Analysis of Canadian Wireless Spectrum Auctions: Licence Ownership and Deployment in the 700 MHz, 2500 MHz and 3500 MHz Frequency Ranges
Author: Kris Joseph
Home university: University of Alberta
Education level: MA/MLIS Candidate in Humanities Computing
Introduction
Since 1999, the Canadian government has relied on auctions to allocate wireless spectrum licences used to deliver high-speed internet services. This study investigates the theory, posited by small Canadian internet service providers, that valuable wireless spectrum licences for high-capacity, fixed-wireless broadband services are being monopolized by large, incumbent internet service providers. This paper presents an investigation of seven wireless spectrum auctions, tracing auctioned licences to current equipment deployments to understand how licence ownership and use has changed over time. The analysis highlights problems with data needed to track the use of specific spectrum licences, revisits the wisdom of auction-based mechanisms for spectrum allocation, and suggests policy changes that may improve the monitoring and management of Canada’s wireless spectrum and spectrum licences.
Literature review
Wireless technologies and rural broadband
Canadian regulators have recognized that modern telecommunications services are critical for economic prosperity and social benefit (Telecommunications Act, 1993, sec. 7). This recognition includes a recent Canadian Radio-television and Telecommunications Commission (CRTC) classification of broadband internet as a basic telecommunications service (CRTC, 2016b, para. 37). Although 84% of all Canadian households have access to internet services that can be delivered at 50Mbps download or higher, availability is only 39% in rural areas (CRTC, 2017, p. 254). In spite of this gap, the CRTC expects fixed broadband services at 50Mbps download and 10Mbps upload to be available to 90% of Canadian households by 2021, and 100% of households in the subsequent 10-15 years (CRTC, 2016b, para. 114).
Canada’s geographical scope and varied topography make deployments of high-capacity fibre optic and coaxial cable expensive and unsustainable (Adria & Brown, 2012, p. 13; Rajabiun & Middleton, 2014). Recent analysis from Alberta asserts that wireless broadband technologies are the only economical option for high-speed internet service when the density of households drops below two per square kilometer (Dobson & Massig, 2017, pp. 14–15). Accordingly, telecommunications service providers have relied on wireless technologies to serve rural and remote communities (ISED Canada, 2012).
The term “wireless” refers to technologies that use over-the-air transmitters and receivers for communication, and are categorized as mobile, fixed-wireless access (FWA) or satellite technologies. Mobile wireless technologies include cellular phone services delivered over third- and fourth-generation networks (also known as 3G, 4G and 4G-LTE). FWA technologies use connections between fixed points, from a base station (usually on a tower) to one or more points on the ground (Morais, 2004, sec. 1.1, 1.4.4); these technologies are often used to aggregate or “backhaul” individual connections to fibre-optic network backbones. Geostationary satellites are used to deliver broadband broadband services to stations on the ground. Emerging fifth-generation (5G) wireless technologies are being explored (Schoolar, 2016) but Canadian deployments may still be a few years away (Audet, 2017).
Wireless broadband technologies have benefits and challenges. Transmissions from existing broadband-enabled satellite systems can be received Canada-wide, but services are only offered by a few providers and deployments in rural and remote areas are hampered by low availability of technicians for installation and maintenance (Dobby, 2016). 4G cellular-based services are available to 80% of Canadians at download speeds near 30Mbps (OpenSignal, 2017) but service plans often feature data caps and plans in rural areas are more expensive than their urban counterparts (CRTC, 2016a, pp. 255–257). Although the cost of satellite broadband services is competitive, latency can be high and advertised download speeds do not exceed 25Mbps (Xplornet Communications, 2014). Point-to-point, fixed-wireless broadband services are competitively-priced and advertised at download speeds up to 25Mbps but coverage is limited: they are only available to 31% of those Canadians who do not already have access to fibre-optic or cable-based services (CRTC, 2017, p. 281).
Canada’s major telecommunications providers are dominant in urban areas where legacy telephone and cable infrastructure exists (CRTC, 2016a, p. 246). Small and independent internet service providers have tended to carve out markets in rural areas by providing fixed-wireless services for rural and remote customers, following Winseck’s notion of the “competitive fringe” that exists outside incumbent providers’ core service areas (1998, p. 65). Popular technologies used in Canada operate in several wireless frequency ranges:
- the 700Mhz range provides reliable point-to-point communication that can penetrate tree cover and tolerate changes in terrain or architecture
- the 900 Mhz, 1800 Mhz and 5000 MHz ranges are unregulated and can be used by anyone
- the 2500 MHz range accommodates high-bandwidth throughput but doesn’t propagate as well as the 700 MHz band; and
- the 3500 Mhz range provides high-speed access for point to point transmissions over long distances, but can be hindered by tree cover, topography, or architecture (Canadian Spectrum Policy Research, 2012b; Communications Research Centre of Canada, 2011; McNally & Trosow, 2013, p. 24; Taylor, 2013, p. 124).
Spectrum management and the emergence of auctions in Canada
Though some wireless frequency ranges are available for anyone to use, and others are made available on a “first come, first served” basis (ISED Canada, 2016), internet service providers prefer exclusive access to spectrum to guarantee reliable, clear, uninterrupted service. The Canadian government regulates access to spectrum under the authority of Industry, Science, and Economic Development (ISED) Canada,Footnote 1 who has made licences available for service providers in defined frequency ranges called “bands” or “blocks” (Canadian Spectrum Policy Research, 2012a).
ISED Canada is governed by the Telecommunications Act (1993), which lists among its policy objectives the development of a telecommunications system that safeguards and enriches Canada’s social and economic fabric (sec. 7(a)), the enhanced efficiency and competitiveness of telecommunications services (sec. 7(c)), and the availability of reliable and affordable communications services for all Canadians (sec. 7(b)). Since access to wireless spectrum is regulated, spectrum management can be seen as a supply-side policy mechanism for enhancing broadband deployment and access (after Belloc, Nicita, & Alessandra Rossi, 2012). Allocation of spectrum through licensing mechanisms is one of ISED Canada’s most critical policy tools, and it is governed by the objective set in its Spectrum Policy Framework (Industry Canada, 2007): “To maximize the economic and social benefits that Canadians derive from the use of the radio frequency spectrum resource.”
