Rogers-Videotron deal expected to be first test of new spectrum transfer rules

Rogers Communications Inc.’s proposed deal for Videotron Ltd.’s unused Toronto-area spectrum is expected to give incumbent mobile providers the first indication of whether they can obtain new entrant spectrum after a five-year moratorium expires, industry analysts say. Under a deal announced in May, Videotron will have the option, starting January 1, of selling 10 MHz of its unused AWS spectrum to Rogers for $180 million. Videotron, a Quebecor Media Inc. subsidiary, purchased that spectrum in a 2008 auction that reserved the 10 MHz block, and others, for new entrant players. The rules prohibited incumbent carriers Rogers, BCE Inc. and Telus Corp. from acquiring set aside spectrum for five years after those spectrum licences were issued. Industry Minister Christian Paradis said in June that he will not allow incumbent carriers to break the set aside moratorium, and the federal Industry Department since released new rules for spectrum transfers to prevent incumbent providers from acquiring an “undue concentration” of spectrum after the moratoriums expire. “If I had to guess, my guess is that perhaps the Videotron-Rogers one may go through a little more easily, because it’s more simplistic and it’s not quite as broad a geography of spectrum," Troy Crandall, a media and telecom analyst with MacDougall, MacDougall & MacTier, said in a telephone interview last week, adding that the Rogers-Videotron deal is shaping up to be the first real test of those new rules after the moratorium on Videotron's spectrum expires on Dec. 22. “If it is, it would be one of the easier ones." By contrast, he said, Rogers has another option deal to acquire as much as 30 MHz of new entrant spectrum from Shaw Communications Inc., in markets stretching from B.C. to northern Ontario, when the moratorium on that spectrum expires in September 2014. He said Rogers currently holds more spectrum than any other Canadian carrier, and speculated that it may be harder for the company to convince Industry Canada that it should be allowed to obtain Shaw’s spectrum holdings, especially if a new entrant carrier is interested in acquiring it. Scotia Capital analyst Jeff Fan said in a March research note that he expected Industry Canada to rule on the Rogers-Shaw deal in advance of the 700 MHz spectrum auction, which is now scheduled to begin in January. In a revised note last week, following the release of the new spectrum transfer rules, he said he now expects both deals to face a review next year when the companies apply to complete the transfers. Going forward, he wrote, any new option deals will be treated under the rules as “prospective transfers” and will face an immediate review. “The new Framework does not apply to prior agreements,” and since Rogers entered into its option agreements with Shaw and Quebecor before the new framework was released, they won’t be subject to an immediate review, he wrote in the July 2 note. “However, both transfers will be subject to review under the Framework in 2014.” Fan speculated that the likelihood of either option deal gaining the ministry’s approval may hinge on what happens to struggling new entrant carriers Dave Wireless Inc. (operating as Mobilicity) and Wind Mobile (owned by Globalive Wireless Management Corp.). Both are currently courting potential buyers at a time when Paradis says the government is focusing on sustaining competition against the incumbents. Crandall agreed that what happens to Wind and Mobilicity could impact Paradis’ view of the two Rogers deals. He said Paradis may be more likely to allow the deals to go through if one or both of those new entrants emerge as a stable fourth competitor, while he may be more likely to block the deals if a fourth carrier struggles to survive and is desperate for more spectrum. “Given the tone that the government has laid out … I think the government will do everything it could to allow or help facilitate a transfer of the Shaw spectrum to one of the new entrants rather than one of the big three,” Crandall said, noting that Shaw will want to maximize its return on the spectrum. “The only question is whether a new entrant can pay up relative to what Rogers can pay," he said. Crandall said the government left its new spectrum transfer rules intentionally vague to give the minister flexibility when reviewing proposed deals. Adrian Foster, a spectrum expert and partner with McLean Foster and Co., said by email that he sees the new transfer rules as restrictive. “Industry Canada should accelerate the pace of reform of spectrum management in Canada by specifically adopting policy directives which give greater force to the implementation of secondary markets namely by enabling spectrum trading along with defined, flexible user rights,” Foster wrote. “Tradable licences where they apply should become fully transferable.” —With reporting by Nicholas Kyonka and nkyonka@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca Expiry of moratorium on transferring new entrant spectrum to incumbents (by new entrant) New entrant spectrum licence holder Licence issued Moratorium expires ALO Mobile Inc. April 30, 2009 Dec. 14, 2013 6934242 Canada Ltd. (Manitoba Telecom Services Inc.) Dec. 15, 2008 Dec. 14, 2013 Bragg Communications Inc. Dec. 15, 2008 Dec. 14, 2013 Celluworld Inc. Dec. 15, 2008 Dec. 14, 2013 Data & Audio-Visual Enterprise Wireless Inc. (DAVE) Feb. 11, 2009 Feb. 10, 2014 Globalive Wireless Management Corp. March 13, 2009 March 12, 2014 SaskTel Dec. 15, 2008 Dec. 14, 2013 Shaw Telecom Inc. Sept. 2, 2009 Sept. 1, 2014 Vidéotron Ltée March 30, 2009 Dec. 22, 2013 —Compiled by Nicholas Kyonka using Industry Canada data

Rogers-Videotron deal expected to be first test of new spectrum transfer rules

News | July 9, 2013

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