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Report on Business Ottawa struck ‘reasonable balance’ in clawback of wireless spectrum for 5G tech, analysts say

Telecom analysts say Ottawa struck a reasonable balance with a plan to take some “highly coveted” wireless airwaves from companies using them to provide rural internet so they can be redeployed in next-generation cellular networks.

The federal department of Innovation, Science and Economic Development announced a policy for 3,500-megahertz frequency spectrum on Wednesday, joining other developed countries that have designated the radio waves for 5G. This particular band of airwaves is expected to be the workhorse of the next generation of wireless networks, which are expected to support faster speeds for smartphone users and an expansion of internet of things and smart-city applications.

In some countries, domestic wireless carriers already have access to the spectrum, but in Canada, they have been reserved for “fixed wireless” use, which refers to residential or business internet services delivered using spectrum and is common in rural areas where it can be prohibitively expensive to run cables or fibre-optic lines. Ottawa is under pressure to get the airwaves into operators’ hands because the global technology community is developing 5G equipment and devices that will use this key band.

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In order to free up enough of the 3,500-MHz spectrum for wireless carriers to build 5G services, ISED determined that it had to take back some of the licences it issued long ago to existing users and has been consulting with the industry for the past year.

ISED laid out guidelines on Wednesday for how much spectrum current licence holders could keep in each of the 172 geographic areas the airwaves cover. It said it would take back slightly less than it proposed in consultation documents and also said no one can use the airwaves for mobile service until after the auction, meaning no carrier gets a “head start” on building 5G with the spectrum.

The industry has been anxiously awaiting the decision because out of Canada’s national carriers, BCE Inc. and Rogers Communications Inc. control 70 per cent of the spectrum in the band (through a joint venture called Inukshuk) while Telus Corp. has almost none and had lobbied the government to take back all of the airwaves in urban areas that was not being “meaningfully used.” Inukshuk will have to return about 60 to 70 per cent of its 3,500 spectrum, according to analyst calculations, which vary depending on whether they consider just the top urban areas or the whole country.

Xplornet Communications Inc., Canada’s largest rural internet provider and the other main holder of 3,500-MHz spectrum, is set to maintain about 80 per cent of its airwaves in the band. But it has previously warned that losing any of its spectrum could lead to a loss in service for some of its 370,000 broadband customers.

Spokesman James Maunder said Thursday that Xplornet is reviewing the decision “and how it may impact our ability to provide service to our customers. The 3,500-MHz band is the primary spectrum Xplornet uses to provide service to our customers. We will continue to fight to keep rural Canadians connected.”

Xplornet, along with BCE and Rogers, will likely be able to bid to win back some of these airwaves when Ottawa holds a public auction for 3,500-MHz licences next year.

The rules for that auction are still up in the air, but ISED says it plans to include some sort of “pro-competitive” measure, which could mean reserving some airwaves only for bidding by small players or capping the total amount of spectrum any company can own. That would benefit regional carriers Shaw Communications Inc.’s Freedom Mobile and Quebecor Inc.’s Videotron, which are still building up their spectrum resources after launching about a decade ago. They were able to buy reserved airwaves without bidding against the Big Three in an auction for 600-MHz spectrum earlier this year.

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“[3,500 MHz] is beachfront spectrum for 5G. This spectrum band will be highly coveted and mission-critical for early 5G network deployments. It is the de facto global backbone spectrum band for 5G (ideal for both coverage and capacity),” BMO Nesbitt Burns corporate debt analyst Joanne Chen wrote in a research note.

Financial analysts did not react strongly to the government decisions, which confirmed some of what industry watchers were expecting, such as the clawback of spectrum and the plan to eventually redesignate the 3,500-MHz band for fixed and mobile use.

“Notwithstanding what are likely a number of nuances with Inukshuk’s spectrum portfolio … . We believe these remittance rules strike a reasonable balances between the needs of existing licensees and getting 3,500 MHz into the hands of other operators,” RBC Dominion Securities’ Drew McReynolds said.

“The clawback is less than expected,” Scotia Capital Inc.’s Jeff Fan wrote. “We think Telus will be the most disappointed with this decision while BCE and Rogers are likely more relieved.”

In a statement Thursday, Telus spokeswoman Erin Dermer emphasized the company’s hopes that the “competitive measures” for the auction will “ensure that all Canadians have equal access to this spectrum.” She added, “A level playing field throughout the transition to 5G is critical.”

Dave Watt, senior vice-president of regulatory at Rogers, said Thursday the company would keep using its 3,500 spectrum for fixed-wireless customers as it prepares for next year’s auction and the deployment of 5G mobile wireless service.

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BCE spokesman Marc Choma said the company is still analyzing the decisions, adding, “We do look forward to participating in the 3,500-MHz auction to enable our 5G rollout plan.”

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