It took only 24 minutes for Rogers Communications Inc. to launch its investor relations blitz.
As Industry Minister James Moore announced the long-awaited results of its wireless spectrum auction in Ottawa on Wednesday, Canada’s largest wireless carrier was preparing to take its own message to Bay Street.
Mr. Moore began speaking at about 5:20 pm ET, stunning industry watchers with the revelation that Ottawa would earn an eye-popping $5.27-billion from auctioning off the 700-MHz frequency – far more than analysts expected and making it the most profitable spectrum auction in Canadian history.
Rogers alone accounted for 62 per cent of the auction’s total proceeds, spending $3.3-billion. Fearing a backlash from investors, the company e-mailed a detailed backgrounder to analysts at 5:44 p.m., minutes after Mr. Moore wrapped up his press conference.
Spanning more than three typed pages, the document was a detailed defence of the company’s bidding strategy, designed to nullify concerns that the company overpaid for 700-MHz licences, which are designed to give faster wireless speeds and improve coverage for the 28 million Canadians who subscribe to wireless service.
“Please don’t forward, post or otherwise share this,” reads the document, which was obtained by The Globe and Mail.
“Rogers won exactly what you’d expect us to go after – which is twice as much prime spectrum as almost anyone expected – and paid prices that are in line with recent and historical 700-MHz [auction] precedents in the U.S.” Rogers said its spending came “within a few percentage points of what our valuation models had indicated and were approved internally before the auction began.” (Despite those assurances, Rogers shares dropped sharply when the market opened on Thursday morning before snapping back.)
The spectrum auction’s final numbers are huge – and so, too, will be its impact on the $20-billion Canadian wireless industry.
Here’s what didn’t happen in the auction: No large foreign wireless companies showed up with a large cheque and a bold plan to take on Rogers, Telus Corp. and BCE. Verizon Communications Inc., the American giant that seriously considered a Canadian play last summer (and carved billions of dollars off the market capitalization of the Big Three), stayed away. So did most of the private equity firms and other pretenders that flirted with joining the auction last year.
But that does not mean the event lacked for storylines. The auction is considered crucial to the future of wireless service because 700 MHz is considered high-quality spectrum, able to travel long distances, penetrate buildings more easily and handle the vast amounts of data traffic that Canadians use as they stream Olympic hockey games and other video on their phones and tablets.
Rogers: Searching for momentum
In its e-mail to investors, Rogers suggested that what it paid for the new licences wasn’t out of line because other bidders were prepared to pay nearly as much. Under the quirky rules of the federal auction, the winning bidder for each individual block of spectrum actually pays what the second-highest bidder was willing to pay.
The auction format was based on anonymous bidding to curb attempts to game the system, such as driving up prices for competitors. Nonetheless, sources say the telcos were able to use complex algorithms to determine the bidding patterns of their rivals – and to try to push up the amount they would have to pay.
There was plenty of speculation during the auction that Rogers, which ultimately won 22 licences, took a bruising from other bidders for its prized A and B block licences, which cover most of Canada’s major markets. In fact, some sources estimate that this type of gaming, particularly during the auction’s supplementary bids, resulted in Rogers overpaying for its spectrum by as much as $1.5-billion.
“It was quite intense. There was a lot of jockeying,” Mr. Moore said on Wednesday. “Ultimately, Rogers paid what they paid.”
The $3.3-billion question will be, is it worth it for the company that still leads the wireless race but has been losing momentum to Telus and BCE?Report Typo/Error