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Stack of mobile phones. (Thinkstock)
Stack of mobile phones. (Thinkstock)

Explainer

Ottawa’s wireless auction nears conclusion Add to ...

Industry Minister James Moore is set to announce the results of the 700-megahertz auction late Wednesday, marking the end of a bidding process that sparked a firestorm over the federal government’s policies for the wireless industry.

A provisional list of licence winners will be made public at 5 p.m. local time in Ottawa. Although twice-postponed, the stakes of this spectrum auction are high for the government, carriers and consumers. That’s because the results have the potential to shape competition for decades to come.

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Spectrum refers to the invisible radio waves that carriers use to provide cellphone service. It is considered the industry’s “lifeblood” – the essential ingredient needed to meet surging demand for data as more Canadians use smartphones to stream mobile video and surf the Web.

But even though carriers were bidding for licences to use this spectrum for up to 20 years, it remains a publicly-owned asset and the government plans to scrutinize its use.

In fact, the Conservative government is doubling down on its efforts to stimulate more competition in the wireless market ahead of the next federal election. Although Ottawa was criticized for its inability to attract a big foreign carrier (such as Verizon Communications Inc.) to participate in this auction and for the 11th-hour withdrawal of Wind Mobile, it continues to champion affordable cellphone service as a key priority.

“The 700-MHz spectrum auction is an important milestone for Canada,” Mr. Moore said in a statement issued at the start of bidding on Jan. 14. “Soon, this high-quality spectrum will be accessible to Canadian consumers for use on the latest smartphones and tablets. The rules for this auction were designed to support more choice in our wireless market while putting the interests of consumers first.”

What is 700-megahertz spectrum?

This particular band, formerly used to transmit over-the-air television channels, is being repurposed for cellphone use. Not only does it carry signals over longer distances with the use of fewer cell towers, but it also does a better job of penetrating man-made structures, such as buildings.

The 700-MHz band is also well-suited to carry data on next-generation wireless networks that are designed to provide faster speeds.

There are 14 license areas across Canada. Each one is divided in to seven blocks of 700-MHz spectrum. Of those, four are considered “prime” blocks – meaning they are the best chunks of this frequency.

Why should the average Canadian care about this auction?

Canadians are using ever-increasing amounts of data on their smartphones as they surf the Web or stream mobile video. They are also demanding faster speeds such as those provided on 4G LTE (fourth-generation, long-term evolution networks).

As more consumers upgrade to LTE devices over the coming years, data traffic is expected to surge. It is estimated that mobile data traffic in this country will reach 246.8 petabytes (PB) per month by 2018 (up from 28.6 PB per month last year), which is the equivalent of 62 million DVDs per month or 680 million text messages per second, according to Cisco.

Why were the auction rules so controversial?

In order to stimulate more competition, the government decided to set limits, or cap, the amount of prime 700-MHz spectrum that established carriers were allowed to buy. Incumbents, such as Rogers Communications, BCE Inc. and Telus Corp., were capped at one prime block each, while new entrant carriers were allowed to buy up to two prime blocks. That cap will remain in place for five years after the licences are issued.

The Big Three said those rules gave new entrant carriers, including any big carrier considering a Canadian expansion, an unfair advantage.

How did the auction work?

The 700-MHz auction used what is known as a “combinatorial clock” format that allows carriers to bid on packages of spectrum licences rather than competing for each one individually. The format is designed to ensure carriers are able to avoid gaps in their network coverage.

The auction consisted of two principal stages. First, the allocation stage determines the number of licences a winning bidder can acquire and the base price. Second, the assignment stage decides exactly which licences a carrier will win and the final price.

“We will also be using anonymous bidding to curtail gaming, such as bidding up prices for competitors,” a senior official with Industry Canada said during a technical briefing for journalists.

Carriers’ auction teams conducted the bidding over the Internet from their respective companies. The auction software was created by Power Auctions, which also provided consulting services to Australia and the U.K.

What happens to the money?

Initial payments (worth 20 per cent of final payments) are made 10 business days after Ottawa releases a list of provisional licence winners on Wednesday. The remaining 80 per cent is due 30 business days after those results are made public.

The monies will be immediately transferred to the Consolidated Revenue Fund, and reported in the public account of Canada as “cash received,” Industry Canada said. This means the proceeds would give a boost to the government’s finances.

Ottawa has not provided estimates on the amount it expects to glean. But analysts forecasted revenues ranging between $1.8-billion and $2.5-billion.

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