With the end of the AWS spectrum auction after 331 rounds of bidding over 40 days, the stage has been set for a new competitive wireless era in Canada.
From a financial standpoint for the federal government, the auction, which closed Monday, could only be called a smashing success. Bidders pushed the value of the 292 licences across the country to an unexpected $4.254 billion, which must have left federal treasury officials dazed.
Industry Canada’s hopes for more competition leading to lower prices, innovative services and wider cellular adoption seems almost assured.
Depending on whether there are mergers or alliances among the new entrants once the ministry certifies the results, there could be at least three new, strong regional players built around three cable companies: Shaw Communications in Western Canada, Quebecor’s Videotron in Quebec and Bragg Communications’ Eastlink in the Maritimes.
In addition Globalive Wireless could challenge incumbents Bell, Rogers and Telus by becoming a new national provider, although it has a significant gap in coverage by lacking presence in the populous Montreal area.
Because the auction results won’t be certified until the first week of September, when the cheques are due, Globalive president Anthony Lacavera wouldn’t say who he will try to partner with for Quebec spectrum. But he did say that Canadians can expect “feature-rich, cost-effective offerings” including no contract bundles with “simple billing.”
Globalive will try to build a national network and begin business “as fast as we can,” but he wouldn’t say when or which cities it will start service in.
While the price of the licences are higher than expected, Lacavera said “we don’t think our business plan has been materially impacted.”
The cablecos’ strength is in the fact that Shaw, Quebecor and Bragg can to sell and bundle phones through existing operations. As for Toronto-based dial-around provider Globalive, best known for its Yak Communications brand, will try to leverage the 1 million customers across the country it says buy its Internet, VoIP and long-distance services.
In a news release Bragg co-CEO Lee Bragg said the company hopes to be selling wireless “within the next year.”
“EastLink will be looking to launch next generation services that will allow customers to integrate their mobile phone with their home entertainment services. This will ensure our customers have access to the best and most advanced technology options available.”
But before the licences are handed out the government has to certify that bidders with outside backing have met foreign ownership limits before the auction results are finalized. Bidders have to submit ownership documents within 10 business days.
Among those needing clarification is a group led by Montreal financial house Novacap that includes U.S. venture capital companies and holds some $52 million in high bids. This group has already said that after the auction ends its Canadian backers will change.
Then there’s sending in the cheques. A down payment of 20 per cent of each bidder’s winning bids is due 10 business days from now. The remaining 80 per cent have to be cashed by Ottawa in 30 business days, about Sept. 3. After that, the players will be able to form partnerships or buy each other out, which will show the auction’s real result.
As for when Canadian businesses and consumers could see more competition, opinions vary.
The new entrants might be operating as early as the first quarter next year, suggests the SeaBoard group, a telecommunications consultancy. Amit Kaminer, an analyst with the firm. believes a national carrier would take close to a year to set up, but regionally-based business could be running sooner. Some could speed the process by collaborating on infrastructure.
For a detailed story on how a relatively quick roll-out is possible click here.
Toronto telecommunications analyst Eamon Hoey says it could be at least a year by the time all of the approvals, roaming agreements are signed and infrastructure is in place. Some spectrum winners may not feel they’ve won, he added. “I’m not convinced all of them have the cash they need to build,” he said. “And some of them who thought they had enough cash now at the end of this may realize they spent a lot more money than they thought they would.”
To encourage new entrants, Industry Canada says incumbent carriers must strike roaming and antenna location sharing deals with the newcomers for the first five years. The department is even setting up an arbitration process to handled disputes.
But Hoey is certain Rogers, Bell or Telus won’t make it easy for competitors out to eat into their business. “Anybody who gets on a Rogers tower, it will be a miracle,” he said, “and probably Bell towers as well.” Engineers from the big three will find red tape and a multitude of reasons, such as load factors, to keep competitors from sharing prime locations. “If anybody’s going to think arbitration going to work here,” he added, “I’ve got news for them: I’ve been down that road.”
“The government’s going to have to step in with a heavy hand to get it done.”
As for whether it’s certain that more competition is assured, Hoey is cautious. “It depends how innovative the new entrants are, and they’ll have to innovate more than on price. I fully expect Bell and Telus will announce in the first or second week of August they will add a GSM overlay to their CDMA networks.” Most new entrants are expected to join Rogers in running their systems on the GSM standard, which would have separted them from Bell and Telus. But if those two can switch to GSM before the newcomers open their doors, any technology advantage they would have had will be nullified.
It’s no surprise that the incumbents Bell Canada, Rogers Communications and Telus spent the most and have the most licences. The auction rules set aside only 40 per cent of the available spectrum for new entrants.
Rogers spent the most, $ 999,367,000 on 59 licences, followed by Telus ($879,889,000 on 59 licences) and Bell ($740,928,000 on 54 licences).
Of the new entrants, Quebecor spent the most ($554,549 million on 17 licences), followed by Globalive ($442,099,000 on 30 licences), Data and and Audio-Visual Enterprises Wireless (known as DAVE, a consortium led by Toronto satellite radio mogul John Bitove, $243,159 million on 10 licences), Quebecor ($ 189,519 million on 18 licences). SaskTel ($65,690 million on three licences), a numbered company led by Montreal financial investment house Novacap ($52,385,077 on four licences) Manitoba telco MTS Allstream ($40,773,750 on three licences) and Bragg ($25,628,000 on 19 licences).
Note the auction divided the licences into 20Mhz and 10 Mhz spectrum. Some cover entire provinces, some specific cities. Generally, 20Mzh spectrum is more valuable than 10Mzh.
Most attention is on the new entrants. Assuming there are no ownership or finance problems:
-Calgary-based cableco Shaw Communications has the ability to build a strong regional service in Western Canada with ownership of spectrum across B.C., Alberta and Manitoba. Shaw issued enigmatic statements before the auction began about its intentions, leading some analysts to wonder if its goal is to sell some or all its spectrum. However, after the auction closed CEO Jim Shaw issued a press release which he said this: “Customers should see competitive wireless products backed by the same commitment to service that they have come to expect from Shaw.”;
-Quebecor can build service around its Videotron cable division, having dominating licences in Quebec and holding a strategic piece of spectrum over Toronto (see below);