they are between coverage areas.
17. Lastly, 700 MHz spectrum will be required by operators that plan to implement LTE beyond large urban centers. The implementation of LTE mobile broadband services outside urban areas will be a key factor in closing the digital divide between Canadians and businesses in urban and rural Canada. Wide area LTE coverage outside large urban centers will be uneconomic and impractical without 700 MHz spectrum. Covering the same area using high-band spectrum will require significantly more base stations, towers and costly backhaul facilities. It will not be possible to recover these costs from the relatively small number of consumers living and working in these areas.
18. For these reasons, it is imperative that the Department provide for a fully open auction of 700 MHz spectrum, so that operators will not be artificially prevented from realizing their LTE implementation plans and so that those who value the spectrum the most will have access to it. Furthermore, in order to realize the full potential of LTE
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technology, in terms of spectrum efficiencies, data speeds, and lower cost per unit of capacity, it is crucial that bidders not be restricted in terms of the amount of 700 MHz spectrum that they may acquire in the auction. Bidders must be provided with the flexibility to assemble the contiguous spectrum blocks that they need to unlock the unprecedented efficiencies that LTE promises to deliver.
19. Because the 700 MHz and 2500 MHz bands are complementary bands that are required for the implementation of ubiquitous LTE services in Canada, the Department should auction the 700 MHz and 2500 MHz bands at the same time, in mid-2013.
General Need for Additional Spectrum
4-1: What is the general need for additional commercial mobile spectrum at this time and what do you anticipate the future needs to be?
20. In general, Rogers requires additional mobile spectrum to satisfy our 9 million customers’ demand for faster mobile broadband services so that they can be more productive, access the information and content they want, and stay in touch, any time, any where, on any device. To satisfy our customers’ needs, Rogers will use additional mobile spectrum in the following ways. First, additional spectrum will be used to seamlessly introduce next generation mobile broadband services by implementing LTE, while maintaining a high level of service for the millions of our customers that use HSPA+ and legacy technologies that operate on our existing licensed spectrum. LTE will enable the exponential growth of mobile broadband traffic that is rapidly consuming available capacity, especially in urban areas.
21. As outlined below, Rogers has embarked on an unprecedented network densification and backhaul augmentation program that will add more capacity to Rogers’ network by splitting cells into smaller areas and by increasing the number and size of backhaul facilities. Splitting cells will allow for lower transmitter power levels, a relatively low noise floor and more efficient use of our licensed frequencies. However,
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these efforts will not be enough to create the capacity required to satisfy the growth of mobile broadband traffic over the next several years.
22. While global IP traffic is expected to grow at a compound annual growth rate (CAGR) of 34% between 2009 and 20141, mobile data traffic will grow at a remarkable CAGR of 92% between 2010 and 2015.2 The main factors driving this growth are consumer smart phone devices, tablets, netbooks and lap-top computer modems that are capable of exploiting new mobile broadbamd networks.3 Larger and higher resolution screens on these devices are also key contributing factors.4 Mobile video traffic will more than double every year between 2010 and 2015 and will account for 66% of mobile data traffic growth by 2015, as data-intensive applications are increasingly used.5 While video applications such as YouTube and Skype are contributing to much of this growth today, other bandwidth intensive applications, such as high definition video services available from YouTube and Netflix will contribute a greater proportion of mobile video traffic in the coming years as mobile networks are able to deliver faster data speeds to an ever-growing population of faster and higher resolution consumer devices.6
23. Enabling this dramatic growth in mobile broadband services has become a significant priority for governments around the world. Rogers notes, for example, that the Department has hired a third party to undertake research regarding the extent to which additional spectrum, including mobile spectrum, will be required in the next 5 years.
1 Cisco Systems Inc. “Hyperconnectivity and the Approaching Zettabyte Era” (June 2, 2010), p. 2. http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/VNI_Hyperconnectivity _WP.pdf 2 Cisco Systems Inc. “Cisco Visual Networking Index, Global Mobile Data Traffic Forecast Update, 2010- 2015”, (February 1, 2011), p.2. http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11- 520862.pdf 3 Rysavy Rsearch/3G Americas. “HSPA to LTE-Advanced: 3GPP Broadband Evolution to IMT-Advanced (4G)”, (September 2009), p. 11. http://www.rysavy.com/Articles/2009_09_3G_Americas_RysavyResearch_HSPA-LTE_Advanced.pdf 4 Cisco Systems. “Hyperconnectivity and the Approaching Zettabyte Era”, p. 5-6. 5 Cisco Systems. “Cisco Visual Networking Index”, p. 1. 6 Rysavy Research. “Operator Spectrum Requirements for Mobile Broadband”, (February 26, 2011), p. 11-12.
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24. This follows similar research that has been completed in the U.S. where, in 2009, the Federal Communications Commission (FCC) was charged by the U.S. Congress to develop a National Broadband Plan (the NBP). Among other things, the NBP recommended that the FCC make available 500 MHz of new wireless broadband spectrum, including 300 MHz for mobile services within five years.7 In addition, in June 2010, President Obama signed a Presidential Memorandum that called for the National Telecommunications and Information Administration (NTIA) to work with the FCC in order to make 500 MHz of spectrum available for fixed and mobile wireless broadband in the next ten years.8
25. In October 2010, the FCC released a technical analysis to validate the need for additional mobile broadband spectrum in the near-term, and to estimate the value created by making new spectrum available. The FCC’s analysis found that consumer demand for mobile data is experiencing significant growth and that spectrum resources will be exhausted within the next five years. Among other things, the FCC’s report noted the following factors that are driving mobile data usage and the consumption of more spectrum: • The consumer market share of smartphones has grown from 16% in 2007 to 42% in 2010. • AT&T, the exclusive US carrier of the iPhone (until recently), has seen mobile network traffic increase 5,000% over the past three years. • PC aircard users consume 1.4 gigabytes (GB) per month, which is 56 times the amount of data consumed by a regular cell phone. • Clearwire WiMAX users consume 7 GB per month, which is 280 times the amount of data used by a regular cell phone.
7 Federal Communications Commission, “Connecting America: The National Broadband Plan”, (March 16, 2010), at 84. http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-296935A1.pdf
8 Presidential Memorandum: Unleashing the Wireless Broadband Revolution (June 28, 2010) http://www.whitehouse.gov/the-press-office/presidential-memorandum-unleashing-wireless-broadband- revolution
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• The amount of data consumed per wireless network line increased 450% between Q1 2009 and Q2 2010.9
26. Based on the average of three prevailing industry forecasts10 the FCC noted that mobile data traffic will continue to grow at a dramatic rate, increasing by a factor of 35 between 2009 and 2014. Smartphone devices are expected to have the highest projected growth rate over netbooks, notebooks and 3G feature handsets. However, not surprisingly, portable netbooks and notebooks, which will be used as substitutes or complements to fixed broadband, will continue to have the highest data consumption. The FCC’s analysis concluded that the US could require an additional 300 MHz of spectrum by 2014.
27. Other regulators around the world have released, or are in the process of releasing, additional mobile spectrum so that operators will be able to implement advanced new mobile technologies such as LTE and WiMAX in order to cope with the surging demand for mobile broadband services. Following, for example, is a summary of some of the mobile spectrum auctions that were conducted in 2010.
Recent Spectrum Auctions Country Spectrum Band Auction End Date Netherlands 2010 and 2600 MHz April 2010 Germany 800 MHz; 1800 MHz; 2000 May 2010 MHz and 2600 MHz Denmark 2010 MHz and 2500 MHz May 2010 India 2100 MHz May 2010 India 2300 MHz June 2010 Mexico 1700 MHz and 1900 MHz August 2010 Austria 2600 MHz September 2010 Denmark 900 MHz and 1800 MHz October 2010 Singapore 1900 MHz and 2100 MHz November 2010 Brazil 1800 MHz and 2100 MHz December 2010
9 Federal Communications Commission, “Mobile Broadband: The Benefits of Additional Spectrum”, (October 2010), p. 4-5. http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-302324A1.pdf 10Cisco Systems Inc., Coda Research Consultancy, and Yankee Group forecasts. See FCC “Mobile Broadband: The Benefits of Additional Spectrum”, at note 13.
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Rogers Needs 700 MHz Spectrum
28. As outlined in more detail below, Rogers has embarked on a multi-year plan to deploy LTE using all of its available spectrum. Nonetheless, Rogers needs 700 MHz spectrum to implement ubiquitous LTE coverage, and to unleash the advanced new mobile broadband services and applications that LTE will enable. Low-band 700 MHz spectrum is essential for the provision of truly ubiquitous and reliable LTE coverage in Canada’s urban centers and for economically extending LTE and its benefits to Canadians living and working outside these areas.
29. In a May 2010 report, the U.S. FCC noted the value of low-band spectrum in terms of providing a ubiquitous layer of coverage, including coverage in urban areas. The FCC noted the following in this regard: low frequency spectrum can be deployed ubiquitously with relatively few cell sites, providing a base layer of coverage that extends to wide areas in rural America as well as deep into buildings in urban areas.11
30. Irish regulator Comreg has made very similar observations. In comparing low-band spectrum such as the 800 MHz and 900 MHz bands with high-band spectrum, Comreg noted, among other things, that low-band spectrum is “well suited to providing wide-area coverage and in-building penetration”.12
700 MHz LTE is a Vitally Important Ecosystem
31. The 700 MHz band is one of the three bands for which LTE radio equipment and consumer devices will be commercially available in the mid term. The ecosystem for 700 MHz LTE is being driven primarily by Verizon and AT&T, the two largest carriers in the U.S., which have both begun to implement LTE in the 700 MHz band.
th 11 Federal Communications Commission, “14 Annual Report and Analysis of Competitive Market Conditions with Respect to Mobile Wireless, Including Commercial Mobile Services”, (May 20, 2010), para. 273. 12 Comreg, “Consultation Paper on 800 MHz, 900 MHz & 1800 MHz spectrum release”, (September 17, 2010, p. 12.
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32. Specifically, Verizon publicly announced its plans to implement LTE in the 700 MHz band in 38 cities by the end of 2010.13 In January 2011, Verizon unveiled 10 consumer- oriented devices that will run on its LTE network by mid-2011.14 The devices include four smartphones, two tablets, two mobile Wi-Fi hotspots, and two notebooks.
33. For its part, in 2010, AT&T announced its intention to implement LTE and to cover 70 to 75 million pops by the end of 2011.15 AT&T also publicly disclosed its intention to deploy LTE using its 700 MHz spectrum. 16 Subsequently, in December 2010, AT&T announced its purchase of additional 700 MHz spectrum from Qualcomm to augment its existing 700 MHz holdings and disclosed its intention to use this spectrum for supplemental downlink capacity on its LTE network.17 More recently, in January 2011, AT&T announced that it will build its LTE network starting in mid 2011 and continuing through to the end of 2013.18 At the same time, AT&T announced that it would introduce 20 4G devices, including LTE devices, by the end of 2011.19 The LTE devices include smartphones, tablets, modems and mobile hotspots. The company reported that these devices will use a variety of operating systems including Google’s Android, Microsoft’s Windows Phone 7 and Apple’s iOS. This LTE device line-up is in addition to the two existing LTE-compatible laptop cards that have been available from AT&T since the fall of 2010.
13 Verizon Wireless, “Verizon Launches 4G LTE in 38 Major Metropolitan Areas by the End of the Year”, (October 6, 2010). http://news.vzw.com/news/2010/10/pr2010-10-01c.html 14 Verizon Wireless, “Verizon Wireless Unveils Suite of 4G LTE Smartphones, Tablets, A MiFi, Hotspot and Notebooks”, (January 6, 2011). http://news.vzw.com/news/2011/01/pr2011-01-06n.html 15 Phil Goldstein, “AT&T to Launch LTE by mid-2011”, (September 16, 2010). http://www.fiercewireless.com/story/t-launching-lte-mid-2011/2010-09-16 16 Comments of AT&T Inc on Federal Communications Commission Rule Making Proceeding No. 11592, (March 31, 2010), p 11. “AT&T Fires First Salvo at ‘4G’CES: LTE Network and Phones Coming Later in 2011”, (January 2011).http://www.sidecutreports.com/2011/01/05/att-fires-first-salvo-at-4g-ces-lte- network-and-phones-coming-later-in-2011/. “AT&T's Rinne details LTE plans: VoLTE in 2013”, (October 20, 2010). http://www.fiercebroadbandwireless.com/story/ts-rinne-details-lte-plans-volte-2013-will-use- aws-and-700-mhz/2010-10-20 17 AT&T, “AT&T Agrees to Acquire Wireless Spectrum from Qualcomm”, (December 20, 2010). http://www.att.com/gen/press- room?pid=18854&cdvn=news&newsarticleid=31447&mapcode=financial|wireless 18 AT&T, “AT&T Announces Plans to Deliver Nation’s Most Advanced Mobile Broadband Experience”, (January 5, 2011). http://www.att.com/gen/press- room?pid=18885&cdvn=news&newsarticleid=31477&mapcode=wireless-networks-general|consumer 19 “AT&T Announces Plans”
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34. It is important to note that both Verizon and AT&T have also announced their intention to intensify their efforts in the mobile applications space by expanding collaboration opportunities with the development community.20 Verizon has also introduced new applications that are being fully integrated into its LTE smartphones, such as an upgraded version of Skype mobile which includes video capabilities, as well as a Rock Band multiplayer gaming application.
35. Since 700 MHz LTE will be used to provide the latest and most advanced broadband mobile services and applications, access to this emerging ecosystem will be critically important for Canada. Acquiring 700 MHz spectrum will allow Rogers to participate in this vitally important ecosystem, it will enable us to offer the best LTE devices at the lowest cost and it will allow us to provide ubiquitous, lightening fast mobile broadband services to the 9 million Canadians that we currently serve, and the many more Canadians that we hope to serve in the years ahead.
36. LTE technology and consumer devices will not be available for the 850 MHz band for many years to come. We note that, in a February 2011 report, the Global Mobile Suppliers Association (GSA) indicates that 180 operators are investing in LTE around the world and that there are no LTE user devices that are currently being manufactured for operation in the North American 850 MHz cellular band.21 In any event, since the 850 MHz band will continue to be used by Rogers to serve its millions of customers and roamers that use legacy technologies such as GSM and HSPA, the capacity required to implement reliable LTE services will not be available in Rogers’ licensed 850 MHz spectrum. We believe that the major U.S. carriers are in precisely the same position and that this is why there will be no movement towards the manufacture of LTE devices for use in the 850 MHz band for several years.
37. The cost and impracticality of re-farming existing mobile bands for LTE deployment are significant and would apply both to operators and their customers. The
20 “AT&T to Launch LTE” and “AT&T Announces Plans”. 21 GSA, “Status of the LTE Ecosystem”, (February 9, 2011). http://www.gsacom.com/news/gsa_320.php4
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considerable obstacles associated with re-farming have been summarized by Lemay- Yates in the following terms: This would mean taking out the legacy radio access systems – base stations and related gear – and replacing them with the new technology. Also existing subscribers would have to be provided with new handsets and other devices that work with the new technology in the re-farmed band and/or would have to be provided with handsets that work on another band.
Thus even for carriers that have large amounts of spectrum potentially available, clearing out a band in order to optimize it for LTE deployment is time consuming and comes with a non negligible cost as well as disruption to subscribers – and given that the impact would be on each subscriber, the larger the carrier, the larger this cost would be.
Also, existing carriers have to account for legacy technology and roaming arrangements, keeping some spectrum in existing bands dedicated for this purpose. And legacy bands in any case cannot be cleared of 2G/3G technology in the near term due to the need to support voice services over existing networks in parallel with data on LTE.22
38. In the near term, LTE technology and consumer devices will also be available in the 1700/2100 MHz AWS band, the 2500 MHz BRS band (and, possibly, the 1900 MHz PCS band), but the technology ecosystem for these spectrum bands is lagging that of the 700 MHz band. 23 Nevertheless, Rogers will be using this spectrum to deploy LTE in large urban centers.
39. While cell site densification will be a key priority for Rogers as it implements LTE in the next several years, it is not a panacea and has its limitations. These efforts to supplement coverage and capacity will be limited by a number of factors beyond Rogers’ control.
22 Lemay-Yates, “The Impact of 700 MHz Spectrum for Canada’s Digital Strategy and the Deployment of LTE”, (February 2011), p. 60-61. 23 According to GSA, there are no user devices that are currently being manufactured for operation in the North American 1900 MHz PCS band. See GSA “LTE Ecosystem”.
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Site Acquisition Challenges are Increasing
40. As the Department is aware, it is becoming increasingly difficult for wireless carriers to add new roof-top and tower sites, particularly in urban and sub-urban areas, due to local concerns.
41. This challenging site acquisition environment has increased the amount of time it takes to acquire sites. In Rogers’ experience, the amount of time to acquire a site has increased on average from 494 days in 2006, to 596 days in 2007, 613 days in 2008, 598 days in 2009, and 776 days in 2010. It currently takes well over two years to secure a new site.
42. The acquisition of new wireless telecommunication sites is becoming increasingly difficult for several reasons. Health concerns are at the root of most of the concerns expressed by local residents. Despite the reassurances of the World Health Organization and government health departments from around the world (including Health Canada) potential landlords, land use authorities and the general public continues to be persuaded by sensational, non-reputable claims and studies that appear on the Internet and in the media.
43. The public is also increasingly raising the issue of property values in arguing against proposed sites. Local residents fear that a wireless telecommunication site near their residence will decrease their property values, although there is no statistical evidence to support this theory.
44. Rogers believes that the telecommunications site acquisition situation will only grow worse in the coming months and years, meaning that it will be even more difficult to secure new sites in the future. This will significantly limit our network densification efforts in urban and suburban areas - the very areas where additional capacity and coverage will be essential in order to provide the bandwidth-intensive and latency- sensitive services that will be enabled by LTE technology. These challenges
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underscore the importance of Rogers acquiring 700 MHz spectrum so that a ubiquitous underlay of LTE coverage can be provided.
700 MHz Spectrum is Required for LTE Outside Large Urban Areas
45. Extending LTE beyond large urban areas will be a key factor in closing the digital divide between Canadians and businesses in urban and rural Canada. It will allow Canadians in all regions to participate in the digital economy and to enjoy the productivity-enhancing benefits associated with mobile broadband. This will drive up the adoption rate for broadband services in Canada, and it will enhance the competitiveness of Canada in relation to its major trading partners.
46. The achievement of these results through the ubiquitous implementation of LTE mobile broadband services would also advance the objectives of Canada’s Digital Economy Strategy that is currently being formulated by the Government of Canada. The essence of this strategy has been summarized by the federal government in the following terms: Our goal for Canada is to have a world-leading digital economy; to be a nation that creates, uses and supplies advanced digital technologies and content to improve productivity across all sectors.24
47. Moreover, facilitating the implementation of LTE mobile broadband services in all areas, including areas outside urban centers, would be entirely consistent with the objectives of Canadian telecommunications policy. Specifically, this action would: Facilitate the orderly development throughout Canada of a telecommunications system that serves to safeguard, enrich and strengthen the social and economic fabric of Canada and its regions;
As well as:
Render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada.25
24 Government of Canada, “Improving Canada’s Digital Advantage - Strategies for Sustainable Prosperity - Consultation Paper on a Digital Economy Strategy for Canada”, (May 2010). P. 9.