Historically, access to spectrum was allocated in a comparative selection process, also referred to as a “beauty contest.” Potential users made a case to the regulator, arguing that they would make efficient and effective use of the resource in support of national policy objectives. Changes in the Budget Act of 1996 permitted the Minister of Industry to begin using auctions for spectrum allocation. Since the first auction in 1999, the Canadian government has relied on these mechanisms to award wireless frequency licences (Taylor, 2012), generating $14 billion for the General Revenue pool (ISED Canada, 2007a; Longford, 2011, p. 124; Taylor, 2013, pp. 131–132). ISED Canada’s Spectrum Policy Framework decision to use auctions for licence allocation aligns with their strategy of relying on market forces to the greatest extent possible (Industry Canada, 2007, secs. 2, 3.5).
Despite frequent public consultations on auction and spectrum frameworks (McNally, Mowatt, & Pintos, 2014) and an awareness of asymmetric conditions that favor incumbents (Athey, Coey, & Levin, 2013), small or independent internet service providers have seldom had the means to obtain spectrum at Canadian auctions. This is seen as a barrier to competition and to the ongoing penetration of fixed-wireless broadband services into rural and remote areas. Two studies of Canadian Internet Service Providers (ISPs) — one in 2009 and one in 2016 — noted a perception among small competitors that valuable wireless spectrum licences are concentrated in the hands of Canada’s largest providers, and are largely unused (McNally, Rathi, Joseph, Evaniew, & Adkisson, 2017; Middleton & Van Gorp, 2009) . Although ISED Canada’s 2010 spectrum inventory data showed that 81% of all commercial mobile spectrum licences were in the hands of Canada’s largest telecommunications service providers (ISED Canada, 2011), more recent data is not available.
Debates on the appropriateness of auctions
Critics and researchers have examined the value of auctions from a policy perspective to determine whether or not the mechanism helps or hinders the achievement of policy objectives. In response to Canada’s decision to use spectrum auctions, economist David W. Conklin asserted that a low number of bidders and dominant incumbents would hinder their effectiveness (Taylor, 2012, p. 13). Former head of Spectrum Policy at the Department of Communications, Max Melnyk, argued that an auction system would result in “less competition, higher consumer prices, and no public benefits such as job creation and research development” (Melnyk, 1997, p. 1). Melnyk also cited arguments against auctions that were recorded in the government’s own Public Review of the Comparative Selection and Radio Licensing Process (1994), including diminished ability for the government to effect social policy objectives, constraining technology deployment to large markets, and large up-front payments that create a barrier to service deployment. Other research has found that auctions artificially inflate the value of licences, incentivize anti-competitive behavior like spectrum hoarding, and favor incumbents by requiring significant capital to bid on and win access to licences in lucrative markets (Longford, 2011, p. 126; Longford & Wong, 2007, p. 3).
In response to criticisms, and to maximize the economic efficiency of auction mechanisms, regulators and policy analysts have devised approaches to auctions that minimize or compensate for these effects (Athey et al., 2013; Chunchun Wu, Sheng Zhong, & Guihai Chen, 2014; Jung, Yu, & Kim, 2014; Kim et al., 2012; Klemperer, 2003). These involve adjusting the auction format, setting reserve prices for licences, designing bidding procedures to prevent collusion among auction participants, and creating incentives to improve access for new market entrants (Cramton, Kwerel, Rosston, & Skrzypacz, 2011). Incentives built in to auction designs are referred to as “set-aside” or “offset” provisions, and frequently take the form of caps on the amount of spectrum that can be owned by a single entity or partnership or blocks of spectrum that are designated for use by newcomers (Kim et al., 2012). Use of offsets and set-asides has been criticized: for example, an independent service provider may win a frequency licence based on a set-aside, only to be acquired later by a larger, incumbent telecom provider in a secondary market transaction (Geist, 2007).
Canadian wireless spectrum auction designs
ISED Canada has invested significant time and energy on frameworks for its auctions (ISED Canada, 2007b, 2009, 2014). Early auction designs used a simultaneous multiple round format, where bidders used price increments determined by ISED Canada and were penalized for not bidding (Cramton et al., 2011, p. S184; Industry Canada, 1999). More recent designs implemented a complex Combinatorial Clock Auction (CCA) format, where competitors place all-or-nothing bids on flexible “packages” of licences (ISED Canada, 2013, 2014). Smaller-scale auctions, used to award unsold licences from larger auctions, typically involve anonymous, sealed bids (ISED Canada, 2009, 2015a).
ISED Canada (2011) maintains a complete inventory and plan for spectrum and allocates licences in geographical service areas at four tier levels. Tier 1 consists of a single national area that represents the entire country; Tiers 2 and 3 are essentially province- or territory-wide areas, with some subdivisions made in densely-population regions. Tier 4 consists of 172 of regional service areas based on 1996 census subdivisions (ISED Canada, 2015b). Licences for 700MHz access are allocated in Tier 2, licences for 2500 MHz are allocated at Tiers 3 and 4, and 3500MHz licences are offered only at Tier 4.
When a licence for a specific band is awarded to a service provider, the licence is exclusive. Licence terms vary but are commonly set for terms of 10 or 20 years (Taylor, Middleton, & Fernando, 2017). Licence holders may trade, lease or sell their allocations, but these arrangements must comply with the original auction conditions and must be approved in writing by ISED Canada (ISED Canada, 2007b, 2009, 2014).
Research Questions
This study seeks evidence to support or refute the suggestion that valuable fixed-wireless frequency licences are concentrated in the hands of Canada’s major internet service providers (ISPs). The starting point for this investigation is the published results of seven wireless spectrum auctions for 700 MHz, 2500 MHz and 3500 MHz frequencies, held in Canada between 2004 and 2015.
Key questions are:
- What portion of wireless spectrum licences in the 700MHz, 2500MHz and 3500Mhz frequency ranges were won at auction by Canada’s major ISPs or their subsidiaries?
- What portion of these wireless spectrum licences are currently being held by Canada’s major ISPs?
