Canadian spectrum auction for beachfront 5G airwaves has raised a record $8-billion, sources say

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An auction for highly prized 5G wireless airwaves has netted around $8-billion for the federal government, making it the highest-grossing spectrum auction in Canadian history, according to sources.

The auction, which was delayed by six months because of the pandemic and kicked off on June 15, is now in the assignment phase and is slated to end on July 23, according to the two industry sources with knowledge of the matter.

During the assignment phase, bidders are able to place additional bids to specify which particular frequencies they want to use within the spectrum band that they won. While the changes are expected to be minimal, the final price the bidders pay could be even higher than $8-billion. The Globe and Mail is not identifying the sources because they are not authorized to speak publicly about the matter.

Loopholes in Ottawa’s wireless policy let companies ‘flip’ spectrum, increasing prices and wasting a valuable resource, critics say

The mid-band airwaves, which are in the 3,500-megahertz range, are considered beachfront property for 5G services because they are able to carry larger volumes of data over long distances. The fifth generation of wireless technology promises much faster speeds, less lag time and an increase in the number of devices that can be connected, allowing it to power everything from smart manufacturing to driverless cars. Ottawa is auctioning off a total of 1,504 licences in 172 service areas.

Canada’s three largest telecoms – Rogers Communications Inc., Telus Corp. and and BCE Inc. – were expected to shell out a combined $2.8-billion on the airwaves, according to a report by TD Securities. A report from Desjardins Securities predicted the Big Three, along with Cogeco Inc. and Quebecor Inc., could pay around $3-billion, but noted that spectrum prices are difficult to forecast. South of the border, an auction for similar airwaves netted US$80.9-billion.

The previous record for the highest-grossing Canadian spectrum auction was the 2014 sale of the 700-megahertz spectrum, which had 15 bidders, 108 rounds of bidding and brought in $5.27-billion.

The most recent auction, which took place in 2019 and was for airwaves in the 600-megahertz range, netted $3.47-billion for Ottawa.

Companies are not allowed to discuss the auction publicly until the results are announced. Innovation, Science and Economic Development Canada said recently it will announce results within five days of the close of the auction. ISED declined to comment, noting the auction continues.

“In order to protect the integrity of the auction, Innovation, Science and Economic Development (ISED) cannot comment on the status of bidding at any point during this period,” spokesperson Hans Parmar said in an e-mail.

Desjardins Securities analyst Jérome Dubreuil wrote in a recent note that a higher price for spectrum is a negative for wireless carriers, as “paying more does not provide operators with anything more.”

However, if operators end up paying more than the approximate $3-billion that Desjardins expected, “this could mean that companies see higher monetization potential for the spectrum,” Mr. Dubreuil added. “In our view, 5G deployments could accelerate after the auction is completed as network deployment plans are heavily dependent on spectrum holdings.”

Gregory Taylor, a spectrum expert and associate professor at the University of Calgary, said he’s not surprised by the total, given the critical importance of the airwaves.

“Even though the major providers started announcing their 5G services more than a year ago, it simply has not been a game-changer for anyone. This is the spectrum that apparently can be a game-changer,” Mr. Taylor said.

“When they auctioned this spectrum in the U.S. it went for twice the cost of anything that had been auctioned before,” he added.

Shaw Communications Inc., which has struck a deal to be acquired by Rogers for $26-billion including debt, is not participating in the auction. Some experts have said this clears the way for smaller players to acquire spectrum licences that are set aside for newer wireless carriers.

The government has set aside up to 50 megahertz of spectrum for smaller players in areas where enough spectrum is available. The Canadian Radio-television and Telecommunications Commission recently ruled that regional competitors looking to gain access to the wireless networks of the Big Three national carriers and SaskTel must own spectrum licences in the relevant areas, a move that Bank of Nova Scotia analyst Jeff Fan said has made acquiring spectrum licences more important.

“For these operators, we believe acquiring mid-band spectrum could be the first step in a meaningful expansion,” Mr. Fan said in a note to clients.

Two more 5G spectrum auctions are on the horizon – more mid-band radio waves are expected to be auctioned in early 2023, while a sale of the much higher-frequency millimetre band is slated for 2024.

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