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    Canada 'falling behind' in cellphone market: Prentice  
    Financial Post  

Paul Vieira

    November 29, 2007  

Jim Prentice, the Minister of Industry, says he decided to guarantee competition in the wireless sector by setting aside space in the coming spectrum auction because he feared Canada was "falling behind" the rest of the industrialized world in terms of cellphone use and pricing.
His decision had great impact on Canadian equity markets, as the benchmark
Toronto index was mostly in negative category on Thursday thanks to big drops by
the two top wireless incumbents, Rogers Communications Inc. and Telus Corp. Besides setting aside spectrum, the government will also compel roaming agreements -- by which existing carriers must share their networks with newcomers for five years, plus another five if the new entrants can build up their own networks nationally.
Moreover, in an interview with the Financial Post's Paul Vieira, he acknowledged that
the foreign ownership rules in the telecommunications field -- limiting control to 46%
-- played a role in shaping the auction rules. Given the rules, global wireless giants such as Vodafone are denied a chance to bid on available spectrum unless they partner with a Canadian firm. Here is an edited version of the interview.

Q: How difficult a decision was this to make?
A: It has been a difficult and intense process. Essentially I started with briefings from
the department and I tend to read everything I can get my hands on. So I looked at all
of the comparative studies that had been done on pricing -- I looked at reports from
the SeaBoard Group and the OECD. I tried to be cognizant of what was going on in
other countries.

Q: At what point did you have your decision made?
A: I can't say categorically about a date, but gradually as I received all the information, I developed a conclusion that competitiveness in this industry is important. It is the driving factor toward innovation, in terms of service and price points. And I also developed a view that Canada is beginning to fall behind. And the OECD studies underscore this -- at the very best, we have fallen in the middle of the pack on most of the measures in terms of our competitiveness on wireless. And in particular, on penetration, we are the lowest in the OECD. The way of the future in many respects involves wireless, voice and data. And we are the lowest in the OECD, expect for Mexico.

Q: So were you of the opinion that an unfettered auction would not generate the
competition you were looking for?
A: I am of the opinion that the way to ensure that we have maximum room for competition is with a set-aside. And the set-aside is limited to new entrants.

Q: How do you defend accusations from incumbent providers and political opponents
that you have issued a subsidy valued at hundreds of millions to some profitable
A: The objective is also to maximize the benefit of the public good, the spectrum, to
the citizens of Canada. The dollars recovered is one aspect. But the other aspect is competition and the kind of wireless industry we will have. And if you look at past
auctions in the U.S. and Europe almost always involve some mechanism to promote
new entry.

Q: Was your job made any easier when Darren Entwistle at Telus said he could live
with a spectrum set-aside if his company was allowed to take over Bell?
A: I was aware of that but that wasn't critical to my decision.

Q: Were you not forced into doing a set-aside to get competition because of foreign
ownership restrictions that limit foreign wireless providers from bidding on
A: I am not going to speculate on how an auction with foreign ownership rules would
compare with an auction without foreign ownership rules. I am operating on the basis
of Canadian law and the framework we have. The foreign ownership limits are a reality I have to deal with. The auction reflects that reality. Canada 'falling behind' in cellphone market: Prentice reality I have to deal with. The auction reflects that reality.


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