The Wind location at the Yorkdale mall in Toronto on May 22, 2013.Deborah Baic/The Globe and Mail
Wind Mobile and Mobilicity are set to face off over airwaves reserved for new entrant wireless carriers in the first of two spectrum auctions the Canadian government plans to hold this year.
Wind said Thursday morning it has submitted a deposit and will participate in the auction for licences in the AWS-3 (advanced wireless services) frequency band. The deadline for deposits is Friday.
Meanwhile, Mobilicity, which is under creditor protection, secured court approval Wednesday for a new debt financing agreement worth $65-million that will allow it to make a refundable deposit and register for the auction as well.
Ottawa has structured the AWS-3 auction to benefit small players, reserving 30 megahertz, or 60 per cent, of the total 50 MHz available for companies that are already providing wireless services but have less than 10 per cent of national market share and less than 20 per cent of market share by province.
That rules out regional incumbents Manitoba Telecom Services Inc. and SaskTel, but Videotron Ltd. and Eastlink Wireless should qualify to bid on the set-aside licences in Quebec and the Maritimes, respectively.
Mobilicity and Wind are the only two players that appear to qualify to bid on the new entrant licences in Ontario, British Columbia and Alberta. If Mobilicity had been unable to take part, Wind could have acquired those licences for the opening bid price of about $62.5-million.
Now, if both actually place bids when the auction begins March 3, the licences will go to whichever carrier places the winning bid in the sealed bid process. According to the auction rules, the winner will pay what the second-highest bidder bids. The government will announce the provisional winners on March 6.
An auction for the same type of airwaves began in the United States in November and finally ended Thursday after attracting a record-breaking $44.9-billion (U.S.) in committed bids.
However, there is no set-aside for small players in the U.S. process, so the Canadian auction is unlikely to raise similar values.
Analysts note that predicting the financial outcome of spectrum auctions is challenging – estimates for last year's 700 MHz auction fell well short of the $5.3-billion (Canadian) the government raised.
BMO Nesbitt Burns Inc.'s Tim Casey, wrote in a Jan. 7 report that while new entrants should secure the set-aside spectrum for close to or at the opening bid prices, the large national carriers could spend about $1.8-billion on the remaining airwaves.
"Given industry structure and the meaningful set-aside spectrum, we doubt Canadian valuations will reach U.S. levels," Mr. Casey said.
Friday is also the deadline to register for a second auction of airwaves in the 2,500 MHz frequency band, which is scheduled to start April 14.
There is no set-aside for new entrants in that process although the government has established a cap on the amount of 2,500 MHz spectrum any one player can hold. Rogers Communications Inc. and BCE Inc. already exceed that cap in some regions, meaning Telus Corp. is poised to be the big beneficiary of that auction. (BCE owns 15 per cent of The Globe and Mail.)
Mr. Casey estimated the 2,500 MHz auction could raise up to $850-million for the federal government. The auction will follow a more complicated "combinatorial clock" bidding process, which allows bidding on packages of licences and can last for multiple rounds. The government will announce provisional winners within five days of the end of the auction.
Wind said Thursday it also plans to bid in the second auction, while Mobilicity said in court filings last week it will not take part.
"Participating in the upcoming spectrum auctions is another step in our journey to improve the quality of the services we deliver to our customers," Wind CEO Pietro Cordova said in a statement Thursday.
Wind, which is now owned by a consortium of Canadian and U.S. backers that struck a deal to acquire it in September, has about 800,000 subscribers and has said it wants to upgrade its network to next-generation LTE technology, which requires more spectrum.
Mobilicity had fewer than 160,000 customers as of Dec. 31 and last year it began shutting down some cell sites in an effort to cut costs. However, much of the company's remaining value is tied to the spectrum licences it purchased in a 2008 auction and its debt holders see the opportunity to bid in this year's auction as part of a strategy to maintain or increase its value.
The carrier has tried to sell to Telus in the past but the government has blocked those attempts. Further efforts to find a buyer over the next few months will be constrained by the auction rules, which stipulate that players who have registered to bid cannot engage in merger and acquisition discussions.