TORONTO (Reuters) - The next government auction of valuable wireless spectrum in Canada is still at least a year and a half away, but the fight among telecom companies over how the auction should be run is already in full swing.
The big issue is whether any of the prime 700 MHz airwaves need be set aside for new entrants to the market as was the case in the government auction of wireless spectrum in 2008.
At the time, Canada's Conservative government was pushing for more competition in wireless, long dominated by three companies: BCE Inc's Bell Canada unit, Rogers Communications and Telus Corp.
The "Big Three" -- which together hold 95 percent of the market -- say the new entrants need no more help.
Among the companies seeking a bigger piece of the Big Three's pie are Mobilicity and Globalive's foreign-funded Wind Mobile service, as well as established regional cable companies Shaw Communications and Quebecor's Videotron.
"Everybody needs it (700 MHz spectrum), everybody wants it, and the only way to sort that out is to have a wide open auction," said Ken Engelhart, senior vice-president for regulatory affairs at Rogers. That message was echoed by his counterparts at Bell and Telus, which share a national wireless network.
Engelhart said putting caps on how much spectrum any one buyer can grab in the auction, due by late 2012, would be a mistake and that fears of hoarding -- holding the spectrum without rolling out service -- could be allayed by making rollout a condition of purchase.
An open auction would almost certainly ensure that the three cash-rich incumbents get the lion's share of the spectrum.
Initial submissions to the federal government's industry department on how the auction should be handled were due on Monday, and responses will be accepted until March 30.
Bell said in its submission that with half as much spectrum on offer as in the 2008 auction, any airwaves set aside for new entrants would inflate the prices paid. "Industry Canada would in effect dictate that one major Canadian operator will likely not even have the chance to obtain the spectrum it needs," Bell said.
The 700 MHz airwaves are valuable as they cover long distances and more easily penetrate thick walls and buildings, making them useful for both expanding rural reach and deepening urban capacity.
The frequency is seen as aiding rural Canadian deployment of high-speed Long Term Evolution (LTE) networks, the path chosen by most telecoms carriers globally to upgrade 3G data networks. Each of the Big Three have announced plans for LTE deployment.
Globalive Chairman Anthony Lacavera said he wants all or most of the spectrum to be auctioned to be set aside for newcomers and says established operators own plenty of spectrum similar to that which is going on the block.
"The Canadian consumer experience in wireless has improved directly as a result of government policy, so our view is that the government should continue that policy," Lacavera said. "It's working."
Wind Mobile entered the market in 2009 after some 40 percent of the higher-frequency AWS spectrum was set aside for new entrants in the 2008 auction, which raised C$4.25 billion ($4.38 billion) for the government.
Wind Mobile, along with other new entrants Mobilicity and Public Mobile, offer unlimited talk and text and no-contract plans that attract budget-conscious customers and push down rates, particularly for voice.
Incumbent telecom carriers in Canada already hold far more spectrum than peers such as AT&T and Verizon in the United States and carry just a fraction of the subscribers per megahertz, according to a report from telecom consultancy Seaboard Group released on Monday.
That report concluded that new entrants remain at a significant disadvantage to the incumbents and called on Ottawa to make the new auction available to only those companies that do not already own spectrum below 1 GHz frequency.
"Resist the incumbent cajolery, ignore the veiled threats and protestations of doom, and move forward to allocate the 700 MHz resource to the feisty upstarts," Seaboard said.
Telus's head of regulatory affairs, Michael Hennessy, said Industry Canada should shape the auction on the assumption that at least some of the new entrants will have merged by the time the auction takes place. That's one point on which he agrees with Globalive, which expects to be the fourth and only new national carrier by 2014.
"Everyone knows it's going to look a lot different in a year and a half when the auction happens," Hennessy said.
A further issue is Canadian foreign ownership limits on telecom companies. Under Canadian law too much control and ownership of Globalive may rest with Cairo-based Orascom Telecom, and the matter is now being fought before the courts.
Industry Minister Tony Clement has said any lifting of foreign ownership restrictions would have to be decided before the auction proceeds, but it is unclear whether any changes would apply to both telecom companies and broadcasters, which are governed by different laws.
Editing by Peter Galloway