- In situations where licences were won by small or new providers, how often were those companies later acquired or subsumed by one of Canada’s major ISPs?
- Is there evidence to suggest that any of ISED Canada’s auction design choices led to decreased market concentration for wireless spectrum?
Collecting and tracing specific spectrum licences from their auction awards to their implementation as part of wireless broadband services helps address these research questions. This data, in turn, can be used as a vehicle for assessing how well auction mechanisms help ISED Canada achieve its policy objectives.
Methodology
Data Collection
Results for seven wireless spectrum auctions were collected from ISED Canada sources. Data included information on three major auctions (3500 MHz licences in 2004, 700 MHz licences in 2014, and 2500 MHz licences in 2015) and four residual auctions in the same frequency ranges.
Multiple ISED Canada sources were used to collect auction data:
- reports on auction results were scraped from web pages using tools from dataminer.io
- information on auction parameters and rules were collected from the framework documents created for each auction under evaluation
- data on current licence holders was retrieved using queries of the web-based Spectrum Licence Browser
- information on currently-deployed equipment, connected with wireless licences, was harvested from a full extract of the Spectrum Management System database, dated Nov 2, 2017
ISED Canada information yielded the names of 41 entities that either won or currently own wireless spectrum licences. Information on these companies, including aliases, financial reports, and industry categorizations were collected from the Canadian Radio-television Telecommunications Commission (CRTC), the Financial Post, Bloomberg, Canada Newswire, and company web sites.
Data Analysis
Data from all sources was combined into tabular form, divided into five collections:
- Auction designs and licence conditions
- Licence owner information
- Auction winners
- Spectrum Licence Browser data
- Spectrum Management System (SMS) data
With the exception of the auction design information, data was cleaned using Google’s OpenRefine software to standardize the notation used for company names, geographical licence areas and licence numbers. Some additional data processing was performed by creating a MySQL database to cross-reference auction winners, current licence holders, and current equipment deployment data. All cleaned and normalized source data is available from DataVerse as a set of comma-separated value (CSV) files (Joseph, 2017).
Findings
Inconsistent data
Text Description of Image
This graphic depicts the assignment of letter names to frequency ranges in the 700 MHz, 2500 MHz, and 3500 MHz wireless spectrum auction blocks:
- The 700 MHz range consists primarily of 6 MHz blocks, with two 5 MHz blocks near the end of the range. Blocks A, B and C consist of two 6 MHz pairs:
- Block A: two 6 MHz ranges beginning at 698 MHz and 728 Mhz
- Block B: two 6 MHz ranges beginning at 704 MHz and 734 MHz
- Block C: two 6 MHz ranges beginning at 710 MHz and 740 Mhz
- Block D: one 6 MHz range beginning at 716 MHz
- Block E: one 6 MHz range beginning at 722 MHz
- Block C1: one 5 MHz range beginning at 746 MHz
- Block C2: one 5 MHz range beginning at 751 MHz
- The 2500 MHz range consists of primarily of 10 MHz blocks assigned letters A through G. Each of these blocks is paired with a second 10 MHz range labeled A’ through G’. The 2500 MHz range also contains two 25 MHz blocks labeled H and I:
- Block A: 10 MHz range beginning at 2500 MHz, paired with 10 MHz block A’ beginning at 2620 MHz
- Block B: 10 MHz range beginning at 2510 MHz, paired with 10 MHz block B’ beginning at 2630 MHz
- Block C: 10 MHz range beginning at 2520 MHz, paired with 10 MHz block A’ beginning at 2640 MHz
- Block D: 10 MHz range beginning at 2530 MHz, paired with 10 MHz block A’ beginning at 2650 MHz
- Block E: 10 MHz range beginning at 2540 MHz, paired with 10 MHz block A’ beginning at 2660 MHz
- Block F: 10 MHz range beginning at 2550 MHz, paired with 10 MHz block A’ beginning at 2670 MHz
- Block G: 10 MHz range beginning at 2560 MHz, paired with 10 MHz block A’ beginning at 2680 MHz
- Block H: 25 MHz range beginning at 2570 MHz
- Block I: 25 MHz range beginning at 2595 MHz
- The 3500 MHz range consists of 25 MHz blocks labeled D, E, F, G, H, J and K. For auction purposes block D is paired with block H, block E was paired with block J, and block F was paired with block K. The frequency ranges are:
- Block D: 25 MHz range beginning at 3475 MHz
- Block E: 25 MHz range beginning at 3500 MHz
- Block F: 25 MHz range beginning at 3525 MHz
- Block G: 25 MHz range beginning at 3550 MHz
- Block H: 25 MHz range beginning at 3575 MHz
- Block J: 25 MHz range beginning at 3600 MHz
- Block K: 25 MHz range beginning at 3625 MHz
Figure 1: Frequency ranges and block names for 700 MHz, 2500 MHz and 3500 MHz licences
ISED Canada creates band plans for its managed frequency ranges, and allocates licenses within these ranges in designated “blocks” (see Figure 1). For example, the 700 MHz range is divided into frequency blocks labeled A through E, C1 and C2. In auction winner information, each licence is identified by a service tier, a geographic area, a frequency range and a block. For example, the 3500 MHz license for block F, area 4-043 (tier 4, covering the Windsor, Ontario area) was won by Bell. Auction results provide this information, but neither the Spectrum Licence Browser nor the Spectrum Management System provide frequency block data
Table 1: Data inconsistencies across ISED Canada sources
| Tier Data | Region Data | Frequency Data | Block Data | Owner Info | Licence Number | |
|---|---|---|---|---|---|---|
| Auction Winners | Yes | Yes | Yes | Yes | Yes | |
| Spectrum Licence Browser | Yes | Yes | Yes | Yes | Yes | |
| Spectrum Management System | Yes | Yes | Yes | Yes | Yes |
For auctions in the 700 MHz and 2500 MHz ranges, it was possible to link auctioned licences to current owners by mapping transmission frequency information in Spectrum Management System data records back to ISED Canada’s band plans and Spectrum Licence Browser data. In many cases where direct match could not be made, logical deduction sufficed: for example, matches in the 700 MHz range often left only one licence unaccounted for, making it easy to identify the owner of the missing block licence. With this technique, it was possible to determine the current licence holder for all 700 MHz licences, and all but two 2500 MHz licences.