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48. Rogers has a proven track record for providing Canadians living outside urban centers with access to the most advanced mobile communications available in the world. The Rogers wireless network currently covers approximately 95% of the Canadian population. Rogers has also proven itself as a leader in the provision of broadband services. The 700 MHz spectrum band is the only band in which LTE can be economically and ubiquitously implemented outside large urban centers at a cost that Rogers would be prepared to bear.
49. Covering these areas using high-band spectrum will require significantly more base stations, towers and costly backhaul facilities. It will not be possible to recover these significant costs from the relatively small number of consumers living and working in these areas. The superior radio propagation characteristics associated with 700 MHz spectrum, coupled with the immediate commercial availability of 700 MHz LTE technology and consumer devices, can be combined to economically and ubiquitously extend mobile broadband services beyond urban Canada at a cost that will promote the adoption of these vital services.
50. The importance of low-band spectrum in extending mobile broadband services to less populated areas has been noted by regulators and experts around the world. A 2009 European Commission directive notes the importance of low-band 900 MHz spectrum for non-urban coverage in the following terms: The 900 MHz band has good propagation characteristics, covering greater distances than higher frequency bands and allowing modern voice, data and multimedia services to be extended to less populated and rural areas.26
51. Irish regulator Comreg has found that significant cost savings can be realized by using low-band spectrum to provide coverage to less populated areas. Comreg notes the following in this regard:
25 Telecommunications Act, Section 7(a) and (b). 26 European Commission, “Directive 2009/114/EC”, (2009), para. 3.
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Further, an important consideration in the Irish context is that the long distance propagation characteristics of both the 800 MHz and 900 MHz bands are ideal for covering sparsely populated areas. As is the case with 900 MHz, the costs involved in using 800 MHz spectrum with which to roll out a new mobile network are substantially lower than using other spectrum bands, such as 2100 MHz. These cost savings relate to capital expenditure (e.g. fewer base stations, antennas and sites required to roll out a network) and operational expenditure (e.g. site rental fees, less electricity required to power fewer base stations).27
52. Similarly, a report prepared by Ovum for the GSM Association (GSMA) notes the significant coverage benefit of low-band 900 MHz spectrum compared to high-band 2100 MHz spectrum. The Ovum report states the following in this regard, UMTS900 provides between 44% (in urban areas) and 119% (rural areas) increased coverage per [base station] compared with UMTS2100, primarily due to the propagation characteristics of the lower frequency band.28
53. A 2007 study published by the European Parliament concluded that similar significant benefits could be realized by implementing wireless services using low-band 700 MHz spectrum instead of high-band spectrum. The study quoted the following from research performed by Open Spectrum UK: The use of the 700 MHz UHF spectrum instead of a 2.4 GHz (unlicensed) or 2.6 GHz band would reduce network infrastructure costs enormously. Cell radii at 700 MHz are more than 100% larger than comparable systems at 2.6 GHz. As a result, the required number of base stations is reduced by more than half. Analysis of a wireless Internet service provider (WISP) shows that using spectrum below 1 GHz would need about 1/3 fewer base stations and about 50% of the capital investment of a WISP using the 2.4 GHz or 5 GHz bands (Open Spectrum UK, 2007, p.20).29
54. The evidence around the world clearly demonstrates that mobile broadband coverage outside large urban areas will be best achieved, from a practical and economic perspective, using low-band spectrum. As Canada’s largest mobile service
27 Comreg, “Consultation Paper on 800 MHz”. 28 OVUM Consulting for GSMA, “Market Study for UMTS900”, (2007), p 1. 29 European Parliament Policy Department, Economic and Science Policy, “A Common European Spectrum Policy, Barriers and Prospects”, (December 2007), p. 19.
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provider which provides mobile services to approximately 95% of the Canadian population, Rogers will need low-band 700 MHz spectrum in order to extend the benefits of LTE mobile broadband services to Canadians living and working outside urban areas.
Relative Holdings of Mobile Spectrum
55. In section 4.2 of the Consultation Paper, the Department has described the relative holdings of mobile spectrum by means of a series of charts. While the charts titled Total Holdings by MHz, by Service Area fairly portray each company’s respective holdings in each particular mobile band, the charts titled Percentage of Total Holdings (weighted by population) unfairly distort the extent to which companies hold spectrum. For example, while regional carriers such as SaskTel and MTS are depicted as each holding a mere 2% of the cellular band when their respective holdings are weighted by population, the fact is that they hold no less than 50% of the band within their operating territories.
56. The charts also similarly understate the extent to which some companies have pooled their spectrum. For example, the charts do not reflect the fact that Bell and Telus have pooled their respective 850 MHz cellular spectrum holdings to operate their joint HSPA+ network.
57. We would also note that one mobile spectrum band is missing from the bands that have been included in this section of the Consultation Paper. Specifically, the ESMR band that is used by TELUS to operate its iDEN network and to market its successful Mike brand has been excluded, without justification. We note that this spectrum was factored into Telus’ mobile spectrum holdings when Industry Canada enforced a mobile spectrum cap until 2004. The omission of this spectrum band is all the more surprising in light of current efforts by Telus and other iDEN operators to have this band identified as an extension of a E-UTRA (or LTE) band by the 3GPP standards organization.30
30 See Work Item Description Extending 850 MHz (Core) – Upper Band (814-849 MHz), 3GPP RAN Meeting #50, December 7-10, 2010.
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58. Lastly, it should be noted that there is an important reason why incumbent operators possess more spectrum: they serve many more customers. Obviously, the more customers that an operator serves, the more traffic that must be carried on its network and the more spectrum capacity it will require to serve that traffic.
59. When comparing the number of customers served per MHz of licensed spectrum, Rogers is shown to be a far more efficient user of spectrum than all of the new entrants. For example, as the following table illustrates, Rogers currently serves about 85,495 customers per MHz of mobile spectrum while new entrants only serve about 10,000 customers per MHz.
Number of Subscribers per MHz of Mobile Spectrum National YE2010 Spectrum (MHz)31 Subscribers32 Subscribers/MHz Rogers 105 8,977,000 85,495 New Entrants 50 500,000 10,000
60. Moreover, apart from the fact they hold more mobile spectrum than they require to serve their customers, the new entrants have mainly pursued basic voice centric business models since the time that they launched their respective service offerings. As explained in the attached Lemay-Yates Associates Inc. (Lemay-Yates) report, voice centric operators with low data take up and usage require significantly less spectrum than premium service operators such as Rogers that invest in and offer innovative mobile broadband services and have much higher data take up and usage. Lemay- Yates has estimated that voice centric operators can get by with as little as 5 to 10 MHz of spectrum while mobile broadband centric operators will require up to 200 MHz of
31 Rogers spectrum includes 25 MHz of Cellular, 60 MHz of PCS, 20 MHz of AWS . Rogers does not hold this much spectrum in all areas. New entrant spectrum includes 40 MHz of AWS and 10 MHz of PCS. 32 YE2010 new entrant subscribers is based on third party analyst estimates and Rogers 2010 year-end results.
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additional spectrum, and much more if LTE technology does not deliver its expected spectral efficiency.33
61. As Lemay-Yates has found, large carriers in other countries hold anywhere from 66 to 130 MHz of mobile spectrum and Rogers’ mobile spectrum holdings fall within this range.34
Band Plan
5-1: Based on the criteria listed above, which of the four band plan options should be adopted in Canada? Why is this option preferred over the other options? If Option 3 (APT band plan) is selected, what should the block sizes be?
62. Generally speaking, Rogers supports radio spectrum harmonization with other jurisdictions so that Rogers and its customers can benefit from large and established ecosystems for network technology and consumer devices. Aligning with established ecosystems is important in terms of economies of scale, lower cost, wider availability of technology and devices, and ongoing development of and support for services and applications. Ideally, Canada should align with globally harmonized bands and band plans since this maximizes the benefits listed above. However, since globally harmonized spectrum bands are relatively scarce, it is often necessary for Canada to settle for something less. In this case, Canada must weigh the relative benefits of harmonizing with other larger markets. As the Department has noted in the Consultation Paper, this is what Canada must do in the case of the 700 MHz band plan, since the 700 band is not a globally harmonized band.
63. The Department has asked whether Canada should harmonize with the U.S. band plan, variants of the U.S. band plan, or the Asia Pacific band plan.
33 Lemay-Yates, “The Impact of 700 MHz Spectrum”, pp. 36-37 and p.11. 34 Lemay-Yates “The Impact of 700 MHz Spectrum”, p. 9.
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64. Rogers believes that Canada should harmonize with the U.S. band plan. We believe that this course will satisfy the criteria that the Department has identified to a greater extent than the other options.35 As noted above, two of the largest wireless carriers in the U.S. are already implementing LTE in the 700 MHz band.This means that an important ecosystem is already developing on the basis of the U.S. 700 MHz band plan. Harmonizing with the U.S. 700 MHz band plan will allow Canadian operators and their customers to benefit from the availability of a wide variety of LTE radio network technology and consumer devices and applications. The economies of scale associated with this ecosystem will benefit Canadians in terms of lower cost, availability of technology and devices, and ongoing development of and support for services and applications. Significantly, it will also enable cross-border roaming and allow simpler cross-border frequency arrangement and coordination procedures.
65. Although there could be more substantial economies associated with the Asia Pacific band plan in the future, proceeding on the basis of that band plan, or the other options that have been identified, will not allow for cross-border roaming and will significantly complicate cross-border frequency arrangement and coordination procedures. Similarly, although the Asia Pacific band plan may provide for more efficient use of the spectrum, this is outweighed by the other benefits associated with the U.S. band plan.
66. Rogers notes that the two variants of the U.S. band plan that are proposed in the Consultation Paper (“Option 2a” and “Option 2b”) would yield less usable spectrum in which to implement mobile broadband services than the U.S. band plan.
67. Rogers has identified a variant of the U.S. band plan that should be seriously considered by the Department since it would allow more operators to acquire scarce 700 MHz spectrum in the upcoming auction. Specifically, the paired block 746-757 MHz / 776-787 MHz (known as the “Upper C block”) could be split into two paired blocks of 5+5 MHz (e.g. 746-751 MHz / 777-782 MHz and 751-756 MHz / 782-787 MHz). Rogers
35 Consultation Paper, p. 12-13.
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notes that this approach would yield the same amount of usable spectrum (10+10 MHz) as maintaining a single paired block. Specifically, as the Department will know, while the Upper C block consists of a total of 22 MHz (11+11 MHz) in the U.S. band plan, the 3rd Generation Partnership Project (3GPP) technical specifications for equipment that will operate in this part of the band have effectively reduced the usable amount of spectrum to a total of 20 MHz (10+10 MHz) in order to reflect the channel widths that are required for the operation of LTE technology. This modified frequency range (known as 3GPP Band 13) will be used for the equipment that is being manufactured for Verizon, the Upper C Block licensee in the U.S.
68. Although splitting the C block would represent a deviation from the size of the block that was licensed in the U.S., it would not violate the fundamental structure of the U.S. band plan and would maintain the upper and lower limits of the Upper C block. This means that consumer devices designed for operation in the Upper C block in the U.S. could be used by Canadian licensees holding either of the sub-blocks proposed above. Rogers would note that Canada has already similarly deviated from the U.S. PCS band plan with respect to the licensing of PCS B1, B2, and B3 blocks as three separate paired blocks in Canada,36 whereas this spectrum has been licensed as a single paired block in the U.S.37
69. The licensing of two smaller paired blocks rather than a single larger paired block would provide more flexibility for operators and would not preclude the possibility of any party from successfully bidding for the two paired sub-blocks and assembling them into a single paired block, in the event that they wish to acquire a larger paired block of contiguous spectrum in order to support their business plans.
70. Rogers also believes that the Department will need to keep in step with ongoing developments in the U.S. with respect to formal or de facto technical rules associated with the U.S. band plan. For example, we note that AT&T has recently announced that
36 Industry Canada, “Technical Requirements for PCS in the Bands 1850-1915 MHz and 1930-1955 MHz (SRSP-510), Issue 5”, (February 2009), p.4. 37 http://wireless.fcc.gov/auctions/data/bandplans/pcsband.pdf
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it has agreed to acquire 700 MHz spectrum that was previously licensed to Qualcomm. Specifically, AT&T has agreed to purchase Qualcomm’s unpaired spectrum in the Lower 700 MHz band and it has announced that it will use this spectrum to augment its LTE downlink capacity.38 This may lead to a formal or de facto low power limit for these blocks in the U.S. which in turn will be reflected in the equipment that is manufactured for operation in this part of the band in the U.S.
Guard Bands
5-2: The band plans presented in the options above include guardbands. Should the Department auction the guardbands, or should these frequencies be held in reserve for future use such that they are technically compatible with services in the adjacent bands?
71. Rogers fully supports the creation of the 1 MHz guard band blocks that are depicted in Figure 5.1 of the Consultation Paper, subject to the future disposition of the upper D block spectrum. The use of this spectrum for guard bands is required so that commercial mobile and public safety systems can co-exist in the band and so that commercial mobile licensees will be able to provide services that are of high quality and reliable.
72. Rogers agrees with the Department that, absent a guard band, there is a risk that commercial mobile base station receivers operating above 776 MHz will receive harmful interference from high power public safety systems operating immediately below 775 MHz. As noted in greater detail below, this interference will translate into a diminished quality of service and slower data speeds for Canadian consumers.
73. Rogers does not support the notion that these guard band blocks should be reserved by the Department for future use. The use of this spectrum for any purpose other than to prevent harmful interference to licensed commercial mobile systems would
38 Qualcomm, “AT&T Agrees to Acquire Wireless Specrum from Qualcomm”, (December 20, 2010). http://www.qualcomm.com/news/releases/2010/12/20/att-agrees-acquire-wireless-spectrum-qualcomm
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be counter productive to the objective of licensing the 700 MHz band for advanced new commercial mobile broadband services.
74. We note significantly that, in its recent decisions on a band plan for BRS, the Department has recognized that the purpose of guard bands is to reduce the risk of interference and it has determined that the guard band blocks in the 2500 MHz band will not be reserved for future use.39 Instead, these blocks will form part of the unpaired portion of the band and their use will be restricted such that licensed systems will not be subject to interference.
75. The use of guard bands for the sole purpose of avoiding interference will be essential for the orderly rollout of reliable and high quality services. If the guard bands are not used solely to prevent harmful interference, the result will be a lower quality of service, more dropped calls and slower data speeds. This in turn will impede the further adoption of mobile broadband services and it will curtail the economic and social benefits that can be derived from 700 MHz spectrum.
76. Any interference imposed on commercial mobile systems will also result in a less efficient use of scarce 700 MHz spectrum, since commercial mobile operators will have no alternative other than to implement additional guard band blocks to protect their systems. This will leave them with less usable spectrum with which to provide mobile broadband services to Canadians.
39 Industry Canada, “Decisions on a Band Plan for Broadband Radio Service (BRS) and Consultation on a policy and Technical Framework to License Spectrum in the Band 2500-2690 MHz”, (February 2011), p. 16.
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Public Safety Spectrum (D-Block Spectrum)
5-3: Do public safety agencies need spectrum for broadband applications? If so: (a) How much and for which type of applications? (b) What are the anticipated deployment plans and the possible constraints, if any, in implementing these plans? (c) Is there suitable alternate spectrum to the 700 MHz to meet these broadband requirements? 5-4: Comments are sought on the need for public safety broadband radio systems to be interoperable: (a) between various Canadian public safety agencies; (b) between Canadian and U.S. public safety agencies.
5-5: What are the challenges faced today by public safety agencies to have cross- border radio interoperability in other frequency bands?
5-6: Notwithstanding your responses to questions 5-3 to 5-5, the Department seeks comments on whether public safety broadband needs can be met by using commercial systems with priority access rights for public safety, at commercial rates. (a) Your views and comments are invited on priority access rights, including pre-emption, and on the feasibility of such a system. (b) What public safety technical and operational requirements cannot be met by commercial systems, from either a public safety or commercial operator point of view? (c) What specific rules, if any, should be mandated by the Department to make such a system viable?
5-7: Comments are sought on the need for regional (local, provincial, etc.) dedicated broadband networks to provide access to all public safety agencies, and the institutional feasibility of implementing such a system.
5-8: Is there a need for a dedicated national interoperable broadband network to provide access to all public safety agencies? The Department seeks comments on the institutional feasibility of implementing such a system.
5-9: If band plan Option 1, 2a, or 2b in Section 5.1 is chosen, which one of the three options described above should be adopted and why is this option preferred over the other options?
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5-10: If commercial operators are mandated to support public safety services, what tier size should be applied in order to ensure adequate public safety coverage?
5-11: If the APT band plan (See Option 3 in Section 5.1) is adopted: (a) Given that the APT band plan requires a 55 MHz duplexing separation, can Canadian public safety services operate their current narrowband systems in this band plan configuration?
If not, what are possible alternatives to address public safety needs?
(b) Should spectrum be designated for dedicated public safety broadband systems, and how much?
77. The Department has proposed three options for designating certain spectrum in the 700 MHz band for public safety and/or commercial mobile services and it has invited parties to respond to these options as well as a number of related questions. Specifically, the Department has developed these options and questions in connection with the sub-bands 758-768 MHz and 788-798 MHz (D Block).
78. Rogers believes that it is premature for the Department to consider or determine how it will license D Block spectrum and whether it should be licensed for commercial services, public safety services, or a combination of the two.
79. As the Department already knows, the D Block spectrum was not purchased by any bidder in the 2008 auction that was conducted in the U.S., mainly due to the conditions that were imposed by the FCC on the use of this spectrum. Successful bidders would have been required to use the spectrum to operate a network that would be shared between public safety and commercial mobile services.40
40 Federal Communications Commission, “Implementing a Nationwide, Broadband, Interoperable Public Safety Network in the 700 MHz Band”, WT Docket No. 06-150, PS Docket No. 06-229, et al., (August 10, 2007), para. 386 ff. http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-07-132A1.pdf
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80. More recently, in its National Broadband Plan, the FCC has proposed to re-auction the D Block spectrum for commercial mobile services and to provide for the voluntary sharing of the commercial network with public safety agencies.41 The FCC has also proposed that D Block licensees should be required to provide roaming and wireless priority service to public safety users for reasonable compensation.42 Other additional proposals are also under consideration, such as a requirement that D Block licensees, and potentially other 700 MHz commercial licensees, develop and offer devices capable of providing service using all spectrum in the D Block and identify a path toward the large-scale production of such devices.43
81. At the same time, a U.S. Senate bill has been introduced, which proposes that the D Block spectrum be licensed for public safety services and that public safety agencies be permitted to lease available capacity on a secondary and preemptible basis to non- public safety entities, including governmental and commercial users.44 Even more recently, U.S. President Obama has voiced his support for the licensing of this spectrum for public safety services.45
82. The net result of the situation in the U.S. is that there is no ecosystem for D Block spectrum and this situation will remain unchanged until the U.S. government decides how it will license this spectrum and determines the services for which the spectrum will be licensed.
