Mobile Future

Lessons Learned: Canada’s Experience with Set-Asides and Caps in Spectrum Auctions

This Publication is Related to: Spectrum

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As the FCC prepares to release rules governing the upcoming 600 MHz auction, a look north to Canada’s auction experiences helps illuminate the U.S. debate over how to craft spectrum auctions to best promote competition and innovation in the wireless market.

This study by Paul Beaudry and Martin Masse, former policy advisors to Canada’s Minister of Industry, in conjunction with Mobile Future, examines the result from using exclusionary auction rules in the two most recent Canadian spectrum auctions.

The analysis concludes that exclusionary auction rules, such as spectrum set-asides or caps, prevent efficient competition and hinder investment in the state-of-the-art wireless networks and services that consumers are demanding. The report finds that the competitive handicapping of incumbents has done little to foster sustainable competition in the Canadian wireless market, instead leading to lost revenues and wasted government resources.

The report highlights several issues with regard to the 2008 AWS spectrum auction:

  • It is highly doubtful that well-established regional providers would not have been willing to pay the fair market price for spectrum they needed to upgrade their networks.
  • Similarly, regional cable players had compelling market incentives to bid (the ability to extend their triple play offering to a quadruple play that includes wireless).
  • Of the three new entrants who secured licenses, none were successful.
    • Public Mobile was acquired by incumbent TELUS for nearly five times the purchase price of its spectrum licenses, essentially arbitraging its government-subsidized spectrum acquisition to secure a windfall;
    • Mobilicity filed for bankruptcy after the Canadian government rejected its similar acquisition by TELUS; and
    • WIND Mobile’s European backer has written off its investment.
    • The 2008 set-aside spectrum sold at a discount of about 30% compared to the spectrum open to bidding by all parties.

Moving on from the failed auction set-aside in 2008, the Canadian government instead opted to impose a spectrum cap in the 2014 700 MHz auction, barring all incumbents from acquiring more than one of the “prime” blocks up for auction. It is still too soon to fully assess the outcomes of this auction, but the report cites early cause for concern.  The Canadian government has touted as a victory the fact that Quebecor secured licenses not only in its home market of Quebec, but also in Ontario, Alberta and British Columbia, all markets with no established fourth player.  Yet Quebecor has made clear the spectrum, which had no other significant bidder, was acquired for its “advantageous price,” with the CEO publicly stating that it remains uncertain if it would “sit” on the spectrum or “do something with it.”  At this stage, few analysts expect Vidéotron, which is owned by Quebecor, to develop a network outside of Quebec.