The situation in the 3500 MHz frequency range was more complex. First, the initial auction took place in 2004, and the 10-year licence term has lapsed on all of the original awards. Second, many licences are no longer owned by the company that won the original auction. Third, Spectrum Management System data shows many regions for which no 3500 MHz equipment is deployed. Finally, although only four blocks were auctioned, there are actually seven blocks available in the range because blocks D, E, and F are paired with blocks H, J and K (see Figure 1); in some cases, companies have deployed equipment in only one of the two paired blocks. Combined, these factors resulted in a 55.5% success rate in matching auction winners to current 3500 MHz licence holders.
Representations of Auction Winners and Licence Holders
Table 2 provides data on the number of unique companies represented across auction winners, current owners, and equipment deployment data. Forty-one unique auction winners were seen across all seven auctions, but only 18 of these winners are listed as having currently-deployed equipment in the Spectrum Management System. The Spectrum Licence Browser shows 25 unique companies as licence owners, implying that seven organizations currently hold licences but are not using them.
Table 2: Number of unique licence owners in auction winner, current owner and current deployment data
| Frequency | Auction Winners | Current Licence Holders | Current Licence Users |
|---|---|---|---|
| 700 MHz | 8 | 9 | 9 |
| 2500 MHz | 9 | 10 | 10 |
| 3500 MHz | 33 | 19 | 8 |
| All 7 Auctions | 41 | 25 | 18 |
The variation in ownership for the 700 MHz and 2500 MHz licences is not significant, but data for the 3500 MHz frequency varies broadly: 33 unique owners were represented at the time of auction, 19 current owners were listed in the Spectrum Licence Browser, and only eight unique licence owners can be traced to have specific equipment deployments. Though this finding is notable, it must be noted that the inability to accurately link auction winners to deployment data means these eight are based on a reduced set of 376 licences.
Across the seven analyzed auctions, 27 of the 41 unique winning companies took home a licence from a single auction (see Table 3). Only four organizations were able to procure licences in more than two auctions: Bell and Rogers won licences in five auctions each, and Telus and Mipps, Inc. took home licences in three. Mipps, Inc. was acquired by Primus in 2003, and none of Mipps, Primus, or Birch Communications (Primus’ current owner) appears as a current licence holder in the frequencies under analysis. This finding suggests that few companies have the means to win licences at multiple auctions, and that large incumbents are favoured as auction winners.
Table 3: Distribution of auction winners across auctions
| Auctions | Companies who won licenses |
|---|---|
| 1 | 27 |
| 2 | 10 |
| 3 | 2 |
| 4 | 0 |
| 5 | 2 |
Consolidation of licence holders
Corporate information related to revenue and customers is difficult to come by for telecommunications service providers because most are not publicly-traded. The CRTC requires all registered service providers to report annual revenue and customer figures, must also keep this information confidential (CRTC, 2007, sec. 3). The CRTC’s Communications Monitoring Reports provide information in aggregate (CRTC, 2017, pp. 209–216), but there is no reliable way to represent revenue numbers for companies that have won spectrum licences. Data analysis was restricted to labeling Canada’s Top 5 service providers, as determined by the CRTC, since there was no ability to differentiate providers by revenue categories, geographical reach, or subscribed customer counts. The following companies are currently listed as Canada’s Top 5: Group Bell, Group Quebecor, Group Rogers, Group Shaw and Group TELUS (CRTC, 2017, p. 215).
Data collection on the 41 unique auction winners revealed that nine companies have been merged or acquired by other companies since their auction wins, as outlined in Table 4. Investigation into ownership of companies named as licence holders resulted in additional entities being included as part of the “Top 5”:
- The Inukshuk Wireless Partnership was founded in 2005 as an agreement between Bell and Rogers
- Freedom Mobile, Inc., which once operated in Canada as Wind Mobile, was acquired by Shaw in 2016
- Tele-Mobile Company was created as a wholly-owned subsidiary of Telus in 2001. It appears in the list of 3500 MHz auction winners but does not currently hold any licences in that frequency range.
- Vidéotron was acquired by Quebecor in 2001. Due to the acquisition date (prior to the year of the first auction under study), Vidéotron is not listed in Table 4.
Table 4: Corporate acquisitions among licence owners
| Original Company | New Owner | Year of acquisition |
|---|---|---|
| Amtelecom | Bragg/Eastlink | 2016 |
| Chatham Internet Access | Xplornet | 2015 |
| Wind Mobile (now Freedom Mobile) | Shaw | 2016 |
| Mipps, Inc. | Primus, which was acquired by Birch Communications in 2016 | 2003 |
| MTS | Bell, with some services and subscribers distributed to Telus and Xplornet | 2017 |
| RIPNet | Xplornet | 2011 |
| Source Cable & Wireless | Rogers | 2014 |
| Telecom Ottawa | Atria, which was acquired by Rogers in 2010 | 2008 |
| Xcelco | Bragg/Eastlink | unknown |
Licences held by Top 5 service providers
The primary research questions for this study were related to the number of licences held by top internet service providers. This data is summarized in Table 5.
Table 5: Licence distribution among Canada's Top 5 ISPs
| Won at auction | Currently owned | Linked to current deployments | |
|---|---|---|---|
| 700 MHz | 92.78% | 92.78% | 92.75% |
| 2500 MHz | 76.74% | 77.08% | 97.83% |
| 3500 MHz | 59.52% | 46.97% | 72.62%* |
* Note: This figure is based on deployment data, which is 55% of the total number of 3500 MHz licences
92.78% of the 700MHz licences auctioned were acquired by one of Canada’s top five service providers or their partnerships, and this number has not altered in the intervening timeframe. For the 2500 MHz frequency, 76.74% of licences were won by top providers, and spectrum browser data shows that 77.08% are currently in those providers’ hands. 3500 MHz frequency data shows that 59.52% of licences were won by top providers, but the Spectrum Licence Browser data shows that this number has decreased to 46.97%.