83. In light of the considerable uncertainty in the U.S. regarding D Block spectrum, and the lack of an ecosystem for this spectrum, the Department should defer any consideration, decision and licensing of D Block spectrum until the situation in the U.S.
41 Federal Communications Commission, “Connecting America: The National Broadband Plan”, (March 16, 2010), p. 86. http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-296935A1.pdf 42 FCC, “Connecting America”, p. 316. 43 FCC, “Connecting America”, p. 316. 44 ”Public Safety Spectrum and Wireless Innovation Act, August 2010”. [and again in January 2011] http://rockefeller.senate.gov/press/record.cfm?id=327257 45 “Obama announces support for D-block allocation to public safety”, (February 11, 2011). http://www.policeone.com/communications/articles/3326413-Obama-announces-support-for-D-Block- allocation-to-public-safety/
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has been resolved. Once the situation has been clarified, the Department should initiate a separate consultation to consider the licensing of D Block spectrum in Canada.
Tier Sizes
5-12: The Department seeks comments on whether the auction of 700 MHz commercial spectrum should be based on uniform tier sizes across all spectrum blocks, or a mixture of tier sizes.
5-13. Based on your answer above, what tier size(s) should be adopted? Provide supporting arguments for your responses to the above questions.
84. In the Consultation Paper, the Department has invited parties to comment on whether 700 MHz commercial mobile spectrum should be licensed using uniform tier sizes or a mixture of tier sizes. Parties have also been asked to comment on the tier size(s) that should be adopted.
85. Rogers agrees with the Department’s view that, due to its propagation characteristics, the 700 MHz band will be used for high-mobility services and that licensing this spectrum based on larger geographic areas would result in fewer neighbouring service providers, translating into less coordination between licensees and more effective use of radio spectrum.
86. For these reasons, Rogers believes that Tier 4 services areas are too small and will make 700 MHz frequency coordination cumbersome. As well, the use of smaller service areas will make it unnecessarily difficult and complex for carriers to assemble uniform frequency blocks and contiguous spectrum licences.
87. Rogers believes that Tier 3 service areas strike a reasonable balance between the need for larger areas for the purpose of facilitating high mobility services and reducing the need for coordination between licensees, and the objective of allowing service providers to concentrate on the geographic markets of most interest. In the event that
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parties acquire Tier 3 licences that include geographic areas that are not required for their business plans, they can avail themselves of the Department’s subordinate licensing policy and enter into arrangements with parties that are prepared to implement services in such areas.46
88. For these reasons, Rogers recommends that the Department use Tier 3 service areas for licensing 700 MHz spectrum for commercial services.
Transition Policy for LPTV Stations
Effective immediately, no new broadcasting certificates will be issued for LPTV stations in TV channels 52-59 (698-746 MHz).
The Department proposes that the displacement of the incumbent LPTV stations be subject to a notification period of one year for LPTV stations located in urban areas or in specific geographic areas, such as along highway corridors; and a period of two years for LPTV stations in all other areas. A displacement notification can be issued only after technical determination is made concluding that continued operation of the incumbent LPTV station would impede the deployment of new licensed systems in the 700 MHz band.
5-14: The Department seeks comments on the transition policy proposed above.
89. Rogers agrees with the proposed transition policy. Incumbent LPTV stations should be displaced from their existing spectrum assignments “where necessary” to accommodate new 700 MHz systems by other licensees. Rogers notes that this would be consistent with the transition policy adopted by the Department for the Personal Communications Services (PCS) band47 and the Advanced Wireless Services (AWS) band.48
46 Industry Canada, “Licensing Procedure for Spectrum Licences for Terrestrial Services CPC 2-1-23, Issue 2”, (September 2007). http://www.ic.gc.ca/eic/site/smt- gst.nsf/vwapj/cpc2123i2e.pdf/$FILE/cpc2123i2e.pdf 47 Industry Canada, “Displacement of Fixed Service Stations Operating in the 2 GHz Frequency Range to Accommodate Licensed Personal Communications Services (PCS), CPC-2-1-09, Issue 2”, (July 2008). 48 Industry Canada. “Consultation on a Framework to Auction Spectrum in the 2 GHz Range.”
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Low-powered Licensed Devices
5-15: The Department seeks comments regarding its proposal to permit low power licensed devices, including wireless microphones, to operate in the band 698-764 MHz and 776-794 MHz only until March 31, 2012.
90. Rogers supports the proposed sunset date of March 31, 2012 for low-power licensed devices operating in the specified bands. Rogers believes that the Department should implement a public awareness campaign to ensure that licensees operating low-power devices are aware of and will comply with the mandatory sunset date.
Canadian Table of Frequency Allocations
6-1: The Department seeks comments on its proposed changes to the Canadian Table of Frequency Allocations for the band 698 806 MHz.
91. Rogers supports the proposed changes to the Canadian Table of Frequency Allocations for the band 698-806 MHz.
Spectrum Utilization Policy
The Department proposes to refer to the commercial radio systems to be deployed in the 700 MHz band as Mobile Broadband Services (MBS). The MBS systems would be compliant with the RP-14 definition for CMRS. Subject to technical compatibility considerations, there will be no restrictions on the services to be offered by licensees under MBS. The 700 MHz band will be dedicated to MBS with the exception of any frequency ranges possibly designated for public safety.
6-2. The Department seeks comments on the spectrum utilization policy proposed above.
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92. Rogers supports the degree of flexibility that is incorporated in the proposed spectrum utilization policy. Rogers believes that this flexibility will allow service providers to evolve their service offerings in a timely manner in response to technology developments and market demand for new and innovative mobile services and applications.
93. As noted in Rogers’ confidential response to question 4-3(b), there are a number of advanced new and innovative services that are planned and these services and applications can be introduced more quickly if the proposed degree of flexibility is incorporated in the spectrum utilization policy that will be used for commercial mobile services in the 700 MHz band.
Promoting Competition
94. At the outset, Rogers wishes to provide the following summary of its positions in response to Promoting Competition Questions 7-1, 7-2 and 7-3: Existing national and regional carriers, along with the AWS licensees, MVNOs and resellers have created a hyper-competitive wireless landscape in Canada. Much of this heightened level of competition is not on account of new entrant activity but is a result of increased competition among incumbent providers due to Bell and TELUS’ move to launch a competing HSPA+ network.
Based on the relatively small size of the Canadian wireless market, some might argue (as new AWS competitors Public Mobile and Wind Mobile do) that there are actually too many players in the wireless market which may result in market consolidation.
The competitiveness of the Canadian wireless market is evident when comparisons are made with other countries.
Well-financed companies like Videotron and Shaw have vast financial resources at their disposal to purchase spectrum at fair market prices through an open auction. These companies do not require any further help from the Department to purchase spectrum; and
Competition is well established in Canada. There is no need for any further artificial measures to increase or sustain competition. The next auction must be open for all bidders given the limited amount of 700 MHz spectrum that will be available.
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7-1: The Department seeks comments on the current state of competition and its anticipated evolution, including the impact on consumers in the Canadian wireless services market: (a) in general; (b) in terms of its contributions and interaction to the broader Canadian telecommunications service market; (c) in comparison with the wireless markets of other jurisdictions.
95. In its Consultation Paper, the Department has sought comments on the current state of competition, its anticipated evolution and the impact on consumers in the Canadian wireless market. At the outset, Rogers submits that the Canadian wireless market has been highly competitive in the past and that competition has become hyper-competitive more recently. Rogers bases this determination on several factors including the number of competitors in the Canadian wireless market. However, while new entrants have had an impact, Rogers notes that the most important competitive impact on Rogers has been the increased competition among incumbent providers due to Bell and TELUS’ move to launch a competing HSPA+ network.
96. All of the information from various sources point to the same conclusion: the existing national and regional carriers, along with the AWS licensees, MVNOs and resellers have created a hyper-competitive landscape in Canada. Based on this, Rogers strongly believes that there is no need for the Department to introduce further artificial measures in order to foster competition in the Canadian wireless market.
7-1(a) in general
Overview of the Canadian Wireless Industry
97. In its latest Monitoring Report, the CRTC notes that wireless networks cover approximately 20% of Canada’s geographic area and 99% of the Canadian
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population.49 The advanced wireless networks that support handsets, such as smartphones and turbo sticks, are available to 96% of Canadians. More importantly, these wireless networks and services have been deployed with minimal regulatory oversight, in contrast to the existing wireline networks, which were highly regulated and took much longer to deploy.
98. According to the CWTA, half of all phone connections in Canada are now wireless.50 The CWTA’s latest data (from Q3-2010) shows that over 24 million Canadians subscribe to wireless services (i.e. around 71% of the Canadian population). A report from the Convergence Consulting Group estimates that wireless penetration will increase by approximately 5% per year, up to 91% by 2014.51 The latest CWTA data also shows that Canadians sent more than 14.2 billon person-to-person text messages in the third quarter of 2010, bringing total messages for the first nine months of 2010 to 40 billion.52
99. Wireless services are a viable alternative available to virtually every Canadian household. The criteria for forbearance of residential local exchange services includes consideration of the availability of mobile wireless services, hence explicitly recognizing the role that such services play in providing a viable competitive alternative to wireline service. According to the CRTC’s criteria, forbearance from regulation of basic residential local exchange service is permitted where there are at least two independent facilities-based competitors, including mobile wireless, capable of providing service to 75% or more of the lines in an exchange. As of early 2010, the Commission had forborne from regulating almost 80% of residential telephone lines in Canada.53 This
49 Canadian Radio-television and Telecommunications Commission, “Communications Monitoring Report 2010”, (July 2010), p 153. 50 http://cwta.ca/CWTASite/english/industryfacts.html 51 Convergence Consulting Group, “Canadian Wireless 2008-2014: Assessing the Impact of New Entrants”, (September 2010), page 71. 52 http://txt.ca/english/business/statspress.php
53 CRTC Telecom Regulatory Policy 2010-199, “Revision of the expanded local calling area regulatory framework”, (March 31, 2010), para 11.
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includes 90% or more of the exchanges in the Toronto, Montreal and Vancouver areas.54
100. The CRTC has also confirmed the viability of wireless to replace wireline for the provision of broadband services. In Telecom Decision 2010-805, the Commission ruled that “the Bell companies should be able to deploy the technology of their choice as long as its broadband service meets the required criteria.”55 The Commission also noted in this Decision that HSPA+ wireless networks “would also achieve the stated objective, as it would provide broadband service comparable with, or superior to, urban broadband service.”56 This finding is important for the Canadian pricing structure in general. It should be obvious that the ability of wireless broadband providers to increase prices are constrained by the presence of wireline broadband providers in the market, and vice versa. The Department should not look at the wireless market in isolation when assessing the level of competition.
101. The wireless telecommunications business is highly capital intensive, requiring upfront investment in network facilities prior to commencing the provision of service. As an example of this capital intensity, Rogers notes that it has invested close to $10 billion in capital to build and expand its wireless network since 1987. Wireless operators also require on-going to capital expenditures in order to extend network coverage and upgrade network technologies over a very large area in order to stay competitive. Higher bandwidth mobile broadband stimulates demand, requiring significantly more investment in network infrastructure and backhaul. Canadian carriers also have to deal with the high costs of customer acquisition and a short customer life- time.
102. In a report filed in April 2010, Ovum found that Canadian wireless service providers have invested nearly $16 billion in capital expenditures since 2001, which is in addition
54 CRTC - Communications Monitoring Report, 2009, Appendix 4. 55 CRTC Telecom Decision 2010-805, Bell Canada – Applications to review and vary certain determinations in Telecom Decision 2010-637 concerning the use of high-speed packet access wireless technology and the deferral account balance, (October 29, 2010), 56 CRTC Telecom Decision 2010-805, paragraph 19.
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to $5.7 billion spent by the industry in the last (PCS and AWS) spectrum auctions. Since 1987 wireless carriers have spent over $26 billion in capital expenditures.57 Canadian carriers must cover a large area and the population density is low in comparison to many countries, especially the U.S. As a result, it is evident the cost structure of Canadian wireless carriers is higher than the cost structure of U.S. carriers and other carriers around the world.
Competitors in the Canadian Wireless Services Market
103. With the arrival of national and regional AWS licensees, the number of carriers in Canada is now higher than the number of carriers found in most developed and emerging countries around the world. The Canadian wireless market has three new pure-play wireless providers who have quasi-national coverage, three new regional wireless providers affiliated with cable operators, three incumbent national wireless carriers, several incumbent regional carriers like SaskTel, MTS Allstream, TBayTel, as well as a number of Mobile Virtual Network Operators (MVNOs) and resellers. As a result of the recent AWS spectrum auction, Globalive’s Wind Mobile, Mobilicity (formerly DAVE Wireless) and Public Mobile have launched services in many major markets, with more cities planned for 2011. Mobilicity alone launched retail distribution partnerships with 7-Eleven Canada, HMV and Zellers, giving them over 700 retail points of sale.58 The terms of license for AWS licensees provide access to in-territory roaming for at least five years and sharing of towers and sites of the established providers. This has enabled these new companies to rapidly roll-out mobile services in their home serving areas.
104. As can be seen in the table below, Canadian consumers have a plethora of choice when selecting a wireless service provider. There are at least 20 wireless brands in the top six markets in Canada, all competing to bring their own unique service offering to
57 OVUM, “The Benefit of the Wireless Telecommunications Industry to the Canadian Economy”, (April 2010). See CWTA website. 58 “Mobilicity passes 50,000-sub”, (December 16, 2010). http://www.cartt.ca/
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wireless customers. As noted above, choice in wireless provider ranges from the traditional carriers such as Rogers, Telus and Bell; their discount brands Fido, chatr, Solo, Koodo and Virgin; to pure-play wireless providers like Mobilicity and Wind Mobile. Wholesalers or resellers (also known as MVNOs) such as Primus, PC Mobile, Sears, Petro Canada, Royal Bank and Cityfone, etc. are also present in the Canadian market, each providing unique services and price plans.
105. In the 2.5 years since the AWS auction, many competitors have entered all of the top 6 Canadian markets. There are at least two new AWS providers in each of the top 6 Canadian markets and they continue to expand on a regular basis. Two cable carriers (Shaw and Eastlink) have yet to launch their wireless networks, however it is speculated that they will start offering wireless services in the latter half of 2011 or early 2012.
Wireless Competitors in Top 6 Canadian Markets (* Launch to be determined) Toronto Ottawa Montreal Calgary Edmonton Vancouver Rogers Rogers Rogers Rogers Rogers Rogers Fido Fido Fido Fido Fido Fido chatr chatr chatr chatr chatr chatr Bell Bell Bell Bell Bell Bell Solo Solo Solo Solo Solo Solo Virgin Virgin Virgin Virgin Virgin Virgin TELUS TELUS TELUS TELUS TELUS TELUS Koodo Koodo Koodo Koodo Koodo Koodo Wind Wind Wind Wind Wind Wind Public Public Mobilicity Mobilicity Videotron Shaw* Shaw* Shaw* 7-Eleven 7-Eleven 7-Eleven 7-Eleven 7-Eleven 7-Eleven Petro Canada Petro Canada Petro Canada Petro Canada Petro Canada Petro Canada Shell (Good to Go) Shell (Good to Go) Shell (Good to Shell (Good to Go) Shell Shell Primus Primus Go) Primus (Good to Go) (Good to Go) Kore Wireless Kore Wireless Primus Kore Wireless Primus Primus MTS Allstream* MTS Allstream* Kore Wireless MTS Allstream* Kore Wireless Kore Wireless Cityfone Cityfone MTS Allstream* Cityfone MTS Allstream* MTS Allstream* Sears Sears Cityfone Sears Cityfone Cityfone Bank of Montreal Bank of Montreal Sears Bank of Montreal Sears Sears Royal Bank Royal Bank Bank of Montreal Royal Bank Bank of Montreal Bank of Montreal PC Mobile PC Mobile Royal Bank PC Mobile Royal Bank Royal Bank Quickie PC Mobile PC Mobile PC Mobile Convenience Source: Company websites
106. As a result, there are more companies competing for subscribers then ever before. A report from Merrill Lynch estimates that the new entrant population coverage is now at 55% and growing.59
59 Merrill Lynch, “Wireless update: Prices now at US levels”, (January 25, 2011), p 2.
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107. In addition, Rogers supports over 70 data resellers. These are typically solution providers that resell our General Packet Data Services (GPRS) network in combination with M2M applications, including for example, fleet tracking, meter reading, point-of-sale asset management and alarm security.
108. It is also relevant to the analysis of the current market structure to consider that this MVNO and reseller market has developed, not as a result of regulatory measures enacted by the CRTC or Industry Canada, but by competitive market forces alone. When called upon to mandate resale in the 1990s, the CRTC declined on the basis that the market was competitive and stated, In the Commissions view, based on the record of this proceeding, the question of whether to offer unrestricted resale and sharing is best answered by individual providers responding to their investment and business requirements.60
109. This is in sharp contrast to the wireline and Internet markets where resale arrangements had to be mandated and where wholesale rates have been subject to regulatory controls and disputes for many years. In the mobile wireless market, resale arrangements developed precisely because of competition.
110. For its part, Rogers is engaged in a continuous struggle to win new customers by attracting new users to its network and persuading customers of competing networks to switch carriers. Rogers is also focused on keeping existing customers satisfied, a matter that has become even more important since the implementation of Wireless Number Portability (WNP) in March 2007.
111. The new entrants have not been the only, or even the most important recent competitive impact on Rogers. Rogers submits that Bell and TELUS’ competing HSPA+ network has radically changed the competitive landscape. Bell and TELUS have traditionally supported CDMA wireless network technologies rather than the global
60 Telecom Order CRTC 97-1797 (December 3, 1997), para 40.
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standard known as GSM. With the launch of their joint HSPA+ network, Bell and TELUS offer the newest handsets which were not available for use with their CDMA networks. In addition, customers can use their existing unlocked HSPA phones when they port between the three incumbent carriers. As well, Bell and TELUS are better able to benefit from international roaming with HSPA than with CDMA. This has increased competition between the three incumbents as customers have more choice in which carrier will provide outbound and inbound HSPA roaming.
112. Canadian consumers have been benefiting from this highly competitive market. Nadir Mohamed CEO of Rogers Communications echoed this reality in early December stating, Rogers Communications Inc. expects to face stiffer competition next year but says it is making the necessary investments to keep its edge over a growing pack of challengers. Speaking to U.S. telecom industry members in New York on Tuesday, chief executive Nadir Mohamed said renewed pressure from rivals Bell Mobility and Telus Corp. throughout 2010 as well as emerging threats from newcomers like Wind Mobile finally hit wireless earnings last quarter -- a period in which Rogers experienced a 24% drop in profits. "Certainly that has been a pressure point for us," he said. And wireless results will remain under strain in the immediate quarters to come61 (Emphasis added)
113. Just as there is a great choice of providers, there is even more choice when consumers consider the type of wireless plans offered. Hundreds of wireless plans exist that offer postpaid and prepaid plans for voice, data and text messaging. Canadian consumers appear to have been benefiting from this hyper-competitive market.
