Canada 700 MHz Spectrum Auction Concludes Raising C$ 5.27 Billion

Spectrum AuctionResults of the auction for 700 MHz spectrum in Canada were announced today:  CAD 5.27 billion (USD 4.73 billion) was raised. This is more than what operators had hoped to fork out for this auction, especially considering the wireless market structure in Canada which does not foster competitive behavior. The average price for the 68 MHz auctioned is CAD 2.20 /MHz-PoP (USD 1.98). 

Operator

# of Licences Won

Final Price (CAD)

Feenix

1 Paired + 0 Unpaired

284,000

MTS

1 Paired + 0 Unpaired

8,772,072

Bragg

4 Paired + 0 Unpaired

20,298,000

TELUS

16 Paired + 14 Unpaired

1,142,953,484

Vidéotron

7 Paired + 0 Unpaired

233,328,000

Bell

17 Paired + 14 Unpaired

565,705,517

Sasktel

1 Paired + 0 Unpaired

7,556,929

Rogers

22 Paired + 0 Unpaired

3,291,738,000

Total CAD

5,270,636,002

Total USD

4,732,978,423

CAD/MHz-PoP

$2.20

USD/MHz-PoP

$1.98

All three incumbents secured spectrum in 700 MHz as expected. Rogers won most of the adjacent A and B bands licenses which allows it to provide LTE service in 2×10 MHz band and claim highest peak rates in this band; however, it forked out more than any other incumbent at CAD 3.29 bn (financial analysts expect Rogers and Telus to issue debt soon). Among the three incumbents, Bell’s cost was the least coming at CAD 565m. Among the new entrants, Videotron scored major licenses in primary markets like Southern Ontario which sets it up to be the number 4 service provider in place of Wind which had earlier withdrawn from the auction.

Canada 700 MHz License Allocation (Source: Industry Canada)

Canada 700 MHz License Allocation (Source: Industry Canada)

Background

The auction which started on January 14, 2014, was completed in 108 rounds. It was based on a combinatorial clock format (CCA) where participants bid on packages of spectrum, rather than bidding on independent licenses.  There are a total of 98 licenses based on 14 service areas and 7 blocks of spectrum shown in the table below. The total opening bid price is C$897,324,000. The opening bid price for the most expensive service areas of Southern Ontario and Southern Quebec set at C$0.687 per MHz-PoP while the lowest cost licenses set at $0.265/MHz-PoP (unpaired blocks all set to C$0.265/MHz-PoP) (full table). The term of the license is 20 years.

Block

Frequency

Pairing

MHz

A

698-704 MHz/728-734 MHz

paired

6+6 MHz

B

704-710 MHz/734-740 MHz

paired

6+6 MHz

C

710-716 MHz/740-746 MHz

paired

6+6 MHz

D

716-722 MHz

unpaired

6 MHz

E

722-728 MHz

unpaired

6 MHz

C1

777-782 MHz/746-751 MHz

paired

5+5 MHz

C2

782-787 MHz/751-756 MHz

paired

5+5 MHz

Canada 700 MHz Band Plan

Canada 700 MHz Band Plan.

Band Caps

There is a spectrum cap of two paired blocks for all licensees, so no single entity can get more spectrum to support more than a single 2×10 MHz channel. There is also a limit of one block from B, C, C1 and C2. Combining to operate a single 10 MHz LTE channel will require the winner to have both A and B bands. The A band is typically considered at some disadvantage to the other bands as it borders channel 51 on the low side of the band plan (uplink) and the E band unpaired band on the high end of the band plan (downlink). This makes the A band more liable to out-of-band interference. Therefore, it has fetched lower price in comparative US spectrum transactions (less than 50% the price of B band), most notably between Verizon and leap and Verizon and T-Mobile.

A sample of US 700 MHz spectrum prices

A sample of US 700 MHz spectrum prices

Competitive Dynamics

The Canadian wireless market is dominated by three operators: Rogers, Bell and Telus where the latter two have a network sharing model where they share spectrum and access infrastructure (multi-operator core network – MOCN). Some may claim this is an effective duopoly. Investment rules in the telecommunication sectors had traditionally been set to protect Canadian ownership which is widely blamed for non-competitive behavior in the market. Efforts by the government to open up the market for greater competition can be described as timid with continued restrictions on foreign ownership of Canadian operators limiting the interest by outside investors.

Following the AWS auction in 2008, new entrants such as Wind Mobile, Mobilicity, Public Wireless, and Videotron have not managed to make a major breakthrough. Today, Mobilicity is operating under Chapter 11. The largest of the new entrants, Wind Mobile (over 600k subscribers – in comparison, the largest, Rogers, has over 9 m subs), had earlier withdrew from the 700 MHz auction process. While this still leaves 11 bidders in the mix, aside from the large three incumbents, the rest of the field is focused regionally. Competition for the major licenses in the main metropolitan areas is consequently low. The limit rules mean that there will be enough allocations for at least 4 operators. The three major operators, Rogers, Bell and Telus, have therefore a virtual lock on a license. Perhaps the question was who gets to combine an A and B band license more than anything else!

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About Frank Rayal
Telecom industry management consultant.

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