When considering actual deployment data, it must be noted that findings are limited to licences that could be linked to equipment deployments. It is likely that actual deployment rates are higher than shown in this analysis. Based on traceable licences, 700 MHz and 2500 MHz allocations are largely being used by the top five service providers (92.75% and 93.83%, respectively), and the portion of traceable 3500 MHz licences operated by top five providers is 72.62%.
Changes in licence ownership
In the 700MHz and 2500Mhz frequency ranges, few licences have changed hands since auctions were held: four in the 700 MHz range, and 18 in the 2500 MHz range. This is not surprising given the recent dates for many of the auctions and the 20-year terms for those licences. In the 3500 MHz range, however, 366 licences were found where the current owner is not the same as the original auction winner. 48 licences were found to have migrated from a small or independent service provider to one of the Top 5 incumbents, and 40 other licences moved in the opposite direction.
Tracing licences to current deployments
Data from the Spectrum Management System provides a mechanism to determine how many auctioned licences in each frequency range are linked to equipment deployments. To arrive at this determination, queries were used to link auctioned licences to at least one piece of equipment deployed in a geographic licence area. Where licences and equipment could be matched, data shows 71.13% of 700MHz licences in use, compared with 49.63% for 3500 MHz and 15.28% for 2500 Mhz. Maps depicting these results are presented in Figures 2 through 4.
Figure 2: Licence usage in the 700MHz frequency range
Text Description of Image
This map outlines the deployment of auctioned 700 MHz frequency blocks, based on the author’s ability to trace auctioned licenses to equipment deployments shown in ISED Canada data from November 2, 2017.
700 MHz licenses are auctioned at Tier 2, which roughly align with provincial boundaries. There are some subdivisons in Quebec and Ontario, and the northern territories are combined. The map also notes that Alberta and Saskatchewan are represented by two Tier 2 regions each, which accounts for variations made to account for the city of Lloydminster (on the Alberta/Saskatchewan border).
7 blocks were auctioned, and results show 6 blocks deployed in most central and eastern Canadian regions (from Ontario eastward, with the exception of northern Québec, where 3 blocks were found in use). British Columbia and Alberta show 5 blocks deployed, with 3 blocks deployed in Manitoba, 2 in Saskatchewan, and 1 in northern Canada.
Figure 3: Licence usage in the 2500MHz frequency range
Text Description of Image
This map outlines the deployment of auctioned 2500 MHz frequency blocks, based on the author’s ability to trace auctioned licenses to equipment deployments shown in ISED Canada data from November 2, 2017.
2500 MHz licenses are auctioned at Tier 3 everywhere except northern Canada, where Tier 4 areas (aligning with territorial boundaries) are used.
9 blocks were auctioned in the 2500 MHz range, but this analysis was only able to trace a maximum deployment of 3 blocks, in southwestern Alberta. Most areas in British Columbia, Alberta, and Manitoba show 2 licence blocks deployed; this is also true of southern regions of Ontario and Québec, along the St. Lawrence River and Great Lakes. For most of eastern Canada, northern Canada, northern Québec, and northern Ontario, no licence blocks were seen to be deployed.
Figure 4: Licence usage in the 3500MHz range
Text Description of Image
This map outlines the deployment of auctioned 3500 MHz frequency blocks, based on the author’s ability to trace auctioned licenses to equipment deployments shown in ISED Canada data from November 2, 2017.
3500 MHz licenses are auctioned at Tier 4, and the range also includes an 8th block, L, which was not auctioned but is in use by some providers.
The map shows a varied range of 3500 MHz deployments across Canada, with many regions in highly-populated areas (for example, the Windsor-Montréal corridor) and highly industrial areas (for example, northeastern Alberta) showing deployments across 6 or 7 blocks. Most rural regions show deployment of between 1 and 4 blocks. Notably, most of Saskatchewan, one area in northern Manitoba, and one large area in northern Québec show 0 blocks deployed.
Apparently-unused Licenses
The distribution of licences that could not be linked to deployments is shown in Table 6. The distinction of “apparently-unused” is important: analysis was done by tracing auctioned licences to deployments, and these findings have already highlighted problems with inconsistent and incomplete data. Spectrum Management System data contains records of deployments that could not be linked to an auctioned licence, resulting in many licences that “appear” unused.
In the 700MHz range, only Bragg/Eastlink and SaskTel appear to be using all their licenses. Telus and Bell appear to have the highest number of unused licences, with ten and eight each, respectively. All told, Top 5 ISPs are responsible for 26 of the 28 apparently-unused licenses at this frequency. The 2500 MHz spectrum auction was held in 2015, and equipment deployment in that frequency range is low. Telus and Bell account for 50% of the unused licenses in the range, with 82 and 46 each (respectively); Xplornet owns 43 unused licences, and Rogers owns 41.
A more interesting picture emerges in the 3500 MHz range, where 77.58% of apparently-unused licences are owned by companies other than the Top 5 ISPs. Here, the largest portion – 162 – are owned by Xplornet, representing 64% of the licences they hold. The Inukshuk Wireless Partnership ranks second, with 70, but this is only 22.95% of their total holdings. These two entities account for 82.15% of all available 3500 MHz licences. Ten companies own 25 or fewer 3500 MHz licences, and seven of these could not be linked to specific equipment deployments in their assigned area. Detailed counts, by company, of apparently-unused licenses in each of the three frequency ranges are provided in Tables 7 through 9.