114. In fact, Canadian consumers have seen very aggressive service offerings during the past year. For example, promotions offering $150 activation credits and six months of free services have been introduced. Further information on pricing and its impact on the Canadian wireless market can be found in Section 7-1(c). Based on this information, it is apparent that AWS licensees have been focusing on price and not on innovation. One
61 Jamie Sturgeon, “Rogers in competition 'pressure point': CEO”, (December 8, 2010. http://www.nationalpost.com/Rogers+competition+pressure+point/3943080/story.html
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may even consider these types of promotions as harmful to innovation in the long term. Below cost pricing has appeared in Canada, with some new entrants admitting to losing money on each customer at their existing ARPU levels.62 As well, some AWS licensees have already started to argue that a consolidation of pure-play wireless providers is likely and some will merge in the near future. Notably, in a recent newspaper article, Public Mobile CEO Alec Krstajic stated, I don't think there is any question in my mind that it would be good for all parties concerned that the new entrants consolidate,” he said. “If you brought these three together, you'd have a really strong national footprint, distribution, call-centre efficiencies [and] stable pricing.63 (Emphasis added)
115. As well, CEO of Globalive and Chairman of Wind Mobile Anthony Lacavera stated, As to how to get the spectrum that Wind Canada needs for national coverage Lacavera thinks it will be a combination of auction and consolidation among the new entrants. “There is really only room for one more national carrier in Canada.”64 (Emphasis added)
116. RBC Dominion Securities also believes that some players will have to consolidate. With intense wireless competition and high cash burn rates among the new entrants, we believe all three will be seeking to raise capital in the coming months […] Without continued access to capital, we believe there could be scope for consolidation in the new entrant market this year (or next). If so, then we believe a company like Shaw would be a potential buyer – giving it additional spectrum resources and scope to expand outside its Western territory.65 (Emphasis added)
117. And lastly, Jeffrey Church echoed a similar thought:
The scope for further competition in the market is unclear, and this in itself makes it risky to repeatedly implement policies that place a major share of a valuable resource in the hands of parties whose ability to utilise that resource to provide valuable services that generate substantial social
62 RBC Capital Markets, ”Previewing a Fiercely Competitive Wireless Quarters”, (February 3, 2011), p 2. 63 Jamie Sturgeon, “Public Mobile fights to hold on in tough market”, (December 22, 2010). http://www.financialpost.com/Public+Mobile+fights+hold/4010412/story.html 64 Noel Meyer, “If they break the rules, sue” says Orascom's Sawiris about Canadian incumbents”, (November 21, 2010). www.cartt.ca 65 RBC Capital Markets, “Fiercely Competitive Wireless Quarter”, (February 3, 2011).
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surplus is very uncertain. These risks are greater in 2012 than they were in 2008.66 (Emphasis added)
118. Canadian consumers have a great number of choices when it comes to choosing a wireless service provider. The market will see even more competition once several well- financed cable companies launch their own wireless service offerings. Based on the relatively small size of the Canadian wireless market, it appears that there may actually be too many participants in the wireless market.67
New AWS Licensee Market Share
119. According to media and analyst reports, AWS licensees who have already launched, made inroads in 2010 in terms of market share. For example, Merrill Lynch estimated that the new entrants have captured 89,000 of the net additions during the third quarter 2010, which represents 15% of the industry total. For the fourth quarter of 2010, RBC Dominion Securities estimated that the share of the new entrants could be even higher: By our estimate, the four new entrants (including Videotron) are set to add 210K customers in Q4, which could be 30-40% of total adds in the quarter.68 (Emphasis added)
120. The Merrill Lynch report states that the Canadian wireless market was driven and sustained by aggressive advertising and promotions during 2010. Market share metrics are not reported publicly by some AWS licensees because they are privately owned companies. However, a recent report quotes Wind Mobile’s Anthony Lacavera as stating that “We’ll be well north of 200,000 [subscribers] by the end of the year.”69 (Emphasis added)
66 Jeffrey Church, “Spectrum Policy as Competition Policy: A Good Choice for Canada?”, (February 2011), para 50. 67 See for example Jeffrey Church of Berkeley Research Group filing with Industry Canada dated July 30, 2010, section 2.2.2, entitled “A Natural Limit on the Number of Carriers”. 68 RBC Capital Markets, “Fiercely Competitive Wireless Quarter”. 69 Iain Marlow, “A Year In, Wind Blows its Own Horn”, (December 15, 2010). https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20101216/RBWINDLACAVERA1216ATL
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121. Similarly, a recent report regarding Mobilicity finds the company bullish on its market penetration: After only eight months of operation in Toronto and just one month of doing business in Vancouver, Edmonton and Ottawa, the carrier has added 50,000 new mobile customers in the fourth quarter, and that's excluding last-minute holiday sales. “Mobilicity is thriving and is on track to account for approximately 10% of the Canadian wireless industry's growth in subscribers this quarter, with three of our key markets open for only six weeks,” Mobilicity President and Chief Executive Dave Dobbin said in a release Friday.70 (Emphasis added)
122. It is well recognized that competition will accelerate even further once well funded cable companies, like Shaw and Eastlink, launch wireless services. For example, Mr. Jonathan Allen (at RBC Dominion Securities) was quoted in the National Post stating: Shaw's entry into the $16.8-billion mobile market would bring one of the last of a corps of new entrants into the arena and perhaps the most disruptive for established incumbents Rogers Communications Inc., BCE Inc.'s Bell Mobility and Telus Corp. Shaw's launch will follow Quebec cable power Videotron Ltee.'s by a year. Videotron has added more than 41,000 customers so far by bundling service in with other products. Shaw is expected to emulate the strategy and, with 3.4 million cable subscribers, the impact on incumbents could be substantial71 (Emphasis added)
123. New AWS licensees have made strides in getting their networks off the ground since they won spectrum in the 2008 AWS auction. While still early days, the AWS licensees are making inroads with regards to market penetration as they continue to roll out services in new areas and offer aggressive discounts to attract subscribers.
124. Based on this, Rogers submits that there is no need for the Department to introduce further artificial measures in order to foster competition in the Canadian wireless market.
70 “Mobilicity eyes 10% of all urban wireless growth”, (December 17, 2010). http://money.canoe.ca/money/business/canada/archives/2010/12/20101217-104058.html 71 Jamie Sturgeon, “Shaw may go wireless in September”, (January 6, 2011). http://www.nationalpost.com/todays-paper/Shaw+wireless+September/4066949/story.html
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7-1(b) in terms of its contributions and interaction to the broader Canadian telecommunications service market
The Benefit of the Wireless Industry to the Canadian Economy
130. The latest CRTC Communications Monitoring Report provides a useful overview of the Canadian wireless market as compared to the Canadian telecommunications market as a whole. This report notes that the wireless sector generated revenues of $16.8 billion in year 2009, an increase of 5.4% from the previous year. Only Internet- related services showed positive revenue growth in 2009 in the wireline market. Legacy services like local access and long distance showed negative growth in 2009.72 In fact, all these trends have been relatively steady since 2005 as reported in the CRTC’s data.
131. The CRTC report also notes that wireless capital expenditures amounted to 51% and 29% of total telecommunications capital expenditures in 2008 and 2009 respectively, showing that wireless providers continue to invest large amounts of capital to bring Canadians the benefits of the latest wireless network technologies and devices. This is yet another indication that the Canadian wireless market is intensely competitive. Why would carriers continue to invest billions of dollars if there was no danger of competitors attempting to attract their customers? The reality is that each of Canada’s mobile wireless carriers are forced to make these extraordinary investments in advanced technologies to prevent the others from achieving a competitive advantage.
132. A report prepared by Ovum in April 2010 also provides useful information on the importance of the wireless industry to the Canadian economy. According to Ovum,
72 CRTC Communications Monitoring Report 2010, p 137 and 153.
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the wireless industry generates significant value for the Canadian economy that goes well beyond the value of wireless sector revenues. The wireless industry generates a total economic value of approximately $39 billion for the Canadian economy, including the following: • $16 billion in terms of direct contribution to the GDP through the sale of goods and services; • an additional $14 billion benefit due to the economic flow through to contributing suppliers in the supply chain; and, • nearly $9 billion in consumer surplus - this is the additional benefit or satisfaction that consumers get from wireless services, above and beyond what they pay for the services.73
133. Clearly, Canadians are receiving tremendous value from wireless competition and for the use of the radio spectrum resource. The Ovum study further notes that the Canadian wireless industry also supports over 294,000 Canadian jobs, after taking into account direct, indirect and induced employment. Not only does the wireless sector provide many jobs, but these are also high quality jobs with an average salary level of $59,000 - higher than the Canadian average salary of $42,640.
The Future is Wireless
134. The future of telecommunications is wireless. More and more Canadians are opting to use mobile services over wireline telephone services and this will extend to Internet services with the implementation of 4G mobile broadband services. The mobile wireless industry continues to be the most dynamic segment of the Canadian telecommunications market. The market continues to grow at an extremely fast pace, mostly because of the data rich services and features offered on a wide range of the latest handsets, smartphones and data devices.
135. These trends are further evident when considering households that will be wireless-only. Based on data from the CRTC 2010 Communications Monitoring
73 OVUM, “The Benefit of the Wireless Telecommunications Industry”, see CWTA website.
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Report, wireless-only household penetration stood at just 8% in 2008. According to Convergence Consulting Group estimates, wireless-only penetration will increase over 3 times by 2014 to stand at 28% of households.74
Estimated Canadian Wireless-Only Household Penetration, 2010-2014
2001 2002 2003 2004 2005 2006 2007 2008 Wireless-Only House Hold Penetration 1.2% 1.7% 2.5% 2.7% 4.8% 5.0% 6.3% 8.0% *Source CRTC Telecommunications Monitoring Reports
2009 2010E 2011E 2012E 2013E 2014E Wireless-Only House Hold Penetration 9.0% 12.0% 16.0% 20.0% 24.0% 28.0% *Source Convergence Consulting Group Canadian Wireless 2008-2014: Assessing the Impact of New Entrants
136. The trend of Canadians shedding their wireline subscriptions to go wireless-only reflects the competitiveness of the Canadian wireless industry, and the affordability of wireless services rates. These penetration numbers show that Canadians appreciate the value and reliability of wireless service offerings and will continue to go wireless-only in larger numbers in the future. These trends will only accelerate with the advent of faster wireless data speeds that provide the same (or better) access speeds as wireline Internet offerings.
137. For example, on July 11, 2008, Rogers was the first to carry the popular Apple iPhone in Canada. Today, more and more Canadians are using smartphones. All Canadian carriers are now promoting smartphones like the iconic Blackberry and iPhone as well as offerings from other device manufacturers such as Huawei, HTC, Palm and Samsung. Information from the Convergence Consulting Group below illustrates how important smartphones will be in the future.75
Estimated Canadian Wireless Subscribers with Smartphones 2008 2009 2010 2011 2012 2013 2014 Total: 13% 22% 31% 39% 47% 54% 60% * Source: Converence Consulting Group. Canadian Wireless 2008-2014: Assessing the Impact of New Entrants
74 Convergence Consulting, “Canadian Wireless 2008-2014”, p 69. 75 Convergence Consulting, “Canadian Wireless 2008-2014”, p 77.
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138. During the fourth quarter of 2010, Rogers activated and upgraded a record 635,000 additional smartphones. This resulted in subscribers with smartphones now representing 41% of the overall Rogers postpaid subscriber base as of December 31, 2010 (up from 31% as at December 31, 2009).76 Telus further reported that Smartphones represented 46% of postpaid gross additions in the fourth quarter, as compared to 25% in same period last year.77
139. Moreover, products like mobile Internet USB 2.0 sticks, mobile hubs and hotspots are available in Canada at maximum download speeds of up to 42 Mbps, which in some cases are faster than that available from traditional landline Internet providers.
140. As is evident, the wireless services market plays a large and ever increasing role in the Canadian telecommunications market as a whole. As mobile data speeds continue to increase we will see a greater adoption of a host of wireless products and services. More and more Canadians are opting for mobile services over wireline telephone services and this will extend to Internet services with the implementation of 4G mobile broadband services.
141. Based on all these facts, Rogers submits that there is no need for the Department to artificially benefit new players in a market that is already fiercely competitive and generating huge benefits for Canadian consumers. The metrics noted above show that there is no justification for the Department to favor some specific companies in the upcoming 700 MHz auction to the detriment of others. It should be an open auction as the level of competition and market forces will continue to discipline all players.
76 Rogers 2010 Q4 results. http://www.rogers.com/web/Rogers.portal?_nfpb=true&_pageLabel=IR_LANDING 77 TELUS 2010 Q4 results. http://about.telus.com/investors/downloads/20104Q/Q42010QuarterlyReport.pdf
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7-1 (c) in comparison with the wireless markets of other jurisdictions
142. Based on the many differences in regulatory and market conditions it is challenging to obtain a valid comparison of the competitive environment around the world. However, using the correct metrics, the competitiveness of the Canadian wireless market compares well to other countries around the world.
Number of Wireless Carriers Per Country
143. With the arrival of AWS licensees, the number of carriers in Canada is now higher than the number of carriers found in most developed and emerging countries around the world. Among the twenty-one developed countries that are reviewed by Merrill Lynch, eleven have three or even just two national mobile wireless operators. Another seven have just four operators, including highly populated European countries like Germany, Italy and Spain. Among the 29 emerging countries reviewed by Merrill Lynch, only three have more carriers than in Canada.78
78 Merrill Lynch, “Global Wireless Matrix 4Q10”, (December 23, 2010) p 2.
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Number of Wireless Carriers Per Country
Market Share No. of Wireless (top 2 providers) Countries Players as of Q3/2010 Canada 5 67% US 5 63% UK 5 54% Japan 4 77% Sweden 4 75% Spain 4 74% Austria 4 72% Denmark 4 70% Italy 4 68% Germany 4 66% New Zealand 3 89% Switzerland 3 83% Portugal 3 79% Greece 3 77% France 3 77% Finland 3 77% Netherland 3 76% Singapore 3 74% Australia 3 72% Belgium 3 72% Norway 2 85% Average 3.57 74% * Source: Bank of America Merril Lynch Global Wireless Matrix 4Q10
144. More telling in the Merrill Lynch data is that Canada does not have a dominant carrier. As shown in the above table, the combined market share of the top two carriers in Canada is among the lowest at 67%, tied with the US, Italy and Germany (the average for the 21 developed countries is 74% of market share for the top two carriers). This demonstrates how competitive the Canadian wireless market is. No carrier in Canada has the market share to dictate prices or terms to the market. Any attempt to do so immediately invites a competitive response from the other carriers.
Population Density
145. Population density is an important measure the Department must examine when assessing the degree of competition in Canada. Population density is extremely low as Canada is a large, sparsely populated country. A fact sheet on the Canadian
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wireless industry prepared for the The Communications, Energy and Paperwork (CEP) Union of Canada notes that: It is also true that the geographical area of Canada is unique. A call between Montreal and Vancouver covers a longer distance than a call between Madrid and Moscow. This goes to show that building a national infrastructure in Canada presents challenges that no European country, safe perhaps Russia, has to face.79
146. According to the following chart, Canada ranks second among twenty developed countries analyzed by Merrill Lynch (Singapore was removed from the Merrill Lynch list since its population density is too high to be shown in the graphic below).
Population Density (per Sq. Km.) 450 400 350 300 250 200 150 100 50 0 US UK UK Italy Spain Japan Japan Austria Greece France France Canada Norway Finland Sweden Belgium Portugal Portugal Australia Germany Denmark Denmark Netherland Switzerland New Zealand New * Source: United Nations World Population Prospects Report, 2010
147. As can be seen above, Canada trails much of the world in regards to population density. This is extremely relevant when considering the cost of doing business in Canada. In this regard, Jeffrey Church noted: “The preponderance of fixed costs over marginal costs [in the wireless industry] lends significant advantages to those firms that can recover these costs over the largest production volumes.”80
79 CEP Union of Canada, “Telecommunications Fact Sheet No. 2”, (October 19, 2010). 80 Jeffrey Church, “Spectrum Policy as Competition Policy”, para 79
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148. Given that the wireless telecom industry is highly dependent on economies of scope and scale, it is obvious that the U.S. market, for example, is far more attractive from both economic and financial standpoints than the Canadian market. Obviously, lower costs can translate into lower prices. Capital expenditures related to network deployment, expansion (coverage) and upgrades to new technologies like LTE can be recovered over many more customers per square kilometer in the U.S., which will ultimately lower the cost per customer for U.S. carriers.
Canadian Providers Adopt the Latest Technologies Despite Spectrum Release Delays
149. Wireless carriers operate their networks on licensed spectrum where the licences to operate in certain frequencies are assigned and awarded by the Department. The date by which spectrum is made available for use by commercial wireless carriers obviously has a great impact on the date that wireless services using this spectrum are launched. As noted in the table below, Canada has almost always followed the United States in the release of new spectrum. The release gap for Cellular (AMPS) spectrum was two years and the gap for the release of PCS C Band was 5 years. The release gap for AWS spectrum was two years and the 700 MHz gap is estimated to be 4 years with the United States releasing other 700 MHz bands as early as 2001.
Spectrum Release Dates in Canada and the U.S. Spectrum Band Canada United States
Cellular (AMPS) 850 MHz 1985 1983 PCS A Band 1900 MHz 1995 1995 PCS C Band 1900 MHz 2001 1996 AWS 1700/2100 MHz 2008 2006 700 MHz 700 MHz 2012 (Est.) 2001-2008 * Source Industry Canada and FCC websites
150. The planning and release of new services in these bands cannot begin until after the spectrum is assigned. Carriers in the United States that obtained 700 MHz spectrum in the 2008 auction have had three years so far to plan and roll-out services using the 700 MHz band. Despite these delays, Canadian wireless
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providers have been adept at rapidly adopting advanced new network technologies. In a recent example, Rogers used its existing frequencies to be the first in carrier in North America to launch an HSPA 7.2 mbps network in 2008. Rogers was first in North American again when it launched an HSPA+ (21 mbps) network the following year.
151. Rogers will continue to innovate in order to keep pace with global wireless developments. The Canadian wireless market is highly competitive and existing companies have fiercely battled in order to gain market share. A multitude of new services, devices and price plans were introduced during the last 25 years. The arrival of new players in the market will not change that. For example, Rogers has always been among the first to deploy the latest advanced wireless technologies, including:
Rogers Milestones in Wireless
2011 • First to announce LTE in Canada. 2009 • First carrier in North America and 6th globally to move to HSPA+ (at 21 mbps) 2008 • First carrier in North America to move to HSPA 7.2 mbps. 2007 • First carrier in North America to offer video calling. 2006 • First carrier in Canada (2nd in North America) to move to HSPA. 2006 • First carrier in world to offer name display for mobile phones as an enhancement to the existing call display service allowing customers to see the name of the person calling even if not in the mobile address book. 2005 • First carrier in North America to download music to cellphones. 2001 • First carrier in world to install both voice and packet data service simultaneously on GSM/GPRS technology. 2001 • Fido is first wireless carrier in North America to offer local number portability and equal access. 2000 • First carrier to offer Blackberry service. 1998 • First carrier in world to deploy commercial integrated dual-band dual-mode network within same service areas. 1998 • First carrier in Canada to introduce prepaid cellular and paging services with the launch of Pay As You Go. 1996 • First carrier in Canada to offer PCS service. 1992 • First carrier in North America to deploy TDMA. 1989 • First to operate a digital wireless packet switching network in North America. 1987 • Rogers operates the longest wireless corridor in the world.
