Observations on the Canadian 700 MHz Auction

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. 

Cellular Vendors Introducing Two Year Contracts

The incumbent cellular vendors are getting a jump on the new CRTC Wireless Code which comes into effect in December of this year, 2013, and the two year contract provisions the Code contains.

Even while they fight some of the Code’s clauses in Federal Court, they are introducing 2 year contracts over the next few weeks.

For vendors offering full local service in the Algoma District, the following dates apply:

a. Bell - July 17

b. Telus - July 30

c. Fido and Rogers - August 9

As of this date of writing, there is no indication if Tbaytel will adopt the 2 year model but I would be extremely surprised if they did not.

If anyone is in the market for a new cellular phone, one might want to check out the new rates as well as the terms and conditions.  There are adjustments to the price structure, especially in the amount if the upfront payment required. Not all phones are available with a two year option at this time.

Also, the “tab” concept appears on its way to becoming the preferred method of subsidy payback. As I understand the concept, instead of the customer paying a large onetime fee upfront, the non-subsidized amount is spread out over the length of the contract at a monthly rate. There are numerous variations of the concept and users should take care to ensure they understand the concept for the contract they are signing. 

New Cell Site Locations on St. Joseph Island

Bell recently published notifications of public consultations for four cell sites on St. Joseph Island. While the advertisements do not specifically mention Deferral Account sites, other sources indicate that this is the case. The public notification and consultation is required in accordance with the Industry Canada procedures CPC-2-0-03.

The two northern sites (marked one and two below) are 61 metre self –supporting towers while the two southern sites (marked as three and four below) are 76 metre self-supporting towers.

There is no indication when the sites will be built or when they will become operational. However, the target date for completion and full operational status of the Deferral Account project is Aug 31, 2014.  

The public consultation times and locations are:

1. Sites One and Two -  Tuesday 23 Jul 2013 at 7:00 PM at Royal Canadian Legion,  1834 10^th Side Road, Richards Landing

2. Sites Three and Four - Wednesday 24 Jul 2013 at 7:00 PM at the Jocelyn Recreation Hall, 1125 P Line.

In a related matter, I have heard rumours that Rogers is sniffing around the Island looking for sites. If anyone has heard any details, please let me know.

Carriers Set To Challenge CRTC Wireless Code

National news media is reporting that the three major incumbent cellular carriers – Bell, Rogers and Telus, often referred to unflatteringly as Robelus - are preparing to launch a legal appeal against certain clauses of the recently announced CRTC Wireless Code. Some updated reports indicate that MTS and SaskTel are joining the process. The motion will be filed at some unspecified future date but possibly as early a 03 Jul 2013 in the Federal Court of Appeal and seeks leave to appeal certain sections of the Code.

In particular it seems they are planning to challenge that the terms of the code that makes the two year stipulation on cellular contract length apply to all cellular contracts after 03 Jun 2015 even though the Code does not come into effect until 02 Dec 2013.

When the CRTC announced the details of the Code on 03 Jun 2013, it indicated the code would not be retroactive or apply to contracts that that existed prior to 02 Dec 2013.  This would seem to mean that in theory any existing 3 year contracts could remain valid until as late as 01 Dec 2016 which is in conflict with the Code date for universal adoption of 03 Jun 2015

The appeal appears to be centred on the question of what happens to existing 3 year contracts that are scheduled to expire in the 18 month period between 03 Jun 2015 and 01 Dec 2016.

There are no reports that the carriers are prepared to challenge any other parts of the Code. Indeed, for the most part they have been in compliance with most parts of the Code for some time, the main exception being the 2 year contract length.

The last time a major legal challenge was launched by the incumbents against a CRTC decision, the whole policy decision concerned came to a grinding halt for almost three years as the appeals worked their way through to the Supreme Court of Canada and the Governor-in-Council.    

I see no reason why the CRTC cannot nip this in the bud and change the compulsory adoption date to 01 Dec 2016. Yes, some folks who signed a three year contract after 03 Jun 2013 may feel hard done by but they knew the new terms were coming and could have waited before signing up to a three year deal.

The CRTC needs to decide whether it is in the public interest to fight the carriers or is the public good best served by getting the code operative as soon as practicable. 

CRTC Chairman Indicates Future Area of Proceedings

As you are likely aware, there are two major broadband infrastructure projects underway in Sault Ste Marie.  Bell is installing its Fibre-to-the-Home (FTTH) technology under the marketing name Fibe and Shaw is installing literally hundreds of Wi-Fi hotspots throughout the city under the marketing name Shaw Go WiFi.  

At the moment, these new service offerings are “closed” networks in that you must sign up for service from either Bell or Shaw to gain access to the network infrastructure as a user.  This is unlike the existing wireline services such as DSL and cable which are “open” networks in that a third party network operator can purchase wholesale network capapcity and resell it to end users.

This closed network approach may be subject to change in the not too distant future. 

In his keynote speech at the recently concluded Canadian Telecom Summit in Toronto, the Chairman of the CRTC, Mr. Jean-Pierre Blais indicated that the CRTC would be conducting a number of reviews of telecom policy over the next few years. In particular “Another review will explore whether additional wholesale high-speed access services should be mandated, including fibre-to-the-premise facilities. We will hold a proceeding to determine whether competitors should have mandated access to these high-speed fibre networks—and, if so, when, where and at what cost.”  

This has all the potential to develop into a real cat fight as the vendors will likely fight tooth and nail to keep their networks closed.

