Spectrum auction in closing phase

With the AWS spectrum auction now in Stage 3, the end of the billion-dollar battle for wireless licences is in sight. If there isn’t enough activity Industry Canada could close the competition by the weekend if not the end of today.

“It’s going to end sooner than later,” Amit Kaminer, a research analyst at the telecommunications consultancy SeaBoard Group, said Thursday.

There was a point at which participants could play games with their bids. Now, “you have to really bid on something and be ready to pay the price,” he said. “It’s crunch time.”

The government will close the auction when the particpants have had enough and stop bidding. Things were going slow enough that yesterday it pushed the auction into the third stage after only two days of running under the Stage Two rules. Starting today there will be six half-hour rounds, with a hour break in between.

One sign of things slowing down: In Wednesday’s last session, round 49, the bids went up by just over about $12.2 million over the previous round. By comparision, eight session earlier (on Tuesday) the bids suddenly went up by about $122 million in round 41.

Kaminer believes the pace of this morning’s early bidding will show if the participants have had enough. When the auction resumes today, participants will start having pushed the total of high bids on the 292 licences across the country to $3,521,806,112 after 49 rounds.

UPDATE: In today’s first session, round 50, bids totalling $11.1 million were added, bringing the total to just over $3,532 million. In all there were 71 new bids, including 65 new high bids.

In round 51, there was another $11.5 million of bidding, suggesting the participants aren’t exhausted yet. In round 52, action slowed to just over $8 million in new bids, while in round 53, ending at 2 p.m Eastern time, it had bounced back to $12.4 million. Round 54 saw $12.1 million added. Finally, the day ended with about $11 million in bids, bringing the total high bids after Thursday to just over $3.588 billion.

After Wednesday’s bidding, Rogers Communications ($810.5 million), Telus ($712.4 million) and Bell Mobility ($617.6 million) were the top bidders overall, not unexpected for well-financed incumbents. Of the entrants bidding on spectrum set aside for newcomers, Quebec cabelco Videotron was the top licence bidder ($479.4 million) at the end of Wednesday, followed by a consortium lead by Toronto’s Globablive Wireless ($380.6 million) and a group lead by Toronto entrepreneur John Bitove called Data & Audio Visual Enterprises Wireless, or DAVE, ($221.6 million).

Yesterday, Industry Canada shifted the auction into its final segment, Stage 3, where the rules force those still in to have active bids on licences that equal the total all of their remaining points in each day’s rounds. (An active bid is defined as a standing high bid from a previous round that no one has topped yet, or a new bid.) Until now they’ve been able to bid 75 or 90 per cent of their points depending on the stage. Each piece of spectrum is assigned points. Those who don’t bid on licences equal to their remaining points lose a portion of them, unless they exercise one of their limited number of waivers, which restricts the number of licences they can bid on after that.

To get into the auction bidders bought points based on their ambitions – those who, for example, wanted national coverage bought more points than those who only wanted a town.

Much of the attention on this auction is focused on the newcomers, for the government structured the rules to encourage creation of a fourth national carrier to challenge Bell, Rogers and Telus. Whether it succeeded or failed has yet to be determined. Two of those who it was thought wanted that title, MTS Allstream and a group lead by the Montreal investment firm Novacap had their dreams clipped when their consortiums collapsed or had to be restructured. As of the end of bidding Wednesday the Novacap entry, which includes some veteran U.S. venture capital wireless companies, was gamely holding on to high bids on 10Mhz of spectrum covering southern Ontario and southern Quebec.

The licences are largely divided into 20 Mhz and 10 Mhz slices of spectrum across the country. The 20 Mhz pieces are more desirable — and valuable — because a provider will need fewer towers for coverage. Also, 20 Mhz spectrum has more capacity. Essentially, auction players have to decide whether they want to spend on licences now or on infrastructure later.

Imagining the auction had ended at the close of Wednesday’s bidding shows the players in the following situations: Among the newcomers, only Videotron and Globalive have enough points left to become a fourth national carrier outright. However, Videotron has concentrated its high bids on its home of Quebec, plus the populous southern and eastern Ontario areas. It’s bidding has puzzled observers. Twice it withdrew $96.4 million bids on 10Mhz of spectrum for Toronto, only to put it in again. As of round 49, at the end of Wednesday, it held the high bid.

Globalive had high bids on licences across the nation: On the desirable 20Mhz southern Ontario licence as well as the 20Mhz licence for Eastern Quebec. In addition it held top bids on 10Mhz licences for British Columbia, Alberta, Eastern Quebec, Northern Quebec, Northern Ontario, New Brunswick, Nova Scotia, Prince Edward Island, Cape Breton, Newfoundland and Labrador as well as for the cities of Winnipeg, Brandon, Manitoba., Thunder Bay, Ont. and Ontario’s cottage country. Alberta’s Shaw Communications, which started out with a massive 3,070 points, was left with 500 points at the end of Wednesday, enough to either be daring today or to consolidate its position. Its high bids were all on licences in the Western provinces, plus northern Ontario, areas where the cableco does business and can take advantage of its brand.

DAVE, one of whose backers is former Microsoft co-founder and billionaire Paul Allen had the high bid for the 10Mhz licences for Southern Ontario, Vancouver, Ottawa, Calgary, Edmonton and Red Deer, Alta. It had three waivers left, which gives it some bidding flexibility. However, once the auction is closed and the government has verified the results, including that those with consortiums have complied with foreign ownership regulations, companies are free to merge. Regional licence holders could also form a cross-Canada alliance that may or may not hold a national brand.

As of this morning there were 19 remaining bidders. Those who either never held a high bid or lost all of their eligibility points include Triple Five, owned by the wealthy Ghermezian family of Edmonton; Westman Media Co-operative; Telehop Communications, a Toronto long-distance provider; TBelTel of Thunder Bay, Ont.; Golden Spike Mobility; Jaguar Wireless and Mipps Inc.

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