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1985 • First commercial cellular call placed in Canada on the Rogers network.
152. Rogers is a Canadian success story and particularly when its past wireless achievements are considered. Rogers is an innovator and this is most evident when considering the launch of new network technologies. As the table above notes, Rogers was the first operator in North America to deploy TDMA and HSPA+ networks. Rogers has been a technological leader in Canada, North America and the World and will continue to innovate in order to stay ahead in the highly competitive Canadian wireless market.
153. According to a recent report published by Global Mobile Suppliers Association, Canada has retained its position as global leader as the country with the most HSPA+ commercial deployments in the world. According to the report Canada leads the world with 5 operators in Canada having deployed at HSPA+ at 21 Mbps. The 5 Canadian operators include Rogers, Bell, TELUS, SaskTel and Videotron.81 This non-exhaustive list of “first” serves as a testament to the competitive market forces at work in what is undoubtedly an extremely dynamic industry. This record does not exhibit the hallmark of complacency. It provides additional evidence of aggressive investment in technology and service development driven by market forces.
154. The high quality of Canadian wireless networks, in particular, was underscored by the debacle in the U.S. following the launch of the iPhone. Data usage by American iPhone customers resulted in dropped calls, delayed text and voice messages, slow download speeds, spotty service and frustrated customers, and may also have caused AT&T to delay implementation of new features and tethering, which is a standard feature of Rogers’ services. None of these problems have been experienced in Canada due to the superior reliability and availability of Rogers’ mobile network.
81 Global Mobile Suppliers Association, “Report on Global HSPA+ Network Commitments and Deployments, (January 24, 2011), p 2.
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Canadian Wireless Pricing
155. The competitiveness of the Canadian wireless makret is eveiden when relevant, comparisons are made with other countires. For example, the “minutes of use per capita” metric is a highly valuable metric that helps to compare apples to apples. In a February 2011 study, Jeffrey Church explained that the British regulator Ofcom, in a recent review of wholesale termination rates in the U.K., suggested that a useful metric of industry performance was “minutes of use per capita”, which amounts to (minutes of use per subscriber) x (subscriber per capita). The distortion inherent in each individual measure is “cancelled out” in the multiplication. Ofcom describes “minutes per capita” as its preferred measure of industry output.” 82
156. In that same document, Jeffrey Church found that, when using this metric, the Canadian wireless industry ranks well when compared to other countries. He writes “On the composite measure of “minutes per capita”, Canada is actually one of the best performers”83. Jeffrey Church further notes that Canada ranks very high if one focused just on minutes of use per subscriber. This finding is fully supported by Merrill Lynch. In the Merrill Lynch report, Canadians consumers are using their mobile devices a great deal (372 minutes per month on average), far in excess of the 140 minutes the OECD considers to be “high usage”. Only the U.S. (at 804 min.) and Singapore (at 376 min.) are reporting higher usage. At the end of 2010, Rogers reported in its financial statements that its postpaid customers have used on average 559 minutes per month. The average for the 21 develop countries included in the Merrill Report is 226 minutes per month, with the lowest being Switzerland at 118 minutes.84
157. With regards to pricing, Rogers believes that the metrics called “mobile spending as a percentage of the GDP”, as well as the Revenue per Minute (RPM, adjusted for
82 Jeffrey Church, “Spectrum Policy as Competition Policy”, para 109 83 Jeffrey Church, “Spectrum Policy as Competition Policy”, para 114 84 Merrill Lynch, “Global Wireless Matrix 4Q10”, p 2.
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currency) are the most relevant statistics for comparing the real price of wireless telecom services in different countries. As noted below, when using these two metrics, Canada ranks very well among the 21 developed countries that are included in the Merrill Lynch report.
158. On the chart below, it is evident that Canadians are not spending a great amount on mobile telecom services when compared to their total available income (1.1%, which is identical to the U.S. figure). Canadian carriers deliver wireless services for a small proportion of the country’s total revenues, compared to other countries. This indicates that our carriers are efficient. This is especially true given that we have a relatively high level of minutes of use per capita.
Mobile Spending as a Percentage of GDP 2.5%
2.0%
1.5%
1.0%
0.5%
0.0% US UK Italy Italy Spain Spain Japan Austria Greece Canada France France Sweden Finland Norway Belgium Belgium Portugal Australia Australia Denmark Germany Germany Singapore Netherland Switzerland New New Zealand * Source: Bank of America Merrill Lynch (this chart represents annualized spending on mobile services, excluding capex) Global Wireless Matrix 4Q10
159. In terms of RPM, the U.S. and Singapore are very low with 4¢ and 6¢ per minute respectively. Three countries stand at 9¢ per minute and four countries at 10¢ per minute. Canada’s RPM currently stands at 11¢ per minute, tied with Germany and Portugal, despite a much higher cost structure for Canadian carriers.
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Revenue per Minute (US$) $0.35
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00 US UK UK Italy Italy Spain Spain Japan Austria Greece Finland Canada France Belgium Sweden Portugal Norway Denmark Australia Germany Singapore Netherland Switzerland New New Zealand * Source: Bank of America Merrill Lynch
160. Moreover, in a February 2011 study, Jeffrey Church also examined Average Revenue Per Minute (ARPM) as a proportion of GDP and found that Canada has one of the most affordable usage costs for wireless subscribers. Specifically, he found that the Canadian “ARPM as a proportion of GDP per capita is the third lowest in the sample we looked at.”85 So, despite statements to the contrary, it is clear that voice services are reasonably priced in Canada. Canadian consumers are paying less than other consumers in many European countries.
161. Another factor that is often not taken into consideration when making comparisons between Canada and other countries is Calling Party Pays (CPP). Canadian customers have traditionally benefited from unlimited outbound local calls from their landline phone, while Europeans are being charged for each local call. They pay higher rates for each call to a mobile number. Among the twenty-one countries that are analyzed by Merrill Lynch, only Canada, U.S. and Singapore do not have CPP. This means that wireless customers in these these three countries have to pay for all incoming minutes as well as outgoing minutes. Whereas under
85 Jeffrey Church, “Spectrum Policy as Competition Policy”, para 106
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CPP, subscribers only pay for outgoing minutes. This increases the ARPU in those countries that operate without CPP.
162. CPP also impacts interconnection costs. Wireless operators who have access to CPP around the world are compensated for terminating traffic on their respective network. The Merrill Lynch report notes that “In countries where the calling party pays (CPP) applies, interconnection can represent about 20% of total revenues.”86 In Canada, wireless services providers have to pay to send and receive traffic from local exchange carriers. This leads to higher interconnection costs in Canada and a higher cost structure relative to other countries.
163. Based on this, the regulatory model of CPP tends to understate the true cost of wireless services in places like Europe. Under the CPP scheme, wireless subscribers only have to pay for outgoing calls while incoming calls are free. As a result, it excludes from the equation the cost of calls made from wireline to wireless phones, which the caller pays by way of local measured service charges to their local wireline telephone company. The impact of CPP must be considered when comparing the industry’s competitiveness in Canada to other countries that employ CPP.
164. Canadian ARPU includes, among other things, fixed monthly service charges, usage fees, roaming, long distance, valued added services and subscriptions to mobile data services. In order to compare apples to apples, one must remove from the portion of the revenues that is associated with incoming minutes (local and roaming) from the ARPU calculation. Merrill Lynch estimated that a 20% adjustment would be necessary for countries that do not have CPP, noting that: MOU figures are potentially somewhat overstated in countries that do not employ the calling party pays system (Canada, Singapore, US) relative to other countries who do as a result of the double counting of on-net mobile- to-mobile minutes. The double counting occurs because the same minute is billed to both the caller and the receiver. For some markets in Europe,
86 Merrill Lynch, ”Wireless Matrix 4Q10” p 210.
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for example, we estimate that on-net mobile-to-mobile traffic can constitute approximately one-third of MOU, thereby suggesting that MOUs in non-CPP countries may be overstated by about that amount. We think the 20% adjustment for non-CPP markets is conservative (i.e. on the high side).87
165. Recent data on the Canadian wireless market supports the view that competition continues to intensify especially with regards to pricing for zone-based unlimited plans. In a recent analyst report, Merrill Lynch has noted that Canadian pricing is now at U.S. levels as a result of the expansion of new entrant coverage areas, distribution, available handsets and price promotions. According to a recent Merrill Lynch report, Q4 seasonal promotions have been carried over into January, and new promotional price points are now at or below prices from US discounters Leap and MetroPCS. Both Mobilicity and Wind are now offering $45 unlimited plans that include data (as well as messaging and voice). This compares to similar plans priced at $40 from MetroPCS and $45 from Leap. In addition, Wind offers handset subsidies of up to $150 via its “Tab” program, reducing effective pricing for high-end smartphones to $250. Mobilicity offers 33% discounts to customers who prepay for a year, reducing the effective price to $30/month – significantly below US price points88 (Emphasis added)
166. RBC Dominion Securities noted a similar trend in Canadian wireless prices in a recent investor update based on fourth quarter information: A Fierce Quarter For Wireless Competition Among New Entrants. Our wireless checks in the quarter revealed very aggressive pricing from the new wireless entrants at the low-end of the market – to levels well below U.S. pricing – and likely unsustainable. The new entrants are poised to add 210k subs this quarter (34% of total share). Meanwhile, our checks suggest a more rational dynamic among the big three carriers at the high- end of the market – nothing really unusual for the heavy Christmas season. This bodes well for Bell and TELUS. Rogers, however, is likely to face continued pressures.89 (Emphasis added)
167. Of note, in the RBC report, is the fact that aggressive pricing from new AWS licensees are in the market at levels below those found in the U.S. market and that
87 Merrill Lynch, “Global Wireless Matrix Q410”, p 210. 88 Merrill Lynch, “Wireless Update: Prices Now at US levels”, (January 25, 2011), page 2. 89 RBC Capital Markets, “Fiercely Competitive Wireless Quarter”, p 1.
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they are likely unsustainable. Overall, new AWS licensee promotions in the wireless market are at or below similar plans in the U.S. market, a market that has well over 10 times the number of subscribers and therefore greater economies of scale.
168. A study commissioned by the CEP Union of Canada shows that Canadian pricing compares well to other countries. According to data collect by the the CEP Union of Canada, when using a basket that reflects the Canadian average usage (based on various assumptions taken from CRTC Monitoring reports, Merrill Lynch, Harris/Decima and the CWTA), Canadian prices for wireless services are extremely low in comparison to other countries.90
Yearly Cost of Mobile Plans, based on Canadian average usage, 2010
$1,400 $1,274.46 $1,247.49
$1,200 $1,085.38 $1,082.25 $1,007.15 $1,003.58 $1,000 $927.47 $922.81 $892.31
$800 $794.17 $766.27 $741.55 $726.50 $717.12 $677.46 $657.26 $621.57
$600 $593.07 $540.18 $524.69 $507.52 $503.88 $486.73 $483.70 $453.88 $413.27 $398.77 $400 $339.53 $213.56 $200
$0 Italy (SIM) Spain
Japan States Turkey
(Sub'n) France Poland Mexi co Austria Greece Finland
Iceland Canada Norway Sweden Zealand Belgium Slovakia Hungary Kingdom
Portugal Republic Denmark Australia Germany
Switzerland Luxembourg New United Czech United Netherlands Netherlands * Source: CEP Union, Fact Sheet No. 2, published 10/19/2010
169. As the CEP Union report notes, Canada ranks 5th (at $453 per year) among the 29 countries that they have analyzed. This is 11% less expensive than the U.S. pricing (at $503 per year), and well below the average of $710 for these 29 countries.
90 http://www.cep.ca/action/campaigns/foreign-ownership,
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170. In summary of Section 7-1, Rogers submits that the Canadian wireless market has been highly competitive in the past and that competition has become hyper- competitive. Much of this heightened level of competition is not on account of new entrant activity but is a result of increased competition among incumbent providers due to Bell and TELUS’ move to launch a competing HSPA+ network. The current level of zone-based unlimited pricing in the market is likely not sustainable and consolidation (as noted by some new entrants) will likely result. Now that AWS licensees have entered the market, there is no need for any further artificial measures to increase or sustain competition. The next auction must be open for all bidders given the limited amount of 700 MHz spectrum that will be available in the auction.
Impacts of Government Measures Adopted in the AWS Auction
7-2: Provide views, and any supporting evidence, on the impacts of government measures adopted in the AWS auctions, including the impacts on consumers and on the state of competition. In particular, what has been the impact, if any, of such measures on industry concentration, barriers to entry or expansion of services, and the availability of new or improved service offerings and pricing plans?
171. In its Consultation Paper, the Department has sought comments on the impacts of government measures adopted in the AWS auctions and the resultant impact on consumers and the state of competition.
172. The Canadian market was highly competitive before the AWS auction as the metrics in the previous section show. Rogers submits that competition has only increased since the auction. However, as noted above, while this is partially due to the AWS entrants, much of this is due to intense competition between the incumbent operators.
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173. As noted in Section 7-1, Bell and TELUS have become more competitive with the launch of their joint HSPA+ network. Bell and TELUS can now offer the newest and most popular handsets (such as the iPhone) which were previously unavailable to them due to their reliance on CDMA technology. With the upgrade to HSPA+, customers can keep their existing unlocked HSPA phones when they port between the three incumbent carriers. Several analyst reports confirm the impact that Bell and TELUS have had on competition in the wireless sector. In an investor update provided after the release of Rogers Q4 2010 financial results Canaccord Genuity noted that: Postpaid market share loss may be inevitable, but Rogers only accounted for 16% share of national postpaid net additions in Q4/10 – Given that Rogers Wireless enjoyed commanding postpaid market share from 2004- 2009 due to its GSM/HSPA exclusivity, it is not surprising that its share has been in decline since Bell and TELUS launched HSPA in late 2009. In addition, Bell Mobility was particularly aggressive with its subscriber acquisition promotions in Q4/10. Rogers also argues that it only had limited supplies of iconic smart phones in the quarter and these were generally directed at retention of existing customers, rather than acquisition of new customers. However, despite record retention expense, which equated to a whopping 16.3% of network revenue in the quarter, postpaid churn rose sharply to 1.35% in Q4/10 from only 1.08% in Q4/09. In our view, Rogers has become less competitive on the postpaid front due to enhanced networks, device selection and distribution at Bell and TELUS. This is not a one quarter phenomenon.91 (Emphasis added)
174. GMP Securities also found that there was a shift in postpaid customer additions from Rogers to Bell and TELUS: The competitive intensity in Rogers’ main markets of Ontario and Quebec appear to have impacted the operating results and factored into materially higher churn and weaker net loading in the quarter. The financial results were in line with our expectations All 3 major wireless incumbents have reported, and it seems that the shift in value from Rogers to Telus and Bell that was present in Q3 has continued into Q4. 92 (Emphasis added).
175. Neither GMP or Canaccord Genuity are surprised to see that the shift in postpaid customer additions trend continue from Rogers to Bell and TELUS. Canaccord
91 Canaccord Genuity, “Daily Letter: Weakening Fundamentals”, (February 17, 2011), p 2. 92 GMP Securities, “Q4 Results in Line; Guidance Disappoints; Dividend +11%, $1.5B NCIB Reviewed”, (February 16, 2011), p 1.
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Genuity links Rogers’ postpaid addition losses to the Bell and TELUS HSPA network upgrade which has enhanced, among other things, Bell and TELUS’ device selection. An analyst report from TD Newcrest also cited the impacts of the Bell and TELUS HSPA network on Rogers’ roaming revenues: As a partial explanation for the gap in ARPU growth between Bell/TELUS and Rogers, management reminded investors that Rogers no longer has a monopoly on inbound or outbound HSPA roaming in Canada, so that gains in this revenue category for Bell/TELUS are providing a tailwind to their results, versus the headwind temporarily faced by Rogers.93 (Emphasis added)
176. All of these factors associated with Bell and TELUS’ move to HSPA have converged to make Bell and TELUS more competitive in the Canadian wireless services market and have significantly intensified competition between the incumbent operators.
177. Rogers strongly believes that some new competitors would have entered the market without the subsidy provided by the AWS auction set-aside. Indeed, one of the new entrants (Public Mobile) entered the market by acquiring low-cost non-set- aside G-Block spectrum. According to the “foreclosure” theory advanced by new entrants, incumbent carriers should have purchased this spectrum (which they could not use) just to keep Public Mobile out. Of course, this did not happen.
178. The AWS set-aside led to artificially low prices for spectrum, which has incented the entry of three new competitors in many cities. This in turn has led to prices for zone-based unlimited plans being below those in the U.S. Rogers submits that in these circumstances, further market entry is highly unlikely and that consolidation in the market is probable. As outlined in Section 7-1(a) several of the new entrants themselves believe that consolidation is inevitable. Without a set-aside, we likely would have seen a fourth entrant in all parts of Canada. This level of entry would likely have been more sustainable. Jeffrey Church notes that only a few markets
93 TD Newcrest, “Near Term Wireless Pain Continues”, (February 17, 2011), p 2.
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around the world have more than four national competitors and of those markets that do, the fourth carrier is usually a marginal player at best. 94
179. The set-aside also facilitated gaming by the new entrants which allowed them to drive up prices paid by incumbents.
180. Another consequence of the AWS set-aside that it artificially foreclosed the possibility of having three separate incumbent networks using AWS spectrum for LTE services. As noted by Jeffrey Church: In the 2008 AWS auctions, Industry Canada’s unprecedentedly generous set-aside resulted in a “foreclosure” of another kind: Bell and Telus could not separately acquire enough spectrum to make it viable for them to offer LTE over separate networks using the AWS spectrum. Thus one potentially efficient set of network facilities was eliminated from the mix, and substituted in by higher-cost and potentially less capable firms. This policy error might well have significant implications for future spectrum awards in Canada, and change the dynamics of wireless competition in Canada in a possibly unfavourable direction.
Telus and Bell may well have entered into the joint venture even without the set asides: but the presence of the set asides meant that they had little choice. Continuing with a policy of set asides for the 2012 auction may well again restrict the commercial decisions and flexibility of the incumbents that adversely effects competition.95
181. By preventing each incumbent from buying 20 MHz of spectrum, the set-aside compelled Bell and TELUS to jointly build an HSPA network. This has reduced the number of national facilities-based networks from three to two.
182. The generous roaming and tower sharing provisions set out in the AWS Conditions of Licence have also operated as intended. These have been highly beneficial to the new entrants.
94 Jeffrey Church, “Spectrum Policy as Competition Policy”, p 24. 95 Jeffery Church, “Spectrum Policy as Competition Policy”, para 36-37.