Table 6: Distribution of apparently-unused licences among licence owners
| Frequency | 700 MHz | 2500 MHz | 3500 MHz |
|---|---|---|---|
| Total Licences | 97 | 302 | 678 |
| Unused Licences | 28 | 256 | 330 |
| Number of Companies Apparently Not Using Licences | 7 | 10 | 18 |
| Number of Top 5 Companies Apparently Not Using Licences | 5 | 5 | 3 |
| Number Apparently-Unused by Top 5 | 26 | 187 | 74 |
| Percent Apparently-Unused by Top 5 | 92.86% | 73.05% | 22.42% |
| Number Apparently-Unused by Everyone Else | 2 | 69 | 256 |
| Percent Apparently-Unused by Everyone Else | 7.14% | 26.95% | 77.58% |
Table 7: Distribution of apparently-unused 700 MHz licenses
| Owner | Apparently-Unused Licences | Owned Licences |
|---|---|---|
| Telus* | 10 | 30 |
| Bell* | 8 | 31 |
| Videotron* | 4 | 4 |
| Freedom Mobile Inc.* | 3 | 3 |
| Feenix | 1 | 1 |
| Rogers* | 1 | 22 |
| Xplornet | 1 | 1 |
*indicates Top 5 ISP
Table 8: Distribution of apparently-unused 2500 MHz licences
| Owner | Aparently-Unused Licences | Owned Licences |
|---|---|---|
| Telus* | 82 | 122 |
| Bell* | 46 | 51 |
| Xplornet | 43 | 44 |
| Rogers* | 41 | 41 |
| Videotron* | 14 | 14 |
| Bragg | 11 | 11 |
| Kian Telecom Inc. | 10 | 10 |
| Freedom Mobile Inc.* | 4 | 4 |
| CCI Wireless | 3 | 3 |
| TBayTel | 2 | 2 |
*indicates Top 5 ISP
Table 9: Distribution of apparently-unused 3500 MHz licences
| Owner | Apparently-Unused Licences | Owned Licences |
|---|---|---|
| Xplornet | 162 | 252 |
| Inukshuk Wireless Partnership* | 70 | 305 |
| CCI Wireless | 25 | 25 |
| ABC Allen Business Communications | 16 | 17 |
| I-NetLink Inc. | 11 | 24 |
| iTeract inc. | 11 | 11 |
| BroadPoint International Telecom Inc. | 9 | 9 |
| Cascade Divide Enterprises Inc. | 6 | 6 |
| Comcentric Networking Inc. | 3 | 3 |
| Rogers* | 3 | 3 |
| TBayTel | 3 | 3 |
| ccROUTE Inc. | 2 | 2 |
| Sogetel Inc. | 2 | 2 |
| SSI Micro Ltd. | 2 | 2 |
| Vianet Inc. | 2 | 2 |
| Cranbrook Internet Network Technologies Inc. | 1 | 1 |
| Teledistribution Amos Inc. | 1 | 1 |
| Telus* | 1 | 1 |
*indicates Top 5 ISP
Discussion
Recent work has highlighted a lack of spectrum usage information in Canada despite the intended creation of a Spectrum Analytics Centre (Taylor et al., 2017, p. 129). The last inventory of Canadian wireless spectrum was done in 2010 (ISED Canada, 2011) and it presented a mixed view of spectrum usage rates. 700 MHz, 2500 MHz and AWS-3 auctions have all been held since that date, and a more current understanding of actual spectrum usage would be of value – especially as ISED Canada is undergoing a consultation on its Spectrum Outlook for 2018-2022 (ISED Canada, 2017).
ISED Canada’s web site provides access to a wide range of resources, but gaps and inconsistencies mar auction information made available by the ministry. Occasionally licence data is shown with either census population or winning bid amounts, but both figures are never provided together; results are grouped by winning company for some auctions, and by geographic licence area for others; recent auctions include complete bidding records and lists of qualified bidders, but most older auctions do not. Comprehensive studies across auctions – which would more fully represent the range of ISED Canada’s auction designs and provide more insight into how they contribute to the ministry’s goals – are difficult to conduct with data as it is currently provided.
ISED Canada could measure the ability of auction mechanisms to achieve policy objectives if it tracked licence ownership and usage more carefully. Small changes to ISED Canada’s Spectrum Management System (SMS) would make this kind of tracking simple and accessible. These changes include the addition of frequency block information to SMS data, and post hoc updates of auction winner results to include specific licence numbers. Shifts in licence 3500 MHz licence ownership are interesting but the inability to fully-link original licences to current owners makes analysis difficult. Since the licence terms for most auctions extend for 10 or 20 years (Taylor et al., 2017, p. 120), changes in ownership must be studied at the scale of decades. Robust SMS data, including complete licence information, is a prerequisite for long-term study.
Aside from concerns about data completeness, other limitations of this study have been noted. First, traces of licence deployment are simplistic, based on the ability to link a specific licence to at least one piece of equipment in a geographical area. Additionally, this analysis does not take geography or deployment density into account. As examples: Telus has deployed more than 650 pieces of 700 MHz equipment under a single license in the province of ManitobaFootnote 2, and SSI Micro has equipment deployed in northern Canada using non-auctioned 2500 MHz licences. Data from the Spectrum Management System can be used to plot and analyze the deployment of equipment at the level of individual radio towers, and that information could illuminate apparently-unused licences that are actually in use, but such analysis is beyond the scope of this study. Second, collected data was unable to account for grandfathered licences, licence transfers, sub-leases and sub-divisions that may have affected use and ownership of spectrum. One example here was the inability to resolve ownership for seven licences in the 3500 MHz range because they are being shared by more than one companyFootnote 3. Finally, limited access to the details of licence movement makes it impossible to understand the reasons behind shifts: this analysis was a “black box” that examined inputs and outputs but had no visibility into the processes that drove change. Undoubtedly, these internal mechanisms are complex.
As noted in findings, the 700 MHz (2015) and 2500 MHz (2014) auctions are recent. It is not surprising to see that few licenses have changed hands in the intervening timeframe, but the low number of auction winners and the high concentration of ownership by incumbents, as predicted by economist David W. Conklin in 1998 (Taylor, 2012, p. 13), is notable. On a positive note, although the overall designs of the 700 MHz and 2500 MHz auctions were quite similar, the framework for the 700 MHz auctions included both a general and a rural deployment requirement on a five-year timeline (ISED Canada, 2013, para. 320,337) and the 2500 MHz auctions included a ten-year requirement with region-specific targets (ISED Canada, 2014, para. 343). There are far fewer 700 MHz licences than 2500 MHz licences, but deployment in the 700 MHz range is high – 71%, versus 15% for 2500 MHz licences. While 700 MHz spectrum is highly-valued for its service potential, this difference still suggests that short timelines and bold deployment requirements may encourage infrastructure investment. By comparison, the 3500 MHz included a five-year implementation requirement, but the target was set at 50% (ISED Canada, 2009, p. 29). 3500 MHz licence deployment has apparently not advanced past that 2009 threshold; when contrasted with 700 MHz deployment, this suggests that targets can be more aggressive.
