Introduction
There has been considerable buzz about the possible entry of
the US cellular company Verizon into the Canadian marketplace. This has been
generated by hints that Verizon may purchase one or more of the new entrants
formed as a result of the AWS (Advanced Wireless Service) frequency auction in
2008 – namely Mobilicity, Public and Wind. Verizon is able to do this because
foreign ownership of cellular companies with less than 10% of market share is
permitted. The AWS companies meet this criterion.
Where this gets interesting is that although a purchaser
likes Verizon may be huge when compared to the total Canadian market, by
purchasing existing operators, Verizon will still be considered a new entrant.
This means that Verizon will be able to take full advantage of the special
considerations afforded new entrants, in particular spectrum allocation, tower
sharing, and roaming agreements.
Needless to say the incumbents are not happy with this state
of affairs and have been crowing loud and long about the unfairness of it all
with all three CEO’s issuing statements and threats within the last few days
about how the market will suffer if Verizon is allowed to proceed and enter
Canada.
Vidéotron has now joined the chorus for reasons I cannot fathom
because they are considered a new entrant as well as a regional carrier and are
fully protected by some of the auction rules.
Auction Blocks
The main driver for this outburst of high dudgeon is the
upcoming 700 MHz auction. Some background information may help understand the
situation.
When Canada (and the US) converted from analogue to digital
television a few years ago, it freed up a considerable amount of radio spectrum
in the 700 MHz band and it became available for use by cellular services.
In Canada, the available frequency spread was divided into blocks
as shown in this chart. The channel numbers at the top of the chart refer to
the old TV channel numbers. Channel 51 is still an operational channel and it
has the potential to interfere with the lower Block A frequencies. This makes
Block A spectrum a little less value. For auction purposes, four blocks are
considered “prime” and come with some restrictions as will be explained
later. These are Blocks B, C, C1 and C2.
Canadian plan for the bands 698-756 MHz and 777-787 MHz
This is the key information in an
easier to read format.
The following frequency blocks will be
available for the 700 MHz auction:
Block
|
Frequency
|
Pairing
|
MHz
|
A
|
698-704 MHz/728-734 MHz
|
paired
|
6+6 MHz
|
B
|
704-710 MHz/734-740 MHz
|
paired
|
6+6 MHz
|
C
|
710-716 MHz/740-746 MHz
|
paired
|
6+6 MHz
|
D
|
716-722 MHz
|
unpaired
|
6 MHz
|
E
|
722-728 MHz
|
unpaired
|
6 MHz
|
C1
|
777-782 MHz/746-751 MHz
|
paired
|
5+5 MHz
|
C2
|
782-787 MHz/751-756 MHz
|
paired
|
5+5 MHz
|
Paired means that there are two
blocks separated by sufficient bandwidth to allow one block for download and
one block for upload.
Unpaired means the block is
standalone and is most valuable for one way transmission.
Coverage Areas
The
auction rules set license boundaries for coverage areas. As explained on the Industry Canada/Spectrum
Branch website, these areas, called tiers, are based
on Statistics Canada’s Census Divisions and Subdivisions. Four tier sizes have
been established to accommodate various wireless services, applications and
frequency bands.
·
Tier 1 is a
single national service area;
·
Tier 2
consists of 14 large service areas;
·
Tier 3
consists of 59 smaller regional service areas; and
·
Tier 4
comprises 172 localized service areas.
For the upcoming auctions, Tier 2 boundaries will apply. Northern Ontario is considered one of the 14
large service areas.
There are a total of 7 frequency blocks available for each Tier 2 area.
However, the incumbent carriers may only purchase one prime block per area
while new entrants can purchase two prime blocks per area. For auction
purchases, regional carriers such as Tbaytel, Vidéotron, and EastLink are
considered new entrants and may bid on two prime blocks. This means in theory, one incumbent vendor
will be excluded from prime blocks in each Tier 2 area.
There is nothing in the rules which prevent one or more of the
incumbents developing a frequency or network sharing agreements as long as it
is made public before the start of the auction. Rogers and Vidéotron have such
an agreement now but they have not formally stated it will extend to the
auction. None of the incumbents have joint LTE operating agreements, or at
least any visible in the public domain.
Where it gets interesting is if we look at how these prime blocks are
used in the US marketplace. AT&T uses the B and C blocks while Verizon uses
C1 and C2 blocks. This usage becomes critical when Canadian carriers workout roaming
deals with US carriers; the handsets need to match the frequencies. There is
also the issue of roaming default hierarchy. While both AT&T and Verizon have LTE networks,
it is not always available and connections default to older, and often slower,
standards. AT&T phones default LTE to HSPA to GSM which is the standard used
by Rogers and most of the Canadian new entrants. Verizon phones tend to default
downward to their CDMA core network which is the standard used by Bell, Telus
and Public.
Most smartphones sold in Canada default to GSM, even the ones sold by
Bell. This is why Bell smartphones have limited network access between Sault Ste. Marie and Thunder Bay. While Verizon sells smartphones
that can default to CDMA as well as HSPA, I am not aware of any that are sold
in Canada. My Samsung Galaxy SII
defaults to AT&T or T-Mobile when in the US. Apple iPhones react likewise.
The bottom line is many observers feel that if Verizon follows through
on the auction, they will go after the CI and C2 blocks which they are able to
do under the two block rule in order to maintain compatibility with their US
operations.
Tier 2 Areas
Northern Ontario Tier 2-09
Technology Roll
Out
The auction also has rules concerning roll out of advanced technology in
rural areas. Incumbents and new entrants who either purchase or have access to two
paired blocks (not necessarily prime blocks) are required to provide 700 MHz
coverage within 5 or 7 years to cover 90% and 97% respectively of the area
their HSPA coverage provide in 2012.
In effect, this means the new entrants have minuscule urban areas to
cover while the incumbents have to cover about 75% of the country. The regional
carriers are somewhere in between.
The only pressure on the new incumbents is that they must provide
coverage within 10 years to a range of 20% to 50% depending on the geographical
area. For Northern Ontario it is 50%.
Unfortunately, this can be achieved without providing any new technology
or 700 MHz coverage in rural areas and by simply upgrading urban networks.
That is not to say they will not; just that they do not have to. However, using the 700 MHz band blocks on
existing or co-shared towers in rural area would allow for greater coverage
while repurposing the most expensive part of the necessary infrastructure, the
towers and ancillary structures. On the flip side of the coin, lower
frequencies like 700 MHz can handle les bandwidth than the higher frequencies
so congestion may quickly become a problem.
In summary, higher frequencies equal more bandwidth but less coverage
while lower frequencies equal more coverage but less bandwidth.
The auctions rules also state that all network operate must allow network
roaming and share tower by all service providers. This means a new entrant like
Verizon can advertise and offer full national coverage on one of the incumbent
networks without spending any capital for network infrastructure. They will
have to pay the infrastructure owners reasonable rates in accordance with CRTC
and Industry Canada directives. There are some hardware challenges and
technology issues that need to be resolved but these are not insurmountable.
