New rules on wireless spectrum transfers aim to limit 'undue concentration'

The federal government has introduced new rules that willmake it harder for wireless companies to sell thespectrum they use to transmit cellphone signals to other players in the market.

Transfers of licencesgoverning wireless spectrum,the radio waves over which cellphone signals are transmitted,that would result in "undue spectrum concentration" and diminish competition in the wireless market will not be permitted, the government said in a press release announcing the new rules Friday.

Any company wanting to sell off all or part of its spectrum will have to apply to have the prospective transfer reviewed by Industry Canada within 15 days ofentering into an agreementwith another company that already holds a spectrum licence or any affiliate of such a company.

The government will review transfer requests on a case by case basis,evaluating these "prospective transfers" as if they had already taken place. If the transfer is rejected, the applicant will have to cancel the agreement that includes the spectrum transfer within 90 days of the government's decision.

"The Harper government will not hesitate to use any and every tool at its disposal to protect Canadian consumers and to promote competition," the release said.

Licence transfer reviews will be completed within about 12 weeks and the final decisions will be made public.

Under the new rules, Industry Canada reviews will also be required for so-called deemed transfers of a spectrum licence. These are cases where control of a spectrum licence falls into the hands of someone other than the original licence holder, through a change in ownership, for example.

This could result from a transfer or conversion of shares; a joint venture or strategic alliance with another licence holder or its affiliates; an agreement guaranteeing exclusive control of or barring others from using licensed spectrum; an agreement preventing a licnece holder from making a deal with a competitor to transfer a spectrum licence.

Subsidized spectrum can't be transferred too soon

Bands of wireless spectrumare periodically auctioned off in order to enable new companies to enter the wireless market and to allow existing players to expand their spectrum. In Canada, such an auction occurred in 2008 and led to the entry of companies like Wind Mobile, Mobilicity and Public Mobile.

In that auction, the government reserved parts of the spectrum for new entrants specifically and effectivelysubsidized their licences.

But in recent years, those new entrants have not fared so well and some have tried to sell their businesses to bigger incumbentslikeRogers, Bell and Telus. The government blocked one such deal earlier this month when Telus tried to purchase Mobilicity.

Part of its reasoning at the time was that under the rules of the 2008 auction, new entrants could not sell the subsidized spectrum the government sold to them until at leastfive years after they acquired it, so if the governmentallowed the sale,it would be breaking their own rules.

Telus had argued that given Mobilicity's dire financial situation, the government should make an exception to the five-year condition.

Rules could affect several deals

Other companies have also expressed interest in selling parts of their spectrum. Shaw andVidotron have been looking to sell some of their unused spectrum to Rogers, but those deals are unlikely to be approved under the new rules.

Several other transactions that are currently in the works or rumoured to be in the works could be impacted.

Private-equity firms Thomvest Seed Capital Inc., controlled by Toronto businessman Peter Thomson, and Cartesian Capital areawaiting regulatory approvalof their deal to purchase Public Mobile.

U.S. wireless giant Verizon isalso reportedly circlingCanada's wirelessmarket and is rumoured to be considering a bid tobuy Wind Mobile.

In thepolicy frameworkreleased Friday, the governmentsaid it willevaluate a broad range of factors when assessing an application totransfer licensed spectrum to another company, including:

• The number ofspectrum licencesheld bythe applicant and its affiliatesand how they are distributed.
• The amount of spectrum controlled by the applicant in relation to other licence holders.
• Howuseful thespectrum in question is in the affected area andwhether it can be substituted with other available spectrum.
• The degree to which the applicant and its affiliates have deployed mobile networks.
• Whether there is alternate spectrum available with similar properties.
• Characteristics of the region in which the licence operatesthat affect spectrum capacity andcongestion, such as population densityand whether the area is urban or rural.

Telecommunications analyst Neeraj Manga, of investment research firm Veritas,said the industry will be reassured to see that the government has not chosen to impose any caps on the amount of spectrum any one provider can control.

"What they have said is we will take how much you own into consideration before we allow additional transfers, butthey haven't said there is a limit to how much you can own," he said.

Industry Minister Christian Paradis has committed tocreating a federalmobile policy that supports the existence ofat least four competing wireless carriers in every regional market in Canada.

He announced several new rules earlier this spring that will govern the next auction of wireless spectrum, which is set totake place Jan. 14, 2014.

The ministerrestricted the number of spectrum blocks that can be purchased in the auction to four and made it easier for companies to share cellphone towers. He also made it obligatory for carriers with access to two blocks of paired spectrumtodeploy services to rural areas.

The auction will be for the 700 MHz band, which wasused to transmit analog television signals but has been freed up since broadcasters moved to digital transmission. The deadline for submitting bids is Sept. 17, 2013.