09/03/2013 02:33 EDT | Updated 11/03/2013 05:12 EST

Verizon Exit Complicates Telecom File For Harper Government

OTTAWA - With a major U.S. company out of the running, it looks doubtful anyone will burst onto Canada's wireless scene to compete against Bell, Telus and Rogers.

So with Verizon out, what now for a Conservative government that has long staked its ground on getting a fourth player into the cellphone sector?

Companies have until Sept. 17 to put down a deposit to participate in the auction of wireless spectrum, which will be held in January.

One route might be to delay the auction — an option Industry Minister James Moore's office says it isn't considering.

Canaccord Genuity analyst Dvai Ghose says putting off the auction would be a politically tricky move since it has already been postponed once.

"I think that's politically very, very difficult to do. The government has already delayed the auction once," he said.

Indeed, the consumer-oriented Conservatives have already been an awkward position, slammed by private companies who claim the auction process was rigged to favour foreign competitors over Canadian incumbents.

So the government may instead look at regulating things such as roaming fees, Ghose said.

Last week, the Canadian Radio-television and Telecommunications Commission asked cellphone companies for data on their roaming fees. It will eventually fall to the commission to decide whether to regulate roaming rates if it finds companies are gouging consumers or limiting their choices.

The government could use such a decision to its advantage, Ghose said.

"I think the only obvious alternative is to blame the incumbents and perhaps try to micro-manage the industry, especially on emotive issues like, 'I went to Mexico and I got a $500 bill,'" he said.

The majors, Rogers, (TSX:RCI.B), Telus (TSX:T) and Bell (TSX:BCE) have already seen a stock bounce in the wake of the Verizon announcement that it isn't interested in the Canadian market.

Telecom analyst Iain Grant of the SeaBoard Group says while the Harper government hasn't shown itself to be totally against regulation, it generally favours using market forces to create consumer interest.

More likely, Grant says, the government will let the auction go ahead as planned — and save a decision on any leftover spectrum for a later date.

"You have two other blocks available in regional markets across the country, and it's quite possible that they may or may not be all sold," Grant said.

"But these aren't milk. There's no best-before date on spectrum. It's more like Rembrandt. If Sothebys doesn't sell that Old Master for what they want to sell it for, they put it back in the vault and try again to sell it another time."

The Australian government did just that earlier this year during its own spectrum auction. The Harper government may take its cues from Down Under.

"If the auction takes place, and there's some 700 megahertz spectrum left over, as there was recently in Australia, the government will then review its policy and try to find a different way of using the spectrum asset to help to incent the creation of a new carrier," Grant said.

Moore wasn't immediately available for an interview Tuesday. His spokeswoman said the spectrum auction will go ahead as planned.

"The rules for the upcoming spectrum auction were designed, well in advance, to create the right conditions so that consumers benefit," Jessica Fletcher said in an email.

"The result of the auction will be positive for Canadian consumers, regardless of outcome, because the rules were designed with their interests up front."

Opposition parties accused Moore of bungling the auction by tilting the playing field so heavily toward Verizon.

"The government has completely messed up this file right from the get-go," said NDP industry critic Chris Charlton.

"The minister wanted this to be about Verizon and Verizon's access to the market," even though he acknowledged competition from Verizon would not necessarily result in lower prices or better access for Canadians.

"If the goal is to foster more competition, to bring prices down, then surely the minister shouldn't have put all his eggs in one basket."

Liberal industry critic Judy Sgro said the government "dropped the ball."

"They've been left with a mess. They've got the industry upset with them, they've got Canadians upset with them," she said. "It clearly means that middle class consumers are going to be the losers again."

Charlton said it may now be too late for other Canadian companies or another international player to come forward in time for the auction.

"If the playing field had been set up differently, we would've had vibrant competition. I don't know if we will now or not."

She suggested that the government could extend the Sept. 17 deadline for indicating interest, without delaying the actual auction, scheduled for January.

Sgro said the auction itself may have to be postponed, despite the government's insistence that it won't be.

"If the government doesn't change any of the rules, I think it's going to be very difficult for them to go forward with the auction in its current form now that Verizon (is out), unless they know of another major (company) who's interested."

— With files from Joan Bryden

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