Before Innovation, Science and Economic Development Canada
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Before Innovation, Science and Economic Development Canada SLPB-002-19 June 2019 Spectrum Management and Telecommunications EXPERT REPORT OF CHRISTIAN M. DIPPON, Ph.D. On Behalf of TELUS Communications Inc. Consultation on a Policy and Licensing Framework for Spectrum in the 3500 MHz Band August 2, 2019 Before Innovation, Science and Economic Development Canada Consultation on a Policy and Licensing Framework for Spectrum in the 3500 MHz Band Table of Contents EXECUTIVE SUMMARY ......................................................................................................................4 I. QUALIFICATIONS...................................................................................................................9 II. PURPOSE AND STRUCTURE OF THE REPORT.........................................................................11 III. SUMMARY OF FINDINGS ......................................................................................................12 IV. RESPONSES TO ISED’S QUESTIONS Q1A THROUGH Q1E ....................................................17 A. Recommendations with Respect to ISED’s Question Q1A ......................................17 B. Recommendation with Respect to ISED’s Question Q1B ........................................18 C. Recommendation with Respect to ISED’s Question Q1C (If a set-aside is to be applied) .....................................................................................................................19 D. Recommendation with Respect to ISED’s Question Q1D (If a set-aside is to be applied) .....................................................................................................................20 E. Recommendation with Respect to ISED’s Question Q1E (If a set-aside is to be applied) .....................................................................................................................21 V. A COMPETITIVE MARKET DOES NOT REQUIRE PROCOMPETITIVE MEASURES ....................21 A. ISED Ignores the Analyses that Demonstrate the Competitiveness of the Canadian Mobile Wireless Market ...........................................................................22 B. Regional Providers Do Not Offer Up To a 33 Percent Price Discount ....................27 C. Regional Providers Do Not Require Preferential Treatment ....................................30 D. There Is No Measurable Risk that Regional Providers Cannot Acquire Spectrum ...................................................................................................................33 E. The Bureau’s Provincial Price Comparison Is Incorrect ..........................................34 VI. ISED’S PROPOSAL IS INCONSISTENT WITH INTERNATIONAL BEST PRACTICES ...................37 A. International 5G Spectrum Deployment Does Not Use Set-Asides .........................38 B. Not All Set-Asides Are the Same .............................................................................39 VII. THE CONTINUED USE OF SET-ASIDES WILL CONTINUE TO HARM CANADIAN CONSUMERS ........................................................................................................................41 A. Market Forces Serve Canadian Consumers the Best ................................................42 B. Set-Asides Have Harmed Canadian Consumers .......................................................42 C. Set-Asides Only Benefit the Recipients ....................................................................48 VIII. AN ECONOMICALLY SUSTAINABLE WAY FORWARD OMITS SET-ASIDES ...........................53 A. If ISED Wants a Procompetitive Measure, then Spectrum Caps Are More Appropriate than Set-Asides .....................................................................................54 B. If ISED Decides to Use Set-Asides despite the Economic Evidence, It Must Revise the Eligibility Criteria ...................................................................................56 C. If Set-Asides Are Used Despite the Economic Evidence, Eligible Bidders Must Not Be Permitted to Bid on Non-Set-Aside Spectrum .............................................57 NERA Economic Consulting Page 2 of 87 Before Innovation, Science and Economic Development Canada Consultation on a Policy and Licensing Framework for Spectrum in the 3500 MHz Band D. A Shorter Resale Moratorium Benefits the Public Interest ......................................58 APPENDIX A: CURRICULUM VITAE OF CHRISTIAN M. DIPPON, PH.D. .............................................60 APPENDIX B: DIPPON WALL/NORDICITY CRITICISM .......................................................................72 APPENDIX C: PROVINCIAL PRICE DIFFERENCE TABLES ..................................................................73 List of Figures Figure 1: Crandall Technology Deployment Comparison ............................................................ 25 Figure 2: OpenSignal Average Download Speeds ........................................................................ 26 Figure 3: Crandall Network Investment Comparison ................................................................... 27 Figure 4: Coverage Spectrum Prices (2008 to present) ................................................................ 44 Figure 5: Capacity Spectrum Prices (2008 to present) ................................................................. 45 List of Tables Table 1: Spectrum Holdings by Service Area and Provider in MHz (as of August 1, 2019) ....... 32 Table 2: International Best Practices in 5G Spectrum Allocation July 2019 ............................... 38 Table 3: Number of Bands Sold at Very High Prices (outliers or extreme outliers) .................... 46 Table 4: 600 MHz Auction Final Results (in CAD) ..................................................................... 52 Table 5: 2500 MHz Auction Final Results (in CAD) ................................................................... 53 NERA Economic Consulting Page 3 of 87 Before Innovation, Science and Economic Development Canada Consultation on a Policy and Licensing Framework for Spectrum in the 3500 MHz Band Expert Report of Christian M. Dippon, Ph.D. EXECUTIVE SUMMARY ES1. ISED is seeking comments on its policy proposal and licensing framework for spectrum in the 3500 MHz band. As part of its proposal, ISED is recommending what it calls “pro- competitive measures,” that is, reserving a portion of the available spectrum (set-asides) for bidders that are not nationwide mobile wireless providers and limiting the amount of spectrum (spectrum caps) that a provider can hold. TELUS asked me to review ISED’s proposal, including its supporting rationale, and to respond to ISED’s questions with respect to the proposed “pro-competitive measures.” ES2. My overall findings and recommendations are as follows. ISED must refrain from set-asides and instead rely on market forces. The relevant market is competitive. Canada is home to some of the most advanced networks in the world and its retail prices are consistently below the international benchmark. It does not require the preferential treatment of a select group of bidders. Moreover, set-asides harm consumers and offer them no benefits. This recommendation is consistent with international best practices. Of 64 5G auctions, 40 rely on market forces, 20 employ spectrum caps, and only four use set-asides to generate market entry. No international regulator uses set-asides in the way ISED proposes to use this regulatory tool. If ISED does implement a procompetitive measure, it must use spectrum caps. Spectrum caps protect all mobile wireless service providers in the post-auction market and have a minimal distortionary effect on competition. This recommendation is consistent with international best practices. If ISED does implement set-asides, it must revise its eligibility rules and use a provincial (not nationwide) market share threshold of 10 percent. This recommendation aligns the eligibility rules with ISED’s prior findings and the findings NERA Economic Consulting Page 4 of 87 Before Innovation, Science and Economic Development Canada Consultation on a Policy and Licensing Framework for Spectrum in the 3500 MHz Band of the Competition Bureau and the CRTC. Additionally, it must prohibit set-aside bidders from bidding on the open spectrum. This revision prevents the bidders on set-aside licenses from artificially increasing the prices of the open spectrum. ES3. The mobile wireless market in Canada requires no procompetitive measures. Canadian mobile wireless providers deploy new technology faster than providers do in the United States and the European Union, and Canada is home to some of the fastest mobile wireless networks in the world mostly because Canadian providers invest far more in their networks than their European peers. Intervening in this high performing market will result in the exact opposite of what ISED’s term “pro-competitive measures” implies. These measures distort competition and the resulting high spectrum prices artificially increase the cost of providing mobile wireless services. This, in turn, deprives Canadians from additional innovation and cost savings and jeopardizes Canada’s world leading position. ES4. International best practices expose ISED’s proposal as an outlier. Of 64 5G auctions, 40 rely on market forces, 20 employ spectrum caps, and only four use set-asides to generate market entry. Aligning the proposal with its international peers requires refraining from set-asides and relying on market forces instead. If ISED identifies a specific competition risk