Furious competition in the AWS spectrum auction keeps pushing up the price of licences, but that doesn’t necessarily mean the price of wireless service will come down, warns an industry analyst.

“The auction framework is good and the bidding is encouraging,” Christopher Collins, a senior analyst at the Yankee Group responsible for consumer research said in an interview, but he’s cautious about the outcome.

UPDATE: The total of high bids on spectrum when bidding resumed Thursday was more than $4.187 billion.

The day’s action started with bids increasing by $1.1 million in round 176, followed by a round upping the total by $1.2 million. After that, he bidding began dropping, with two sessions of around $500,000, followed by one of $298,000. Then Sasktel withdrew $8.4 million in high bids, including two 10Mhz licences in Ontario – way out of its home turf – and a 20Mhz piece of spectrum in Red Deer, Alta.

The following round Telus had recaptured the high bids on two of those licences, while Bell had the other. To close the day Bell withdrew three high bids of its own, including one it picked up from Sasktel.

In a research report written before the auction started, Collins said Industry Canada’s decision to tilt the rules and reserve spectrum for new entrants doesn’t mean the high prices we pay for wireless will change, and he hasn’t changed his mind.

The new rules still mean that the major incumbents – Bell Mobility, Rogers Communications and Telus Mobility – will own 60 per cent of the spectrum up for sale, he pointed out. As of this morning [July 3], of all participants Rogers had the highest bids, $944 million on 54 licences, followed by Telus ($853 million on 58 licences) and Bell ($720 million on 54 licences). The fourth highest bidder was new entrant Quebecor ($563 million on 17 licences) and then Globalive ($442 million on 29 licences).

As things stand now, for a developed Western economy the Canadian wireless market is well behinds its peers in the United States and Europe, Collins said. Wireless penetration is only around 60 per cent, and we pay more than people in most Western countries. That wasn’t the case here some eight or nine years ago, he added.

“In less than a decade we’ve seen the country take a step backwards in terms of providing innovative mobile services,” he felt before the auction started. And despite the stratospheric prices the bidding has generated, “I don’t feel that basic hypothesis has changed yet.”

“The fact that there will be some new entrants does not necessarily mean there will be the kind of innovation and competition to quickly change what’s happening.” That will happen when providers increase home phone/television/wireless bundles, he said, pushing down prices.

Among newcomers in the auction who will be able to do that are cablecos Shaw, Bragg Comnunications and Quebecor.

But the real push on incumbents to lower their prices will come with the emergence of new location-based and social networking data services, Collins said.

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