A high-level summary of the analyzed auctions’ designs and licence terms is included as an appendix to this paper. ISED Canada has increasingly relied on the Combinatorial Clock Auction (CCA) format for its wireless spectrum auctions (ISED Canada, 2014, sec. Annex D), but the low number of auctions analyzed for this paper does not provide an adequate basis for evaluating the effectiveness of the design. When the CCA framework was developed, concerns were expressed by respondents about the complexity of the system (ISED Canada, 2014, para. 42) and rules that would favour national bidders (ISED Canada, 2014, para. 40), and ISED Canada responded by offering training, mock auctions (ISED Canada, 2014, para. 50), and by citing regional spectrum aggregation limits (ISED Canada, 2014, para. 46). The low number of auction participants in the 700 MHz and 2500 MHz auctions, as well as the prominence of national and large regional service providers among their winners, suggest that a more thorough study of the CCA format’s impact on outcomes is warranted.
Text Description of Image
This bar graph depicts ownership and apparent deployment of 3500 MHz spectrum licences, broken out by licence owner across three criteria:
- licences won at auction (data from combined 3500 MHz licence auctions in 2004 and 2009, retrieved from http://www.ic.gc.ca/spectrumauctions)
- licences currently owned by each provider (also summarized in Table 9)
- licences apparently-deployed by each provider (also summarized in Table 9)
The graphic indicates that Bell, Tele-Mobile, and Rogers initially won the majority of 3500 MHz spectrum licences, but that the Inukshuk Wireless Partnership (between Bell and Rogers) and Xplornet currently own 82.27% of available licences in this frequency range (with 37.22% of all licences owned by Inukshuk). The graphic also indicates that most 3500 MHz licence deployments can be traced to Inukshuk (with 235 of 305 licences apparently in use) and Xplornet (with 90 of 252 licences apparently in use).
The graph also indicates Canada’s Top 5 ISPs as identified by the CRTC: Bell, Rogers, Telus, and Inukshuk (a partnership between Bell and Rogers).
Figure 5: Visual representation of 3500 MHz licence ownership and deployment distribution
By far, the most interesting findings are in the 3500 MHz frequency range. These include the reduction in the total number of license owners from 33 (at auction time) to 19 (based on November 2017 Spectrum Licence Browser data), the fact that only eight companies are currently deploying equipment under these licenses, and the apparently-low deployment rate (49.63%) in spite of the 14-year span between the initial auction and this analysis. A more detailed look at this distribution of 3500 MHz licences, as shown in Figure 5, illustrates two things. First, the Inukshuk Wireless Partnership (between Bell and Rogers) and Xplornet account for 82.27% of all licences in the range, and Xplornet – a “nationally-available” ISP – single-handledly owns 37.22%. The Inukshuk Partnership took over licences previously owned by Bell and Rogers, and this transfer can account for 279 of the Partnership’s 305 licences, but Xplornet did not win any 3500 MHz licences in 2004. The company has acquired three competitors in recent years (Chatham Internet Access, RipNet and YourLink) but these acquisitions only account for 35 licences; as a result, the provenance of more than 200 licences now owned by the company is unknown. Second, less than half the licences owned by Xplornet appear to be deployed. While this may seem surprising, it is not inconsistent with apparent deployment rates among other small or independent service providers in this range (see Table 9). This finding highlights problems with ISED Canada data, raises questions about the experiences of small-scale 3500 MHz licence holders, and warrants an examination of the barriers or incentives that make equipment deployment difficult.
With the exception of variations in the 3500 MHz frequency range, findings support small and independent service providers’ accusations that wireless spectrum licences are concentrated in the hands of Canada’s Top 5 providers. This aligns with the findings of ISED Canada’s 2010 spectrum inventory (ISED Canada, 2011). Though consolidation is happening among Canada’s ISPs, data from this study shows no clear trend in favour of incumbents; indeed, Bragg/Eastlink and Xplornet both appear to have attained a near-national foothold in the Canadian market. At least 350 3500 MHz licences have changed hands since 2004 but the shift favours neither large incumbents nor small-scale ISPs, with 48 moving from small ISPs to Top 5 providers and 40 moving in the other direction. Though the total number of auctions examined for this study was small, the relatively minor shifts in licence ownership by Top 5 providers suggests that the design and terms of the initial auction, more than any other factor, govern the access to and distribution of wireless spectrum licences.
Conclusion
Since the federal government announced its intention to begin spectrum auctions in 1996 (Taylor, 2012, p. 12), Canada has increasingly relied on market-based methods for allocating wireless spectrum licences. Several of the criticisms leveled against the practice in the late 1990s have come to fruition: David W. Conklin’s fears of low numbers of bidders, Max Melnyk’s fears of lessened competition, and general worries about deployment being limited to large urban markets (Canada Gazette, Part I, 1994; Melnyk, 1997, p. 1; Taylor, 2012, p. 13). Despite a range of auction designs across 11 major auctions since 1999, spectrum has been concentrated in the hands of large players and, in contrast to claims about shortages, usage of spectrum licenses is low outside of urban areas. If ISED Canada is to continue with its auction-based approach to spectrum allocation and management, it should enhance its deployment requirements, set aggressive deployment targets for rural and remote areas, and monitor spectrum usage more closely. Finally, to ensure that valuable wireless spectrum is being used for the benefit of all Canadians, ISED Canada should remove spectrum usage rights from companies that cannot or do not realize that benefit.