Mr Blais also addressed the question of what broadband download speeds Canadians should expect.  The CRTC last indentified the target speed standards in 2011 as “…by the end of 2015, the CRTC expects all Canadians to have access to broadband speeds of at least 5 megabits per second (Mbps) for downloads and 1 Mbps for uploads. This is the minimum speed we believe Canadians should be able to receive.”  Good luck in attaining this goal in many parts of rural Ontario unless additional fibre optic backbone infrastructure is rolled out.

Mr. Blais added “It’s time to prepare to take another look at our basic service objective, something we will do in 2014-2015.”  He gave fair warning to the vendors by asking “Should broadband be considered a basic service for Canadians across the country?

That’s one of the key questions we will be asking when we start our review. We will also look at whether there should be changes to the subsidy regime and national contribution mechanism.”

If broadband is eventually classified as a “basic service“ then it will be considered the same as telephone and dial-up Internet connectivity which are currently classified as a basic services.

Mr. Blais continues to expand his growing reputation as a consumer centered Chairman.  His handling of the Wireless Code process and hearings was praise by both industry and consumers, an experience that must have felt strange to old time CRTC staffers who were often berated as industry insiders.

Handset Frequency Spectrum Bands

If you have not noticed, the operating spectrum used by smartphones has undergone a major change in the last few years. It was not that long ago that if you had a handset capable of operating in the 850 MHz and 1900 MHz bands you were in pretty good shape.

That started to change with the Advanced Wireless Services (AWS) spectrum auction in 2009 which opened up additional spectrum space in the 1700 MHz and 2100 MHz bands. With the conversion to digital TV freeing up spectrum space, the 700 MHz band came into play. The most recent announcement in June 213 delayed the 700 MHz spectrum auction until early 2014 but this has not stopped the handset manufacturers from building the 700 MHz capability into their handsets.

The latest frequency to be added to the mix is the 2.6 GHz band. This is being used by Rogers in its LTE mode branded as LTE Max.

The expanded use of the spectrum is being matched by changes in technology. In simply terms, the original technologies of CDMA and TDMA have morphed into the current HSPA+ and LTE mix; the so called 3G and 4G networks. While Bell, Tbaytel and Telus still operate legacy CDMA networks, only Public Mobile of the new AWS entrants opted for CDMA but did so in the little used PCS G band (1910-1915 MHz and 1990-1995MHz). All the other networks in Canada operate as hybrid HSPA+ and LTE technology.

Most of the expanded demand for and use of spectrum is the direct result of the rapid growth of data transfer over smartphones. If you want to get a feel for this growth, I recommend you look at the Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2012–2017.

Not all smartphones are equal when it comes to frequency coverage outside the basic bands. There are literally thousands of smartphone designs on the market and they have different spectrum band options. I have chosen a few of the more popular units to show what one needs to be aware of when selecting a handset.

There are two spectrum bands which appear to be consistent across a wide range of phones. They are:

 a. The GSM bands operating at  850/900/1800/1900 MHz;

 b. The  HSPA/HSPA+ bands operating at 850/1900/2100 MHz.

Note: the 900/1800 MHz combination is used by many carriers overseas. I am not aware of any carriers using them in Canada. With these bands built in to the handset and if the handset is unlocked, a user can acquire fairly inexpensive cellular service overseas.

When it comes to the LTE bands, things are little different. It varies according to manufacturers and wireless carrier.

a. Samsung S4 and Blackberry Q10 have LTE 2100/2600 MHz versions available (Rogers LTE Max compatible)

b. Samsung SIII .has a LTE 1700/2100 MHz version available.

c. Apple iPhone 5 has a LTE 700/1700 Mhz version available

d. Apple iPhone 4 does not have a LTE frequency version

An example of having the right handset for the right expectations are the recent announcements by Rogers of the LTE and LTE Max network roll out in Sault Ste. Marie. One needs a 2100/2600 MHz capable phone to use the LTE Max network.

Within each band there are also frequency assignments amongst the carriers. This means that while a phone may have the necessary band installed it is locked to a specific carrier’s frequency allotment. Unlocking the phone, installing the appropriate network’s SIM card and signing up for either a pre-paid or post paid service plan will get the hand set working.

CRTC Questions Bell's Deferral Account Plans

Apparently I was not the only one that had issues with the Bell Deferral Account quarterly report for 15 Apr 13. The CRTC made a redacted version public by on 22 Apr 13. I discussed the report in this blog entry.

The CRTC wrote a letter to Bell on 05 Jun 13 questioning whether or not the company could meet the proposed August 2014 target date to have the project finished. They are particularly concerned that no new sites are scheduled for activation in 2013 as part of the Deferral Account program.

They raised questions about the amount of backhaul construction yet to be completed and the number of communities that need site acquisition negotiations to start or be finalized.

As the CRTC states in the letter: “In the Commission’s view, the rollout plan is significantly back-end loaded, jeopardizing the timely rollout of service to consumers” and also “Ultimately, it is the Canadians who live in those [Deferral Account] communities who will be impacted.”

The bottom line in the letter is “… the Commission directs the Bell companies to identify, by 17 June 2013, a) the major risks associated with its rollout plan, and b) its mitigation strategies to address each risk such as, for example, accelerating the rollout to specific communities.”

The full letter can be read on this CRTC site.

In a related matter, as reported in this blog entry, there are Deferral Account site surveys being conducted throughout the District. The latest reports indicated activity in the Nils Bay region of the Goulais Deferral Account area and the Sterling Bay region of St, Joseph Island Deferral Account area.