Quebec cable company Quebecor has surprised the telecom industry by buying $233.3 million in spectrum in Ontario, Alberta and B.C. as well as its home province, indicating that it wants to become more of a cellular carrier than just in Quebec.
The news came out as Industry Canada released figures Wednesday from the just completed 700 MHz auction that raised an unexpected $5.27 billion for federal coffers. The 2008 auction for spectrum largely in the AWS frequencies raised $4.3 billion. On the other hand, the AWS licences are for 10 years; the 700 MHz licences will last 20 years.
This auction, with fewer bidders, lasted 22 days. The 2008 auction went over two months.
Quebecor, whose Videotron cable division has a cellular network across Quebec with 500,000 subscribers, already has spectrum covering Toronto it bought in the 2008 auction, but it had a deal with Rogers Communications to buy those frequencies when a five year ban of transferring spectrum from new entrants to incumbent carriers expires this year. However, Ottawa has signaled that to ensure competition it wasn’t willing to approve such transfers.
“This puts Videotron in a very interesting position,” said telecom analyst Iain Grant of the SeaBoard Group in an email. It could build a new network outside Quebec, partner with Bragg Communications, which owns the Eastlink cable network in several provinces; or partner with Shaw Communications in Western Canada, which also bought spectrum in the 2008 auction but decided against getting into the cellular business. Instead it went into Wi-Fi.
Like Quebecor, Shaw struck a deal to sell its spectrum to Rogers its five year ban on transferring spectrum to an incumbent carrier runs out.
Partnering with other Shaw, Bragg and possibly Wind Mobile, Quebecor could assemble a “rebel alliance” to challenge the big three incumbents, Grant said.
However, telecom consultant Mark Goldberg noted in an inteview that so far Quebecor hasn’t said what its business plan for the spectrum will be. As a winner it has an obligation to build a network in the new areas over the next 10 years, but it could rent out the spectrum to other carriers — to Bell, Rogers or Telus, or to virtual carriers like PC Mobile or Primus Canada — rather than open its own stores.
Another possibility is Quebecor buying the network of financially troubled Mobilicity, which is in protection from creditors. Mobilicity operates in B.C., Alberta and southern Ontario. That would give Quebecor and instant network. On the other hand, it is built on HSPA technology, which would have to be upgraded to run the latest LTE technology to keep up with Bell, Rogers and Telus. In fact, Quebecor will soon have to upgrade the Videotron network in Quebec from HSPA to LTE for the same reason.
In a blog Goldberg argues that Quebecor might be the auction’s big winner because in it spent 60 per cent less than what it paid in the 2008 auction ($555 million) for spectrum only in Quebec. The $233 million it will be paying this time covers more people, is better spectrum and the licences are good for 20 years — the AWS licences are for 10 years (although the government usually renews them).
We may not know Quebecor’s plans until April 2. That’s the deadline for paying Ottawa for the spectrum. It’s also the expiry date for a ban on auction participants making public statements on any agreements they’ve made on sharing 700 MHz spectrum.
As expected, BCE Inc.’s Bell Mobility, Rogers and Telus Corp. — the three big incumbent carriers — took the lion’s share of the four slots of prime spectrum that was being sold across the country. One surprise is that Telus spent more than Bell, a sign of how aggressive the B.C. based carrier has become.
Rogers paid a whopping $3.291 billion for spectrum, Telus spent just over $1.142 billion and Bell paid just over $565. 7 million.
On the other hand, Bell may have got the best deal: It’s $565 million covers slightly more people than Rogers, which paid six times as much. An expert ITWorldCanada.com interviewed long before the auction warned this is a potential outcome of the kind of auction that was held this time.
Here’s another way to look at it: Rogers paid $3.291 billion for 22 pairs of frequencies (paired frequencies are best — one designated for upload, one down). Telus paid $1.142 billion for 16 paired frequencies, as well as 14 unpaired. Bell paid significantly less and got 17 paired frequencies and 14 unpaired.
Spectrum in the 7o0 MHz band is hotly wanted because it travels over distances better than other frequencies sold so far by Industry Canada, meaning fewer antennas are needed to cover a given area — which saves carriers money. To some degree in-building coverage will also be better. In particular carriers want to use 700 MHz spectrum for smart phones that can use LTE technology, which promises download speeds in the range of 100 Mbps under ideal conditions.
For carriers that either didn’t participate in this auction, and for those who did and want more, Industry Canada has another auction already scheduled for April 15, 2015 in the 2500 MHz band.
Industry Minister James Moore was delighted the record haul of cash. “Our wireless policy is designed to benefit Canadian consumers, first and foremost,” he said in a statement. “With the result of this auction, our policy has achieved this goal. Canadians will soon benefit from a fourth wireless player in every region of the country having access to this high-quality spectrum to provide all Canadians with dependable, high-speed wireless services on the latest technologies.”
As expected, Saskatchewan’s SaskTel bought just under $7.6 million in spectrum only in its home province, as did Manitoba Telecom Services ($8.7 million). Halifax-based cableco Bragg Communications (which owns the Eastlink cable network) bought spectrum in the Maritimes and Northern Ontario for $20.3 million.
Toronto entrepreneur John Bitove — who heads Mobilicity — created a company called Fennix Wireless to bid in the auction. It was only able to buy spectrum in the Yukon, Northwest Territories and Nunavut.
Telecom consultant Grant said that judging by the result Bell and Rogers had different goals in the auction. Both have spectrum in the nearby 800 MHz band, he said. For this auction what they wanted was breadth and depth of coverage. Rogers, he thinks, seems wants to do more with 700 MHz spectrum than Bell does. “We won’t know for five years whether Bell made the right call. I suspect Rogers did.”
In a statement Rogers CEO Guy Laurence said the spectrum it bought will allow the carrier to deliver “the ultimate video experience” on mobile devices.
In his statement Bell Mobility president Wade Oosterman said the spectrum it bought will enable it to expand its LTE network to areas outside cities.
Telus CEO Darren Entwistle — whose company before the auction had less spectrum than Bell and Rogers in some cities — said its new purchase will allow it to enhance urban coverage as well as expand into rural areas.
Auction rules specify that winning bidders have to build a network in rural areas over a number of years and not just deploy it first in lucrative urban areas.