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Appendix: Summary of auction designs and parameters
| 3500 MHz Auction & Residuals | 700 MHz Auction & Residuals | 2500 MHz Auction | ||
|---|---|---|---|---|
| Auction Conditions | Spectrum Aggregation Limits | Limited to 100 MHz (FWA band) per service area for companies and affiliates/associates. Limit applies during auction and for two years following. Spectrum acquired through older First Come, First Served (FCFS) process is not considered part of the 100MHz limit, but after the auction anyone with more than 100MHz must to divest down to 100MHz. | Limit of 2 paired 6Mhz+6MHz blocks for licenses; unpaired blocks have no cap.Spectrum cap of one paired block within B, C, C1 and C2 for "large wireless service providers" (2012, p. 2) "Large” defined as 10% of national market share or 20% or more of the wireless subscriber share in the province, based on CRTC data (2013, para. 247). Limits apply for 5 years after licence award (2103, para. 247) | Limit of 40MHz in each service area except in NWT, Yukon and Nunavut where no limit will applyIn areas where an existing licensee exceeds the limit, the licence is not required to divest BUT licencees will not be eligible to bid for or obtain additional licenses. Licencee can return existing licenses up to 60 days after publication of framework (2014, para. 8) Aggregation limits apply for 5 years after issue of licence (2014, para. 385) |
| Blocks | 3 PAIRED blocks (DEF) and one Single block G, all 25MHz wide | 5 paired blocks (6MHz+6MHz: A, B, and C; 5MHz+5MHz: C1 and C2) and 2 unpaired (6MHz D & E) for each area; 7 total | 2500-2570 and 2620-2690 MHz (paired, FDD): blocks of 10+10MHz in each available service area. Band 2570-2620 (unpaired, TDD) to use blocks of 25MHz. Total of 318 licenses. Regions A, B, and C used in this auction as per (2014, para.11): different frequency bands in each region. See Table 2 in 2014, p. 9. | |
| Licence Term / Duration | 10 Years | 20 Years | 20 years | |
| License Terms | Implementation Requirement | Must implement within 5 years at “level acceptable to the Department” (p. 7) Defined later as 50% of population within license area, or some other indicator of usage plans (2004, p. 29) | Rural Deployment Requirement. Licensees with access to more than 1 paired block must meet deployment requirement. In each license area where 2 or more paired blocks are held OR licensor has ACCESS to two or more, must cover 90% of population of existing HSPA network (as of 2012) within 5 years; 97% within 7 years. Access includes situations where a licensor enters into an agreement with another licensor in the same area (2013, para. 320) General Deployment Requirement. Similar to the above but limits lower, by region, with 10 year timeframes - see 2013.337 |
Licenses must be implemented within 10 years of issue. Coverage varies by service area with percentages from 10% (Upper Ouatouais) to 50% (southern NB, Ottawa, Kingston, Tornto). 20% in NWT, Yukon, Nunavut (2014, para. 343) |
| Geographical Allocation | Using Tier 4 areas, but notes that some respondents wanted urban and rural areas kept separate. Tier 4 areas in Vancouver are not available due to possible interference from radar systems. Other areas were noted as possible interference areas (Halifax, Dartmouth, Vancouver) |
Using Tier 2 service areas for all frequency blocks; 98 licenses in total | Using Tier 3 service areas (58) except for Tier 4 areas used in NWT, Yukon and Nunavut (3 areas) | |
| 2004 Auction Simultaneous Multiple Round Ascending Auction (SMRA) 2009 Auction Sealed-Bid, Second-Price Auction |
Combinatorial Clock Auction (CCA) [see overview in 2012, p7]: a variation on SMRA where all licenses are auctioned at the same time over multiple rounds. | CCA. Generic licenses grouped as per 2014, para. 63:
|
Source documents for this compilation
ISED Canada. (2015, July). Licensing Framework for Residual Spectrum Licenses in the 700 MHz and AWS-3 Bands. Retrieved October 21, 2017, from https://www.ic.gc.ca/eic/site/smt-gst.nsf/vwapj/decision-residualSpectrum-700MHz-AWS-3.pdf/$file/decision-residualSpectrum-700MHz-AWS-3.pdf
ISED Canada. (2015, May). Consultation on a Licensing Framework for Residual Spectrum Licenses in the 700 MHz and AWS-3 Bands. Retrieved from https://www.ic.gc.ca/eic/site/smt-gst.nsf/vwapj/SLPB-002-15EN.pdf/$file/SLPB-002-15EN.pdf
ISED Canada. (2014, January). Licensing Frameowrk for Broadband Radio Service (BRS) -- 2500 MHz Band. Retrieved from https://www.ic.gc.ca/eic/site/smt-gst.nsf/vwapj/2500-decisionBRS-Updated-April-2015.pdf/$FILE/2500-decisionBRS-Updated-April-2015.pdf
ISED Canada. (2013, March). Licensing Framework for Mobile Broadband Services (MBS) -- 700 MHz Band. Retrieved from https://www.ic.gc.ca/eic/site/smt-gst.nsf/vwapj/Licensing_Framework_MBS_700_MHz_Band.pdf/$file/Licensing_Framework_MBS_700_MHz_Band.pdf
ISED Canada. (2012, October). Consultation on a Licensing Framework for Broadband Radio Service (BRS) -- 2500 MHz Band. Retrieved from https://www.ic.gc.ca/eic/site/smt-gst.nsf/vwapj/consultation-0912-BRS-2500.pdf/$file/consultation-0912-BRS-2500.pdf
ISED Canada. (2012, April). Consultation on a Licensing Framework for Mobile Broadband Services (MBS) -- 700 MHz Band. Retrieved October 21, 2017, from https://www.ic.gc.ca/eic/site/smt-gst.nsf/vwapj/dgso-002-12-consultation-MBS-700MHz-ve.pdf/$FILE/dgso-002-12-consultation-MBS-700MHz-ve.pdf
ISED Canada. (2009, May). Licensing Framework for the Auction of Residual Spectrum Licenses in the 2300 MHz and 3500 MHz Bands. Retrieved from https://www.ic.gc.ca/eic/site/smt-gst.nsf/vwapj/dgrb-007-09-eng.pdf/$FILE/dgrb-007-09-eng.pdf
ISED Canada. (2004, July). Policy and Licensing Procedures for the Auction of Spectrum Licences in the 2300 MHz and 3500 MHz Bands. Retrieved from http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf06013.html
ISED Canada. (2001, August). Consultation on the Auction of Spectrum Licences for Wireless Communication Services in the 2300 MHz Band and Fixed Wireless Access in the 3500 MHz Band - Proposed Policy, Licensing Procedures and Technical Considerations [consultation]. Retrieved October 21, 2017, from http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf09486.html
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