TORONTO-To the relief of the wireless industry, the Canadian government raised the four-year-old spectrum cap that limits the amount of radio spectrum each PCS provider may operate. Wireless carriers in Canada can now each use 55 megahertz of spectrum, an increase from 40 megahertz.
In addition, Industry Canada, the federal ministry that regulates the industry, will auction 40 megahertz of additional PCS spectrum in fourth-quarter 2000 to foster growth in the wireless sector.
“Moving forward to open new spectrum will enable the mobile wireless industry to meet the demands of the rapidly expanding wireless market in Canada and accommodate the new third-generation PCS services that will bring the Internet to handheld terminals,” said John Manley, the federal minister of industry.
PCS service in Canada currently is offered nationally by Clearnet Communications, Microcell Telecommunications Inc. and Rogers Cantel Mobile Communications Inc., as well as regionally by units of Bell Canada and BCT.Telus Communications Inc.
Clearnet reaps immediate benefits from the spectrum-cap action because it was the only operator in Canada with more than 40 megahertz of spectrum. Clearnet was given temporary relief of 43.7 megahertz by Industry Canada earlier this year to expand its Mike digital dispatch radio (ESMR) network in southern Ontario. Now Clearnet will be able to use all 55 megahertz across Canada.
The ruling has not fundamentally changed the wireless industry’s competitive environment, though. The former partners in the recently disbanded Mobility Canada (the provincial Bell companies) remain restricted by spectrum limitations from operating nationwide.
“The market dynamics haven’t really changed,” said George Karidis, director of research and consulting for the Yankee Group in Brockville, Ontario. “Industry Canada has not yet indicated who will be able to buy the additional spectrum. It might go to the existing carriers, or it may be opened to outsiders.”
Clearnet and Microcell remain possible acquisition targets by incumbent or foreign carriers wanting to establish a national footprint. Under the new cap, however, Bell Canada and BCT.Telus couldn’t acquire Clearnet or Microcell without having to sell certain assets. If BCE Inc., the parent of Bell Canada, acquired Clearnet, for example, its spectrum amount would total 80 megahertz, well above the new cap of 55 megahertz.
BCE favors a “build” strategy to expand its wireless network nationally. The company wants to lease network capacity outside its territory from other carriers to offer wireless services in western Canada. BCT.Telus also champions growth through non-acquisition in eastern Canada.
However, analysts have maintained that leasing capacity from other operators isn’t viable in the long run because it’s too expensive. By owning a network, a carrier can better control costs, said industry sources.
Clearnet is considered by some to be the more attractive takeover candidate because it shares the same CDMA technology as BCE and BCT.Telus. Clearnet’s stock has risen by more than 200 percent during the last year, fueled by acquisition speculation.
Microcell uses GSM and also has seen a meteoric rise in its stock.
“Microcell has been seen as somewhat the laggard because it chose GSM, but it may become part of a North American GSM Alliance,” said Karidis.
Rumors that U.S. wireless operator VoiceStream Wireless Corp. is interested in the Canadian carrier have been circulating for a number of months.
The Canadian government is seeking industry input on how to structure the auction of the 40 megahertz of capacity next fall. Capacity available to wireless companies has been capped since 1995 by regulations to allow the new entrants time to gain a foothold in the market.
The increase in available capacity could mean the arrival of a new player.
“But the licensing of a fifth PCS competitor seems unlikely,” said Mark Langton, a spokesman for Clearnet. “Any new company would be starting from scratch, and the capital markets probably wouldn’t be eager to invest in a new player.”