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183. Another input of the Government’s measures is that, up to now, the new entrants have only competed on price. Further, they have focused on serving areas already served, and nothing more. Their service offerings in many cases are inferior to those of Rogers. They have not introduced any innovation or new technology to Canada. This was the observation of Jeffrey Church, who found, New entry does not seem to have fundamentally changed market dynamics, which is inconsistent with the notion that demand in Canada’s wireless market had been previously suppressed by high incumbent pricing. Indeed, new entrants appear to be targeting urban areas where the room for growth is surely least, instead of exploiting untapped market segments such as rural, remote and older Canadians.96
184. Industry Canada should ensure that Canada has more innovation, more efficient networks and more reliable services. This is exactly what Rogers has been providing to Canadian consumers over the years and this is what we will continue to provide Canadian consumers in the future.
Need for Measures to Increase or Sustain Competition
7-3: In light of the current conditions in the Canadian wireless service market(s), is there a need for specific measures in the 700 MHz and/or 2500 MHz auction to increase or sustain competition?
185. The question asked by the Department is whether specific measures in the upcoming 700 MHz and/or 2500 MHz auction are needed to increase or sustain competition in light of the current conditions in the Canadian wireless service market. Rogers will look at these two questions separately.
No Further Measures Needed to Increase Competition
186. Clearly, there is no need to increase the number of players in Canada. As Rogers has shown above in response to question 7-1, most countries have three or
96 Jeffery Church, “Spectrum Policy as Competition Policy”, para 8.
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four wireless carriers and only a few have five. Canada has five or six carriers in most of the country and will have more in the future when Shaw ans Eastlink begin offering wireless services. Future entry by Shaw and East link is underway.
187. Empirical evidence supports the notion that Canada already has too many players. Increasing the number of competitors would be a mistake. In this regard, Jeffrey Church’s February 2011 report cautions that “there is a high risk of unviable entry into the Canadian wireless sector.”97
188. Artificially bringing more players into the wireless market with set-asides or auction caps will not increase or sustain competition. In any event, as noted above, it is doubtful that the current number of competitors is sustainable. One might even ask whether there might be a natural limit on the number of carriers. In this regard, the Berkeley Research Group questioned the need for more players in Canada in a filing to Industry Canada in July of 2010.98 In particular, the Berkeley Research Group expressed concerns over Canada’s existing market structure given demand and the relatively small size of the Canadian market. They noted that too many networks in the market will result in consolidation or exit in the long term. The Berkeley Research Group is also cautious against government attempts to artificially create competition and states that: Attempts to create competition and shoehorn in additional competitors will result in gross margins in the short run insufficient to justify replacement and maintenance of networks. The short run gain of increased competition does not last […] If there is a continued pattern of policy to create competition, costs in the industry will be raised as investors demand a risk premium to compensate for the risk of non-recovery of capital investment.”99
Based on this information it is clear that no further measures are required to increase the number of competitors in the Canadian wireless market.
97 Jeffrey Church, “Spectrum Policy as Competition Policy”, Table 1. 98 Jeffery Church with the assistance of Berkeley Research Group LLC, “Foreign Ownership Restrictions of Canadian Telecoms: An Analysis of Industry Canada’s Proposals”, (July 30, 2010), section 2.2.2. 99 Jeffery Church with the assistance of Berkeley Research, “Foreign Ownership Restrictions of Canadian Telecoms”, para 29
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Unviable Entry
189. With the addition of several new entrants already, it would be difficult, if not impossible, for the market to bear an additional carrier. According to the Convergence Consulting Group, the current group of new entrants are already struggling with negative cash flows.100
Estimated Cumulative OFCF in 2014 ($ millions)
Cum OFCF AWS E2014 Licence Total Globalive Wireless $ (575) $ (442) $ (1,017) Public Mobile $ (443) $ (52) $ (495) Mobilicity Wireless $ (480) $ (243) $ (723) $ (1,498) $ (738) $ (2,236)
* Source: Convergence Consulting Group and Industry Canada website
190. As the table above illustrates, In order to fully recover their estimated excess of cash outlays of $2.2 billion at the end of 2014, it is not surprising to see that these three pure-play wireless providers would need over 3.7M customers together, which is 25% higher than what Convergence Consulting Group estimated for 2014. New entrants would need to generate positive cash flow of $20 per month per customer (i.e. net of any operating expenses) during 30 full months (ARPU of $50 and EBITDA margin of 40% equal to $20 per month), which is about the life-time of a customer assuming an average churn rate of 3.3% per month. Given that AWS licensees would normally have to continue to invest in their networks (e.g. coverage), it would appear that some AWS licensees might never be able to break even in the medium or even short term. Setting aside 700 MHz spectrum for these operators will not solve this problem.
Number of Market Competitors in Comparison to Other Countries
100 Convergence Consulting, “Canadian Wireless 2008-2014” p 102, 104, 106.
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191. In terms of making comparisons between Canada and other countries, Rogers submits that the Canadian wireless market is doing extremely well. In a February 2011 report, Jeffrey Church clearly shows that the Canadian wireless market was not concentrated. According to Church, “Canada’s wireless industry is less concentrated than the wireless industries of several other countries.“101 Church added that: Regardless of market size, most wireless markets seem only to be able to sustain three or four major competitors, and in most markets two operators have over 2/3rds and in many cases 3/4ths of the total subscriber base […]102
The global data suggest that the scope for entry is exhausted relatively quickly. Indeed, few markets have more than four nationwide competitors, and even in ones that do, two or three competitors have overwhelming market shares, suggesting that the fourth competitor is truly marginal […]103
the empirical evidence from around the world suggests that it would be surprising to expect more than four national competitors. In the Canadian case, there may be important regional variations, but it still seems that in each regional or provincial market, it would be difficult to anticipate more than four competitors. It is possible that in Toronto, one might see five firms seeking to provide service, but the fourth and fifth firms might be relatively marginal.104 (Emphasis added)
192. In a filing to Industry Canada in July of 2010, the Berkeley Research Group similarly ranked Canada fifth overall behind the UK, US, Germany and Italy in terms of market concentration. They noted that: Canada’s market is unexceptional in terms of concentration, and likely to become exceptional only because of the number of competitors that are forthcoming.105 (Emphasis added)
193. This fact is further supported by Merrill Lynch. Canada places 5th in comparison to the twenty-one other developed countries analyzed by Merrill Lynch as of Third
101 Jeffrey Church, “Spectrum Policy as Competition Policy”, Table 1. 102 Jeffrey Church, “Spectrum Policy as Competition Policy”, para 158. 103 Jeffrey Church, “Spectrum Policy as Competition Policy”, para 89. 104 Jeffrey Church, “Spectrum Policy as Competition Policy”, para 183. 105 Berkeley Research “Foreign Ownership Restrictions”, para 80.
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Quarter 2010.106 Overall, the wireless markets of many European countries are much more concentrated than in Canada. This Merrill Lynch conclusion is based on a common and well respected measure of market concentration called the Herfindahl Hirschman Index (HHI).
194. Merrill Lynch also reports the total number of wireless players per country. Again, Canada ranks extremely well, as shown in the table below:
*Source: Bank of America Merrill Lynch
195. Based on all these facts, it is clear that there is no need to increase the number of players in Canada.
No Measures Needed to Sustain Competition
196. It is not clear to Rogers how set-asides, spectrum caps, or for that matter any other kind of measures would help “sustain” competition. The number of competitors in the market must be the product of competitive market forces, and not the product of subsidies from the Department.
106 Merrill Lynch, “Global Wireless Matrix 4Q10”, p. 2.
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197. Indeed, artificial measures to “sustain” competition will certainly have significant unintended costs. This is the view of Jeffrey Church, who states the following in this regard: There would be very serious consequences from using a set-aside or applying spectrum caps in an effort to “sustain” the entry that has already occurred. The reality is that incumbent incentives to foreclose such entrants from acquiring spectrum are limited, and equally spectrum is not going to be the crucial factor determining whether entry can be sustained. In fact, spectrum (or lack of it) is more likely to be a crucial factor in determining how fast and how far incumbent firms can go with rollouts of 4G technology. With only a limited amount of 700 MHz spectrum available, a set-aside or cap policy might keep a valuable and essential resource out of the hands of those who can best use it. In particular, given its uses in rural and low-density areas (areas where mobile broadband might be especially valuable because of the prohibitively high costs of deploying fixed broadband service), a policy that ensures that entrants get a “fair share” of 700 MHz spectrum might reduce meaningful competition and choice for Canadians living in such areas, particularly given that thus far the deployments by new entrants have concentrated on the markets (big cities) with the lowest deployment costs and most favourable economics.107 (Emphasis added)
198. Industry analysts have estimated that new entrants had less than 2% of market share at the end of 2010. Given the relatively low number of their customers that they have, new entrant networks are relatively underutilized. It is therefore not clear that they need more spectrum. In any event, Rogers believes that all wireless carriers in Canada will want 700 MHz spectrum, including those companies that currently serve the vast majority of the 24 million Canadian subscribers. The carriers’ respective business plans will dictate the extent to which they value 700 MHz spectrum. Market forces should therefore determine the outcome of the auction. Rogers strongly believes that the upcoming auction must be open so that those who value the spectrum the most will have access to it and can put it to its highest use. An open auction will be the most efficient measure the Department can implement in order to sustain competition in Canada and unlock the benefits associated with 700 MHz spectrum.
107 Jeffrey Church, “Spectrum Policy as Competition Policy”, p 58, para 232.
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199. As discussed above, 700 MHz spectrum is very valuable for coverage outside large urban areas. The only new entrants that could likely use 700 MHz spectrum for rural coverage are Shaw, Eastlink and Videotron. Shaw and Eastlink have not yet built using their AWS spectrum, so they might deploy using 700 MHz spectrum instead. However, this would not be “sustaining” Shaw and Eastlink as it would merely substitute one new network build for another. Videotron will already have completed its Quebec AWS network by the time the 700 MHz auction takes place. Given their moderate level of wireless subscribers, and their 40 MHz of AWS spectrum, it is hard to see how 700 MHz spectrum would “sustain” them. In any event, and as noted in more detail below, all of these powerful, wealthy communications conglomerates require no artificial measures to sustain them. . 200. Rogers submits that it is improper for the Department to continuously insulate for- profit companies through artificial subsidies. In fact, as we discussed above, several AWS licensees in Canada have vast financial resources at their disposal to assist with the purchase of spectrum at fair market prices through an open auction.
Shaw and Quebecor Financial and Subscriber Results for 2009 Shaw Quebecor As of 2009 Annual Report Aug 31, 2010 Dec 31, 2009 Total Operating Revenues $3.8 billion $3.8 billion Net Income $533 million $278 million Market Capitalization $9.1 billion $2.4 billion Beta (stock price volatility) 0.698 0.643
Subscriber data as of Latest As of Nov 30, 2010 As of Sept 30, 2010 Quarterly Report Basic cable 2.3 million 1.8 million Digital cable 1.6 million 1.6 million Internet 1.8 million 1.2 million Home Phone 1.0 million 1.1 million DTH 905K 0 * Source: Company respective websites and Bloomberg website
201. For example, as the table above illustrates, former cable monopolies like Shaw and Quebecor run large and profitable Canadian communications companies with revenues approaching $4 billion a year for each, and net income of $533 million for Shaw and $278 million for Quebecor. Quebecor demonstrated its strength during
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the AWS auction, when it acquired 40MHz of spectrum, which represents 45% of all AWS spectrum that was available in Quebec. In some regions in Alberta and BC, Shaw bought up to 33% of all available AWS spectrum. These companies have large market capitalizations in the multi-billion dollar range and very low stock price volatility. Both Shaw and Quebecor also possess large numbers of subscribers spread across their respective cable television, Internet and home phone businesses.
202. For its part, Wind Mobile is already part of the Orascom empire and could become a part of the VimpelCom wireless empire. VimpelCom, Russia’s second largest wireless provider and Orascom (owner of the Wind brand) are in the process of merging their telecommunications companies. Once the merger is completed, the consolidated entity will be the fifth largest wireless company in the world with combined revenues of $21.5 billion (US) and 178 million wireless subscribers.108
203. Eastlink is not a publicly-traded company so publicly available information is scarce. However, on February 23, 2011, the Bragg Group, parent company of EastLink, announced its expansion into the global telecommunications market with the purchase of Cable and Wireless (Bermuda) Holdings Ltd., a 121-year old Bermuda telecommunications operation with both residential and business customers, owned by the UK-based international telecom firm Cable & Wireless Communications Plc. If Eastlink can expand outside of Canada, it certainly has the necessary resources to expand its wireless initiatives within Canada and does not require subsidies.
204. As can be seen, several AWS licenses are large and well-financed companies. These companies do not require any artificially imposed government measures to ensure that they can operate in a competitive market. Given their sheer size and
108 Jeroen Molenaar and Jacqueline Simmons, “VimpelCom, Egypt’s Sawiris to Combine Phone Operations”, (October 04, 2010). http://www.businessweek.com/news/2010-10-04/vimpelcom-egypt-s- sawiris-to-combine-phone-operations.html
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vast revenues, these companies are more than able to hold their own in an open spectrum auction.
205. When reviewing the evidence from auctions in other jurisdictions, a set-aside is not necessary for new entrants to acquire spectrum. For example,
The German auction in 2000 provides an example. The auction structure involved 12 licenses for offer, with bidders being required to purchase a minimum of two and a maximum of six licenses. There were four incumbent operators, so the auction rules certainly did not guarantee that there would be a new entrant. In reality, six firms won licenses. In fact, even absent any explicit set-aside provision, there were more acquirers of spectrum than there were eventual market participants, with the two “new” firms having to return their spectrum licenses. Elsewhere in Europe, Hutchison benefitted from a set-aside in the U.K., but there was no set-aside in Italy, where it also entered, nor in Sweden, Denmark or Ireland. The U.K. policy might just have given a marginal boost to a player that was bent on entering the market anyway, but whose actual prospects were highly uncertain.109
206. In the United States, the FCC also recognized that there was no need for a set- aside in the 700 MHz spectrum auction since there was no monopoly on broadband services and “there would be no incentive for one bidder to unilaterally block new entrants from acquiring 700 MHz spectrum.”110
207. Indeed, one of Canada’s new entrants (Public Mobile) entered by purchasing non-set-aside spectrum. As noted above, the new entrants argue that Rogers, Bell or TELUS could buy this spectrum (which they did not want) to keep Public Mobile out. This did not happen.
208. Lastly, we would note that 700 MHz spectrum in Canada will be made available several years after the U.S. Canada cannot afford to fall further behind. Access to advanced wireless networks is an economic imperative in a knowledge-based economy. Wireless networks increase innovation, accelerate productivity, enhance
109 Jeffrey Church, “Spectrum Policy as Competition Policy”, Para 176-177. 110 Lemay-Yates, “The Impact of 700 MHz Spectrum”, p 77.
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public safety, reduce costs of doing business, deliver environmental benefits and bolster consumer confidence. All wireless carriers in Canada will require more spectrum capacity for future growth. Using artificial measures to favour some competitors is unneccessary and potentially damaging. It will mean that spectrum that Rogers can use immediately will be in the hands of new entrants that are unlikely to use it for several years.
Foreign Investment Considerations
7-4: The Government of Canada has undertaken a consultation on potential changes to the foreign investment restrictions that apply to the telecommunications sector. How would the adoption of any of these proposed changes impact your responses to the questions above?
209. For the reasons provided above, Rogers is strongly opposed to the notion of artificial measures such as spectrum set-asides and spectrum caps. There would be no argument whatsoever for any such measures in the event that the Government of Canada relaxes or eliminates the foreign investment requirements that apply to the telecommunications sector.
210. It is hard to imagine how any of the huge foreign operators such as AT&T, Verizon, Orange, Orascom, Vodafone, or VimpelCom would require any special advantages in a Canadian spectrum auction when their respective market capitalization towers over all of the largest incumbent Canadian operators. The significant financial power and advantage enjoyed by several foreign operators relative to Canadian incumbent operators was noted by Mr. Jeffrey Church in a report prepared for Rogers in July 2010.111 The disparity in financial power and scale between foreign operators and Canadian incumbent operators is summarized in the following analysis from Mr. Church’s report:
111 Jeffrey Church with the assistance of Berkeley Research, “Foreign Ownership Restrictions of Canadian Telecoms”, p 8.
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Revenue, Market Cap and Subscribers
Source: Jeffrey Church with the assistance of Berkeley Research Group Foreign Ownership Restrictions of Canadian Telecoms
211. Using their financial might, foreign operators could easily out-bid any of the Canadian operators. There would be no need, for example, to set-aside spectrum for these companies to ensure that they will have a better chance of acquiring spectrum and entering the Canadian market. Similarly, there would be no need to artificially restrain the incumbents from acquiring additional spectrum to the benefit of foreign firms. The large foreign firms will simply buy all of the spectrum they need. It is equally unclear why the relatively smaller incumbent Canadian operator’s costs of acquiring spectrum should be artificially inflated through measures such as set-asides so that the larger foreign operators could enjoy a subsidy on the price of set-aside spectrum.
212. For these reasons, the Department should not impose a mobile spectrum cap or spectrum set-aside in the event that the foreign investment restrictions are relaxed or removed.
Consequences of Mechanisms to Promote Competition
7-5: If the Department determines that there is a need for measures to promote
Rogers Communications Partnership ABRIDGED Page 78 Canada Gazette Notice No. SMSE-018-10 competition, which of the above mechanisms would be most appropriate and why should this mechanism be considered over the other? Comments should also indicate if further restrictions should apply so that policy objectives are met, for example, over a given time period?
213. Rogers opposes the use of any measures that would prevent the 700 MHz spectrum being equally available to all parties. To do so would simply mean that the regulator is predetermining the outcome of the auction. Auctions should be fair and open to all in order to allocate spectrum impartially and establish a fair market price for the spectrum in question. This ensures a level playing field and that those carriers that need and value the spectrum the most will have access to the spectrum.
214. The mechanisms proposed by the department: set-asides; spectrum caps; and auction caps; distort auctions and handcuff carriers, costing the wireless industry billions of dollars. Set-asides, as witnessed during the 2008 AWS auction, create massive gaming opportunities that were repeatedly abused during the auction. Spectrum caps create arbitrary limits inconsistent with the capacity needs of wireless carriers. Even an auction cap, while less disruptive than a set-aside or spectrum cap, interferes with the efficient allocation of spectrum and creates waste. Industry Canada should not adopt any of these measures for the reasons detailed below
Set-asides
215. As demonstrated in the AWS auction, a spectrum set-aside produces distortions in the auction process. The results of the auction demonstrate that the set-aside had a substantial negative impact on incumbents in the form of artificially high prices. There was a corresponding advantage to new entrants who “gamed” the auction process and were permitted to bid up the price of non-set-aside spectrum with impunity. In addition, the use of the set aside resulted in wide divergence in prices paid for similar licences.
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216. There are clear examples of widespread differences in the prices of spectrum licences. This is most marked when comparing the final prices of identical licences between the set-aside and non-set aside prices. For example
• the price per pop per MHz for non-set aside spectrum was $1.60, 38% higher than the price per pop per MHz of the set-aside spectrum, which was $1.16;
• in Newfoundland & Labrador the non-set aside A block cost $6.38M, almost 8.5 times more than the equivalent set-aside B block which cost $760K; and
• in many licence areas, the price differentials continued to rise, even after incumbents dropped their eligibility points to a level where they were no longer in direct competition to each other. Overall, between rounds 55 and 331 on a per MHz basis the price differential between set-aside and non set-aside spectrum increased from 35% to 41%.
217. This was due to the extensive gaming behaviour demonstrated by new entrants in the AWS auction, particularly the “parking strategies” exhibited by a number of new entrants. Normally, as an auction progresses and bidders are forced to drop eligibility points, bidders are required to focus their efforts on the licence areas they truly value. However, new entrants avoided this discipline and continued to preserve eligibility points by bidding on the non set-aside spectrum licences targeted by incumbents. They even bid upon non-set aside licenses when they were more expensive to the set aside equivalent licenses. The following examples demonstrate this behaviour:
• In Round 60, Quebecor bid on the Montreal E block held by Bell for $123,000,000 when the identical D block held by Globalive was available for $85,700,000. • In Round 62, Globalive bid on the E block in Quebec for $4,180,000 held by Bell when the D block held by Quebecor was available for $1,930,000.
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• In Round 66, Bragg bid on the E block in Mainland Nova Scotia held by TELUS for $5,060,000 when the D block held by Globalive was available for $875,000.
218. What is evident from the AWS auction is that those bidders that could place bids on both the set-aside and non-set aside spectrum used the non-set aside spectrum as “free parking” in order to maintain eligibility points and avoid driving up the prices of their desired spectrum licences. In fact, as noted by Lee Bragg, while the company prepared for the AWS auction the bidding team practiced with mock auctions over and over again until they figured out a winning strategy: Don’t bid on key targets right out of the gate; throw out false bids to raise what competitors pay; and don’t get caught paying for a huge amount of useless spectrum.112 The end result of this type of behaviour was to drive up licence prices for incumbents.
219. This gaming came at a cost. The auction’s design and associated “gaming” behaviour by bidders “. . . resulted in an overpayment of approximately CAN $2.4 billion by the auction participants, the incumbent wireless providers in particular.”113 This is money that could have been reinvested into the wireless industry creating jobs and improving infrastructure to benefit all Canadians.
220. Even more significantly, including a set-aside in any spectrum auction could result in this valuable resource being obtained by speculators with no intention of building out new networks. As demonstrated in the AWS spectrum, which saw set- aside spectrum sell at well below the prices of similar non set-aside spectrum licences, the potential would exist for speculators to obtain valuable 700 MHz spectrum at low prices only to flip the spectrum at a later date to receive a higher amount than the purchase price, or wait for a relaxation of the foreign ownership rules. This will ultimately take spectrum out of the hands of carriers who would use it
112 Iain Marlow, “Eastlink: The biggest cable company you’ve probably never heard of”, (May 28, 2010). http://www.theglobeandmail.com/report-on-business/eastlink-the-biggest-cable-company-youve-probably- never-heard-of/article1585187/ 113 NERA Economic Consulting, “Regulatory Policy Goals and Spectrum Auction Design. Lessons from the Canadian AWS Auction”, (14 July 2009), p 18.
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to deploy new services and meet consumer demand and place it on the side-lines for future sale by the speculators.
221. This is was the experience in the United States, where the FCC used a set-aside in 1996. In this instance, most of the new entrants that obtained this spectrum were unable to finance the purchase price or cost to deploy a network. In the end many of them went bankrupt and the spectrum was tied up in litigation for years, unable to be used to serve consumers. For example, Next Wave successfully purchased the largest share of this set-aside spectrum, but was bankrupt within two years. For the next six years this spectrum went unused; it was eventually sold to Verizon for almost twice the original purchase price in 2005. Based on this evidence, it can be concluded that “[T]he FCC’s set-aside program kept increasingly valuable spectrum unused for up to a decade, but it did not promote entry of new carriers.”114
222. As such there is no justifiable reason to use a set aside in the 700 MHz auction. Its consequences were clearly witnessed in the AWS auction. It is for those reasons that it has fallen out of favour around the world.
Spectrum Caps
223. A spectrum cap is simply another form of regulatory intervention designed to interfere with the efficient allocation of resources pursuant to an open auction process. It establishes an artificial limit on how much spectrum an individual carrier may hold. Such a limit equates to a subsidy that effectively creates a situation where one group of companies is given Government assistance at the expense of another group of companies.
224. A spectrum cap is an arbitrary number. It fails to recognize the constant evolution of the wireless industry as technology continuously changes. Once set, the limits
114 Robert W. Crandall and Allan T. Ingraham. “The Adverse Economic Effects of Spectrum Set-Asides”, (November 2007), p 8.
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cannot be adjusted easily as new limits are caught in bureaucratic process. As noted by Jeffrey Church,
the case against a hard cap on aggregate spectrum holdings remains a substantial one. For one thing, caps are inherently arbitrary and they cannot easily be adjusted to respond to actual demand conditions. Thus, once a cap is set, it would typically be a difficult thing for a firm to change that cap to respond to changes in its needs for spectrum. Since the cap would be set by a body such as Industry Canada or the Federal Communications Commission, this would typically involve a lengthy and contentious procedure, subject to much lobbying by all sides. Although periodic reviews might be an alternative, this would all seem to go against the goal of creating something of a market in spectrum trading.115
225. As we note above and in our responses to Question 4-1 and 4-3, spectrum is a finite resource and increased demands on networks require additional spectrum. Wireless data is growing exponentially and will continue to grow, putting further pressure on network capacity. For example, in 2010 data traffic grew by 159%, which is approximately 3.3 times faster than the growth of traditional landline broadband.116 As demand grows, Rogers will run out of spectrum despite densification efforts. Additional spectrum is needed to continue to offer customers high-quality and innovative services. Consumers expect continuing evolution of technologies and services, but there will be no improvement in networks or services without more spectrum. Given the dynamic nature of mobile data growth rates and market realities, “a cap seems like an undesirable instrument given its rigidity and given the technical and economic backdrop against which it is being implemented.”117
226. A spectrum cap jeopardizes Rogers’ ability to adapt and grow. As previously mentioned, Rogers current spectrum holdings are either fully engaged or will be so in the meantime. Rogers 850 MHz and 1900 MHz spectrum are both fully deployed providing GSM/HSPA service. Rogers cannot prematurely redeploy this spectrum
115 Jeffrey Church, “Spectrum Policy as Competition Policy”, para 209. 116 Cisco Systems Inc., “Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update – 2010-2015”, (February 1, 2011), p 1 117 Jeffrey Church, “Spectrum Policy as Competition Policy”, Para 212.
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without disrupting the service of millions of Rogers existing customers. Plans for all remaining available spectrum have been finalized and will be deployed to deliver the next generation of wireless service. Rogers needs 700 MHz spectrum to prevent capacity shortage and to enable delivery of LTE ubiquitously in urban, suburban and rural areas across Canada.
227. A spectrum cap’s rigidity fails to realize that not all spectrum is interchangeable. Having spectrum in one band does not necessarily provide the same benefits of spectrum in another band. For example, individual bands of spectrum have their own ecosystem of equipment and handsets. If Rogers does not have access to 700 MHz spectrum it may not have full access to the most recent LTE handsets and technologies, which will have a detrimental impact on our ability to evolve and serve our customers. By instituting a cap and preventing some carriers from participating in the 700 MHz auction while allowing others, Industry Canada could effectively be choosing who can offer which handsets. Who launches the next iPhone should be determined by competition, not regulation. Different spectrum bands also have different propagation characteristics. Low band spectrum is better for propagation in buildings and over larger distances.
228. Some have argued for a below 1 GHz spectrum cap, but in Rogers’ view this makes no sense. Our 850 MHz spectrum cannot be used for LTE because there will be no 850 MHz LTE ecosystem for many years. Furthermore, any 850 MHz spectum is fully deployed with GSM & HSPA service.
229. Spectrum caps can also weaken competition. As noted by Jeffrey Church, there are dangers that a spectrum cap might eliminate participation by certain carriers in the 700 MHz auction and “conceivably weakening competition”.118 A spectrum cap could also create an “elevated risk (relative to what pertained in the past) of
118 Jeffrey Church, “Spectrum Policy as Competition Policy”, Para 215.
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constraining the successful expansions of an incumbent operator if it cannot acquire the spectrum.”119
230. Even Industry Canada has understood there is no purpose for spectrum caps in Canada. When the Government removed the previous spectrum cap in 2004, it was recognized by the Minister of Industry that “Canada’s mobile telephone system is highly developed and cellphone users have a variety of service options.”120 The Minister went on to add that his decision to rescind the spectrum cap was “consistent with the objectives of Canadian telecommunications policy and in particular, to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective.”121
231. The Canadian wireless market has become even more competitive since the spectrum cap was removed in 2004, with several new carriers launching service in the last two years. As noted by Jeffrey Church, We cannot find a set of circumstances in Canada today that would warrant the imposition of caps. We wonder what has changed since 2004, the year when the Competition Bureau concluded that the market was vigorously competitive and when IC removed the cap that had hitherto applied to the wireless industry in Canada. Competition since then had intensified or at least stayed equally effective, wireless penetration has increased, and Canada has seen remarkable deployment of new wireless broadband networks.122
232. Canada is not alone. More and more countries are moving away from using artificial mechanisms such a spectrum caps. As noted by Arthur Little in a 2009 report prepared for the GSM Association, [o]ver time spectrum caps have either been substantially modified or removed in some countries in light of progress in wireless technology,
119 Jeffrey Church, “Spectrum Policy as Competition Policy”, Para 216. 120 Industry Canada Press Release, “Industry Minister Removes Limits on Spectrum Holdings for Cell Phone Companies” (August 2, 2004), http://www.ic.gc.ca/eic/site/ic1.nsf/eng/02374.html 121 Industry Canada Backgrounder, “Industry Minister Removes Limits on Spectrum Holdings for Cell Phone Companies”, (August 2, 2004), http://www.ic.gc.ca/eic/site/ic1.nsf/eng/02374.html 122 Jeffrey Church, “Spectrum Policy as Competition Policy”, Para 221.
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growing demand for mobile services, and the attribution of new spectrum bands for commercial mobile communications.123
233. The report goes on to note that the need for and value of spectrum caps is being reconsidered taking into account emerging demands for mobile broadband services.
234. For all the reasons detailed above, Rogers reiterates its position that there should be no spectrum caps imposed on participants in the 700 MHz auction.
Auction Caps
235. Auction caps also prevent the efficient allocation of spectrum. An auction cap limits the amount of spectrum an individual bidder may obtain in a specific auction, surviving perhaps for a short period afterwards. Like spectrum caps, an auction specific cap is another form of regulatory intervention where the regulator predetermines the outcome of the auction. It was noted in the above discussion that a spectrum cap creates a situation that allows the Government to give assistance to one group of companies at the expense of another. The same is true of an auction cap.
236. As detailed above, the BR Group notes that spectrum caps are arbitrary and dangerous given the dynamic nature of spectrum demand conditions. Auction caps also have the potential to similarly constrain operators by not allowing them to acquire the necessary spectrum required to serve their customer base. As noted by Arthur Little’s paper prepared for the GSM Association, implementing band-specific auction caps requires assessment of the balance between the benefits of ensuring that several operators can acquire spectrum in the new band, and the risk of inefficient use of this new spectrum if it becomes increasingly fragmented. Since by their very nature band-specific caps will be smaller than “loose” generous caps, they incur the risk that regulators may choose too stingy a
123 Arthur D Little, “Mobile Broadband, Competition and Spectrum Caps”, (January 2009), p 2.
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cap for the efficient deployment of broadband networks at these frequencies.124
237. Rather than implementing an auction specific cap, as recommended by Jeffrey Church the best economic policy is “a combination of making more spectrum available and allowing unrestricted bidding on the more abundantly available spectrum.125
238. It is worth noting however that while auction caps do distort auctions, they are far less damaging than set-asides and spectrum caps. Auction caps are normally used to ensure multiple winners in an auction. Unlike a set-aside, an auction cap creates few if any gaming opportunities. An auction cap only limits how much spectrum a bidder can obtain, not which specific license blocks are available to it. Every bidder therefore can place bids upon any licence as long as they do not exceed the cap. As such, it does not create “free parking” space for some participants at the expense of others. For example, if a bidder attempts to bid up the desired licence of a competitor, the competitor can respond by bidding up the desired licenses of the original bidder. The ability to retaliate disciplines all auction participants. The cap ensures there are multiple winners in the auction without the distortions and waste created by the set-aside.
239. The auction cap is also less damaging than a spectrum cap. A spectrum cap impedes a carrier’s ability to meet the increasing demands upon network capacity by wireless data. Establishing arbitrary limits is simply inconsistent with every current forecast of spectrum demand. A spectrum cap however is a temporary one-off measure to ensure accessibility during an auction, and may not interfere with a carrier’s long term ability to meet the needs of its customers.
240. Under the current circumstances however, Rogers continues to argue that any measure introduced into the auction will interfere with its efficient allocation of the
124 Arthur D Little, “Competition and Spectrum Caps”, p 24. 125 Jeffrey Church, “Spectrum Policy as Competition Policy”, Para 225.
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spectrum. There is therefore no need for further measures governing the distribution of spectrum in Canada.
Spectrum Aggregation Limits
7-6: (a) If the Department were to implement spectrum aggregation limits (caps): Should the cap apply to the 700 MHz band only or be broader? (ii) What should the size of the cap be? (iii) Should bidders and their affiliates or associates share the cap? (iv) How long should the cap remain in effect?
7-6(a)(i) Should the cap apply to the 700 MHz band only or be broader?
241. Should Industry Canada adopt a spectrum aggregation limit, it should apply an auction cap and not a spectrum cap. While both types of caps distort markets, the auction cap creates far less damage than a spectrum cap and for a shorter period of time. A broader spectrum cap in capturing all bands would harm carriers, denying them access to a particular band’s technology ecosystem and obstructing them from addressing capacity needs, resulting ultimately in reduced transmissions speeds, inferior call quality and preventing them from delivering the next generation of wireless technology. A broad cap would also be contrary to the Government’s goal of maintaining and expanding Canada’s digital advantage to provide the basis for a stronger and more competitive economy. The cap should therefore be limited to an auction cap for the 700 MHz spectrum only.
7-6(a)(ii) What should the size of the cap be?
242. In order to minimize the inefficiencies created by the auction cap, it should be made as large as possible. Carriers need the flexibility to obtain sufficient spectrum to develop and deploy the next generation of wireless service. The auction must remain as open as possible in order to properly allocate the spectrum.
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7-6(a)(iii) Should bidders and their affiliates or associates share the cap?
243. If a cap is imposed, it should be shared by affiliates and associated entities. If two (or more) carriers are cooperating in building their network or marketing their service, they should be treated as one entity. Failing to do so undermines the cap and the auction as a whole. Two carriers acting in concert would be able to obtain twice the spectrum a competing carrier would be able to obtain. That would provide the associated entities with a superior performing network with far faster speeds. The quality of a carrier’s network should be based upon their level of investment and ability to compete, and not determined by the regulatory restriction. An even playing field requires that entities working together during or even after the auction should share the cap.
7-6(a)(iv) How long should the cap remain in effect?
244. If the Department imposes any cap, for the reasons outlined above it should remain in effect for as short a period as possible. The wireless industry is possibly the fastest changing industry today. A carrier’s capacity needs are constantly changing and normally growing. Setting a limit today could have drastic consequences tomorrow. As such, the cap should have as short a duration as possible.
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Set-Aside
7-6(b): If the Department were to implement a set-aside in the 700 MHz auction: (i) Who should be entitled to bid in the set-aside block(s) and should the entitled bidders be restricted to bidding on the set-aside only? (ii) How much spectrum should be set-aside and which block(s) should be set-aside? (iii) If the set-aside were to include multiple blocks of spectrum, should they be contiguous? (iv) What restrictions should be put in place to ensure that policy objectives are met (for example, should trading of the set-aside spectrum be restricted for a given time period)?
7-6(b)(i) Who should be entitled to bid in the set-aside block(s) and should the entitled bidders be restricted to bidding on the set-aside only?
245. Rogers reiterates that no wireless carrier should be entitled to a set-aside. As noted by Jeffrey Church, “it is unlikely that a set-aside was required in 2008, and it is at least equally unlikely that a parallel set-aside will be required in 2012 on order for firms other than Bell, Telus and Rogers to acquire spectrum.”126 As mentioned, several of the new entrants have financial resources that equal or even exceed the resources of the incumbent carriers. They are fully capable of competing in an open auction for spectrum.
246. Should Industry Canada however adopt a set-aside, those bidders entitled to bid upon the set-aside blocks should be restricted to the set-aside blocks. As discussed above, the set-aside in the AWS auction allowed the new entrants to game the auction, driving up non set-aside blocks while keeping prices in the set-aside down. They repeatedly bid in the non set-aside blocks when equivalent set-aside blocks were available for less. Ultimately, the set-aside blocks were obtained at a significant discount to the non set-aside blocks. After the AWS experience, Industry Canada must amend its auction rules to prevent such abuse occurring in the future.
126 Jeffrey Church, “Spectrum Policy as Competition Policy”, Para 182.
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247. Furthermore, allowing new entrants to bid upon the non-set-aside blocks would run contrary to the entire purpose of the set-aside. Despite having significant financial resources, the new entrants have repeatedly argued that they could not compete with the incumbents in an open auction. If Industry Canada agrees with that proposition, then there is no purpose allowing them to bid in the non set-aside blocks except to game the system. If a set-aside is required because the new entrants cannot compete with the incumbents, then there is no need to allow them to bid upon the non set-aside blocks in competition with the incumbents.
7-6(b)(ii) How much spectrum should be set-aside and which block(s) should be set-aside?
248. Rogers reiterates its opposition to the use of mechanisms that would limit access to spectrum in the 700 MHz spectrum, including the use of a set-aside. As detailed in Rogers’ response to Question 7-5, the use of a spectrum set aside in the 2008 AWS auction produced distortions in the auction process.
249. There is not sufficient 700 MHz spectrum to create a set aside. There was 90 MHz of spectrum available in the AWS auction, and a 40 MHz set-aside was created specifically for new entrants only, while leaving 50 MHz available for all bidders. In the 700 MHz auction there is only a total of approximately 58 MHz of spectrum available. Between the scarce amount and the number of interested bidders, there is no way to create a worthwhile set-aside.
250. In the event that Industry Canada does impose a set-aside for the 700 MHz auction, it should be as small as possible. Voice-centric carriers will not need as much 700 MHz spectrum as Rogers, which offer both voice and data rich products and services. As noted by Lemay-Yates, for voice centric carriers with lower data up take by subscribers, the business model can be implemented with modest spectrum resources. “For such a carrier not offering high data speeds, the data downlink
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requirement is relatively low – less than 10 MHz even with legacy technology.“127 Meanwhile incumbents have substantially more existing customers than the new entrants. Rogers currently has 9 million customers, whereas collectively the new entrants have less than 500,000 subscribers.128 There is simply not enough spectrum available to establish a substantial set-aside, especially in light of the incumbents’ need for more spectrum.
7-6(b)(iii) If the set-aside were to include multiple blocks of spectrum, should they be contiguous?
251. Rogers re-iterates its view that there is not enough 700 MHz spectrum to create a set-aside. Even if a set-aside is established, it seems even more unlikely that multiple blocks could be made available. The set-aside should be as small as possible.
7-6(b)(iv) What restrictions should be put in place to ensure that policy objectives are met (for example, should trading of the set-aside spectrum be restricted for a given time period)?
252. In order to dissuade speculation and flipping, and to ensure that this valuable spectrum is used, any blocks of spectrum set-aside should have tight roll-out requirements. As witnessed in the AWS auction, set-aside blocks were obtained at a discount to the non-set aside blocks. The 700 MHz spectrum is scarce enough without creating financial incentives for speculators. A strongly enforced roll-out requirement is essential if Industry Canada proceeds with a set-aside.
Roll out Requirements
7-7: Are there other mechanisms that should be considered and, if so, how should these be applied?
127 Lemay-Yates, “The Impact of 700 MHz Spectrum”, p 34. 128 Merrill Lynch, “Global Wireless Matrix 4Q10”, (23 December 2010), p 34.
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253. Roll-out requirements are the most effective mechanism. The theory of the new entrants is that incumbents will buy spectrum they do not need or want just to keep it out of the hands of the new entrants. Strict roll-out requirements are the best way of ensuring that this does not happen. Indeed, given the benefits that Canadians should enjoy arising from the spectrum, and given that Canada will be auctioning it two years after the U.S. began deploying it, strict roll-out requirements seem appropriate. In addition, roll-out requirements can ensure that rural customers benefit from new LTE technologies. In effect, the government needs to determine whether bidders really need 700 MHz spectrum to build networks or only want to keep it away from other bidders. Roll-out requirements foce bidders to reveal their true preferences.
Changes to Foreign Investment Restrictions
7-8: The Government of Canada has undertaken a consultation on potential changes to the foreign investment restrictions that apply to the telecommunications sector. How would the adoption of any of the proposed changes affect your responses to the questions above?
254. See Response to 7-4.
Deployment in Low Density Rural and Remote Areas
8-1: In the above context, the Department seeks comments on challenges and specific problems affecting the deployment of broadband mobile services to low density rural and remote areas.
255. Canada’s geography makes it one of the most challenging environments to deploy and operate a wireless network. Between its size, climate and population density, Canada’s has many regions which, on their own, simply cannot justify or sustain a wireless network. It is actually a substantial achievement that over 99% of all Canadians already have access to wireless networks. Bridging the digital divide between rural and urban Canadians however remains a challenge.
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256. Building a wireless network is capital intensive. Building a wireless network in a remote region is even more so. Not only must towers be built, but remote sites often require new roads, trails for hydro lines and on site generators. Large amounts of machinery, including helicopters, may also be required.
257. Operational expenses in remote areas are also far higher. Backhaul in particular can be extremely expensive as new microwave networks have to be deployed or satellite systems engaged. With light populations, it is often impossible to justify any investment in these areas.
258. It is for these reasons that resources such as the 700 MHz spectrum be properly used. With its superior propagation characteristics, the 700 MHz spectrum is one of the best tools to reach rural Canadians.
259. Without 700 MHz spectrum Rogers will simply be unable to deploy LTE outside large urban areas. The economics will force us to limit the service to only the top population centres in the country. The 700 MHz spectrum is key to making deployment feasible in rural and smaller urban areas. It is therefore crucial that carriers committed to delivering service in smaller centres and rural and remote areas, today and not tomorrow, have access to it.
Regulatory Measures for Rural and Remote Deployment
8-2: Is there a need for further regulatory measures or changes to existing regulatory rules (e.g. RP019) to facilitate service deployments in rural and remote areas that remain unserved and or underserved?
260. In order to facilitate deployment in unserved areas, the Department should continue to promote and support one of the Department’s most successful regulatory policies, the use of subordinate licenses. The subordinate licence encourages
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partnerships between established carriers and local entrepreneurs who have the ideas, the drive and capital to build networks where large carriers might overlook.
261. As a result, the subordinate licence system provides Rogers with an opportunity to extend wireless service across the country where it could not by itself. Despite Rogers’ size and resources, Rogers simply can not deploy in every location. However, some carriers, mostly with local connections and access to government funding, have put together exciting business plans that can cost effectively deploy and deliver wireless services in some rural parts of Canada.
262. Working voluntarily with these entrepreneurs results in feasible projects with a high likelihood of success. Rogers can screen out the speculators and the incompetent, focusing its attention, and its spectrum, on the best business plans. Everyone wins in this situation. A new community receives wireless service. A new carrier is formed, creating jobs and other economic activity. Rogers extends its footprint to a new location. And a valuable but unused resource, spectrum, is put to good use.
263. Rogers has already entered into four subordinate licenses. As a result, service has already been extended in remote sections of Northern Ontario. A new agreement being signed will result in further regions being served across the country. Rogers remains committed to working with legitimate partners to continue deploying in unserved areas. The subordinate licensing regime has made this possible.
264. On the other hand, RP-019 rarely results in new wireless services being deployed. Contrary to its intended purpose, RP-019 more often ties up spectrum and prevents deployment in rural areas rather than leading to new services in new regions. It undermines the legitimate rights held by a spectrum licensee while empowering speculators looking for free spectrum with little regard to feasible business plans.
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265. The RP-019 process also results in some confusing situations. For example, Industry Canada recently issued a second 850 MHz Band A licence to a 3rd party for spectrum in Prince Rupert, British Columbia. However, between the time the RP-019 process began and ended, Rogers initiated service in the region. There are now multiple carriers licenced to deliver service in the same area using the same spectrum. A potentially harmful conflict has been created.
266. The Department should rescind RP-019. Its success rate is far below subordinate licenses where parties work together. Instead it is used by some new parties to antagonizes the incumbent licensees. While calling for cooperation, RP-019 usually results in disputes. It is simply not the way to encourage creative solutions to providing wireless service to rural Canadians.
Incentives to Deploy in Rural and Remote Areas
8-3: Should the Department decide that measures are necessary, comments are sought on specific measures that could be adopted within the 700 MHz spectrum auction process to ensure further deployment of advanced mobile services in rural and remote areas (e.g. roll out conditions, tier structure, etc.)
267. As discussed earlier, Canada is geographically one of the most difficult countries to deploy a wireless network in. Between its size, climate and population density, many parts of the country are simply prohibitively expensive to build and deliver wireless services. Yet, despite these obstacles, approximately 99% of all Canadians have access to mobile networks and are able to speak with loved ones, do business over the internet and call for help in case of an emergency. While the current level of deployment is quite an achievement, the question remains regarding how Canada can best encourage deployment in the rest of the country and offer rural Canadians similar levels of service enjoyed in urban areas.
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268. In order to bridge the digital divide between urban and rural Canadians, Rogers recommends a condition of licence requiring the spectrum holder to roll-out service to a percentage of the population that ensures customers outside of the major urban centres, including suburbs, and rural areas receive service using the 700 MHz spectrum within a reasonable amount of time from the end of the auction.
269. The 700 MHz spectrum is the backbone of LTE, the next generation of wireless technology. With the roll-out requirement, carriers will be required to deploy 700 MHz spectrum, and by extension LTE, outside the major urban centres within a reasonable amount of time. Without such a requirement it would likely take far longer, if ever. As a result, many subscribers in rural and smaller urban areas will receive the most advanced level of wireless service shortly after it is made available in the largest population centres in the country.
270. This condition of licence will achieve an important public policy goal while remaining economically and technologically feasible. With its propagation characteristics, the 700 MHz spectrum is a key tool to delivering advanced wireless services to rural Canada. Industry Canada cannot miss this opportunity.
Open Access (C-Block Spectrum)
9-1: The Department seeks comments on whether there is a need for government intervention to promote open access, by increasing access by users to handsets and/or applications.
9-2: If government intervention is needed, which of the following options should be implemented? Option 1: Mandated open access requirements across all future commercial mobile bands Option 2: Mandated open access requirements for the entire commercial mobile spectrum in the 700 MHz band. Option 3: Mandated open access requirements for the “C Block” (746- 757/776-787 MHz) as in the United States.
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271. In its Consultation Paper the Department has sought comments on whether there is a need for government intervention to promote open access, by increasing access by users to handsets and/or applications. The idea of open access stems from the FCC in United States. In the US 700 MHz auction, “open access” rules were imposed for a 22 MHz (11+11 MHz) block of paired spectrum (known as the C block), whereby C block licensees were prohibited from blocking or slowing competitor Internet traffic and they were required to allow any devices and applications to connect to their network on the basis of newly established open standards. Rogers submits that the wireless market has evolved greatly since the FCC implemented its open access provision nearly four years ago. Based on this evolution, Rogers does not believe there is a requirement for government intervention to promote open access requirements.
272. In comments filed during the FCC 700 MHz proceeding interested parties alleged that incumbent wireless providers imposed restrictions that limit features and control the user experience in order to limit the quality of wireless broadband offerings. It was also alleged that this was intended to protect wireline broadband offerings. As examples of this behaviour these parties noted that restrictions were applied on the use of Voice Over Internet Protocol (VoIP) for mobile devices. These parties also cited device exclusivity as an issue that could be remedied by an open access requirement noting that the Apple iPhone was only available through one carrier in the United States. Another party complained that wireless providers impose “arduous, difficult and time consuming” qualification and approval processes before applications can run on a wireless carrier’s network. Google also weighed in on the issue and argued that the only way to guarantee new broadband platforms is through open applications, devices, services and networks. 129
273. There are several developments which demonstrate that an open access policy similar to that implemented in the United States is unnecessary. As discussed
129 FCC 07-132: Second Report and Order (July 31, 2007), p 76-77.
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below, Rogers submits that fears that wireless carriers will act as wireless Internet gatekeepers are unfounded.
274. Rogers also submits that much has occurred in the wireless market since the FCC announced its 700 MHz auction policy almost four years ago in July 2007. The market itself has evolved since this time with the explosion in wireless data usage and the popularity of wireless downloading capabilities, wireless email and Internet access spurred by the popularity of downloading of mobile applications.
275. For instance, VoIP services are available over mobile devices in Canada through mobile applications from companies such as Skype. In Canada, Skype launched an iPhone application to allow subscribers to make VoIP calls from their mobile phones in September 2009. 130 As well, while the iPhone was “exclusive” to Rogers when it was first introduced in the Canadian market, this “exclusivity” ended once Bell and TELUS launched their own HSPA networks in November 2009. Before that time Bell and TELUS were simply unable to offer the iPhone because Apple did not manufacture a phone that was compatible with Bell and TELUS’ CDMA networks. 131 As is evident, many of the concerns that were raised in support of open access requirements during the FCC 700 MHz proceeding have been addressed in Canada in response to market forces and without the imposition of any restrictive government intervention.
276. As noted above, C block licensees in the United States cannot block devices and applications where these actions are not related to reasonable network management
130 Jamie Sturgeon, “Carriers Beware: Mobile VoIP has come to Canada”, (September 9, 2009). http://www.financialpost.com/related/topics/Carriers+beware+Mobile+VoIP+come+Canada/1976993/story .html 131 Bell Canada Press Release “Bell clients to access the fastest, largest national wireless network deployment ever starting next month”, (October 5, 2009) and TELUS Press Release “TELUS to launch Canada's largest 3G+ network on November 5”, (October 26, 2009). http://www.bce.ca/en/news/releases/bm/2009/10/05/75220.html and http://www.newswire.ca/en/releases/archive/October2009/26/c2340.html
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and protection. Further, C block licensees are prohibited from locking handsets that use this specific spectrum block. 132
277. In Canada, Rogers provides wireless services to customers that bring unlocked devices to our network. In addition, wireless device unlocking has been available for several years though small independent businesses. Last year several carriers, including Rogers, Fido and TELUS announced it will unlock wireless devices upon request at the end of the contract.
278. Rogers has also been a large supporter of Google’s Android operating system. Android is an open source operating system for wireless devices developed by the Open Handset Alliance led by Google. The Android operating system has been available as a free, open source software license since October 2008. It is “open source” software, meaning that while Google has created it, other software developers can modify the system or create add-on software programs (apps) that run on the Android operating system. 133
279. Mobile devices using the open source Android operating system are very popular in Canada. Rogers was the first in Canada to carry an Android-powered device and we have this country’s largest selection of Android devices. Rogers launched its first devices using the Android operating system called the HTC Dream and Magic in June 2009. Since that time Rogers has launched an additional 11 devices with the Android operating system - the most recent device being the Dell Streak, launched in November 2010.
280. Rogers itself is also involved in advancing the development of mobile applications market. In recognition of the popularity of mobile applications Rogers launched its Catalyst program in November 2010. 134 Catalyst provides the
132 FCC 07-132: Second Report and Order (July 31, 2007), p 89. 133 Google Android website www.source.android.com 134 Rogers Press Release “Rogers Helps Bring Next-Generation Mobile Apps to Life with Rogers Catalyst”, (November 12, 2010).
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application developer community with unprecedented access to Rogers' wireless network assets to enable the cost-effective and rapid creation of mobile apps and services that are customized for the Rogers network.
281. It is important to note that Catalyst is a centralized, no charge, third-party developer portal. Through Catalyst, Rogers has opened up its application programming interfaces (APIs) to developers. Developers using Rogers Catalyst have access to interfaces for SMS, carrier billing and location-based services so that they can create and test mobile apps. Leveraging the power of Rogers network API's, the handset-agnostic platform enables smartphone-like functionality on a large variety of Rogers mobile devices. With faster time to market, Rogers Catalyst allows developers to innovate quickly, test applications in minutes and enable a variety of mobile apps and services that can be accessed by Rogers' more than 8.5 million wireless subscribers. Other interfaces are expected in the future, furthering Rogers’ open relationship with developers.135 Through Rogers’ Catalyst program, anyone with an idea can now develop a range of products and apps that they can make available directly to end users.
282. Based on all of the above, it is clear that the Canadian wireless market has evolved in the past four years and the concerns raised during the FCC 700 MHz auction consultation are no longer relevant and no longer support the imposition of government mandated open access requirements. Rogers submits that the principles of open access are alive and well in Canada and there is no need to impose artificial open access requirements that will only serve to distort the eventual outcome of the 700 MHz auction.
283. The Canadian government itself favours a reliance on market forces in the telecommunications sector. The government released a Policy Direction in 2006 mandating that the CRTC should rely on market forces to the maximum extent
135 Rogers Press Release “Rogers Helps Bring Next-Generation Mobile Apps to Life with Rogers Catalyst”, (November 12, 2010).
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feasible and regulate, where there is still a need to do so, in a manner that interferes with market forces to the minimum extent necessary.136 The imposition of government mandated open access requirements would distort what the Canadian wireless market itself has already developed as a result of the customer and competitive demands. Based on this, Rogers submits that market forces should be the driver of open access and not government regulation.
284. A recent CRTC decision further enforces the view that there are no compelling reasons to implement an open access policy. The CRTC had originally forborne from regulating wireless data services entirely back in 1996. In Telecom Decision 2010-445 , the CRTC determined that data services are subject to the same Internet traffic management practices as wired Internet services and wireless carriers will have to follow strict rules if they wish to slow mobile data traffic to better manage heavy loads at times. The Decision also made mobile service operators subject to the non-discrimination and undue preference provisions of the Telecommunications Act.137 The Commission has made it clear that wireless providers cannot act as Internet gatekeepers as they will run afoul of the unjust discrimination and undue preference provisions of the Telecommunications Act. Rogers submits that this add further illustrates how the Canadian market has evolved past the need for any government mandated open access requirements.
Timing of the Auction of 700 MHz and 2500 MHz Spectrum
136 Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives, P.C. 2006-1534. 137 Telecom Decision CRTC 2010-445, dated June 30, 2010.
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In this regard, the Department is seeking views on the most appropriate timing for auction processes for both the 700 MHz and 2500 MHz bands.
10-1: The Department is considering three options to proceed with the 700 MHz and 2500 MHz bands auction processes: Option 1: to conduct an auction for licences in the 700 MHz band first, followed by an auction for licences in the 2500 MHz band approximately one year later; Option 2: to conduct an auction for licences in the 2500 MHz band first, followed by an auction for licences in the 700 MHz band approximately one year later; Option 3: to conduct one combined auction for licences in both the 700 MHz and 2500 MHz bands, which would be six months later than the first auction in the case of separate auctions.
285. Rogers believes that the Department should auction spectrum in the 700 MHz band and 2500 MHz band at the same time, in mid-2013. As noted above, these bands are complementary bands.
286. We note that a number of regulators in other countries have elected to auction different mobile spectrum bands, including low and high bands, as well as bands that are substitutable and complementary, As detailed in Rogers’ response to question 4-1 above, multi-band auctions were completed in Europe, Asia and South America during 2010.
287. Auctioning different mobile spectrum bands at the same time will more economically efficient, since it will allow bidders to dynamically make trade-offs in the spectrum they bid for in different bands depending on factors such as cost, quantum of spectrum and geographic areas. This is the view of Irish regulator ComReg after it considered whether to include the 1800 MHz band in an auction for spectrum in the 800 MHz and 900 MHz bands following an extensive consultation process.
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288. ComReg’s view was based on arguments put forward by the majority of stakeholders, as well as the recommendations of dotecon in a report that was commissioned by ComReg.138 ComReg outlined the basis for its view in the following terms
The inclusion of the 1800 MHz band into a joint award with sub-1GHz spectrum allows bidders to consider a mix of possible spectrum holdings and enables them to obtain different spectrum bands in line with their needs. As noted by a number of respondents to this consultation and DotEcon, this can lead to an increase in the efficiency of the auction.
Secondly, the suggestion that the 1800 MHz band auction should be sequenced to follow that of the sub-1GHz bands, as opposed to a simultaneous award, could result in inefficient outcomes. It is generally accepted that where spectrum is substitutable and/or complementary, it is more efficient to award such spectrum in a simultaneous award process as opposed to running sequential processes. Such an approach allows bidders to consider the mix of possible holdings in different bands and strike trade-offs between these bands on the basis of the price and availability in the award. For example, in response to a sufficiently large price differential, a bidder may be prepared to switch from one spectrum band to another band, and the running of a simultaneous award process can facilitate such switching during the award. In contrast, such switching is not possible during a sequential award process as once spectrum usage rights have been won in an earlier award, it is not then possible to alter this outcome in the course of bidding in the later award. Sequential processes can therefore lead to inefficient outcomes. In line with DotEcon’s advice and the views of a number of respondents, it is ComReg’s preference to conduct a simultaneous award process.139
289. Rogers agrees with ComReg’s view, and with the decision of several other regulators around the world that have already decided to hold multi-band auctions for the same reasons. We believe that a simultaneous auction of spectrum in the 700 MHz and 2500 MHz bands would result in a more efficient outcome and that the Department should proceed on this basis.
138 Award of liberalized spectrum in the 900 MHz and other bands – A report for ComReg, dot-econ, 12 September 2010, section 4. 139 ComReg, “Inclusion of the 1800 MHz Band into the Proposed joint award of 800 MHz and 900 MHz Spectrum (10/105)”, (December 2010), p 11-12.