Canadian spectrum auction raises $8.9-billion as telecoms grow 5G wireless services

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An auction for highly coveted 5G airwaves has netted a record-breaking $8.91-billion for the federal government, with Canada’s Big Three telecoms shelling out a combined $7.35-billion while Quebecor Inc.’s Videotron Ltd. picked up licences outside of its home province of Quebec as it sets its sights on national expansion.

Rogers Communications Inc., which is awaiting regulatory approval of its deal to acquire Shaw Communications Inc. for $26-billion, including debt, spent the most of the large telecoms, shelling out nearly $3.33-billion to acquire 325 spectrum licences. (Spectrum refers to the airwaves used to transmit wireless signals).

BCE Inc.’s Bell Mobility picked up 271 licences for $2.07-billion, while Telus Corp. is paying roughly $1.95-billion for 142 licences. (Bell and Telus share wireless networks, with each one responsible for roughly half the country.)

Videotron, meanwhile, spent nearly $830-million to acquire 294 blocks of spectrum, with more than half of that investment in four Canadian provinces outside of its home market: Ontario, Manitoba, Alberta and British Columbia. Quebecor said in a news release the investment positions it “to realize its ambition of boosting healthy competition in telecom beyond the borders of Quebec.”

“Our success in Quebec has served Quebeckers well. Today, we are taking another step towards bringing leading-edge technology and healthy competition to more Canadian consumers,” Quebecor president and CEO Pierre Karl Péladeau said in a statement.

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The mid-band airwaves, which are in the 3,500-megahertz range, are considered beachfront property for 5G wireless services because they are able to carry large volumes of data over long distances. The fifth generation of wireless technology promises much faster upload and download speeds, reduced lag time and a vast increase in the number of devices that can be connected, allowing it to power everything from smart cities to driverless cars.

South of the border, an auction for similar airwaves netted US$80.9-billion.

Johanne Lemay, co-president of telecom consultancy Lemay-Yates Associates Inc., called the spectrum “very expensive,” saying Canadian prices are twice as high as U.S. prices, on average. (A key measurement of spectrum prices is per “megahertz-pop” (MHz/POP), which refers to the price paid relative to a megahertz of bandwidth for each person in the area a licence covers.)

“Telus was not as aggressive as you maybe would have expected them to be. Bell and Rogers were willing to pay more than they were,” Ms. Lemay said in an interview.

Darren Entwistle, president and CEO of Telus, said that international carriers pay “much less” for the resource than Canadian ones do. For instance, in the U.S., carriers paid on average $1.19 per MHz/POPin the most recent 5G spectrum auction, while Canadian carriers paid $3.28 per MHz/POP, Mr. Entwistle said in a statement.

“As a result, the impact of 5G on the Canadian economy will not transpire at the same level as other OECD countries, given our regulatory conditions and spectrum policies,” Mr. Entwistle added.

Cogeco Communications Inc., which has expressed interest in offering wireless services to its existing internet and television customers under the right regulatory conditions, spent $295-million to acquire 38 licences. The Canadian Radio-television and Telecommunications Commission recently issued a ruling to force the Big Three national wireless carriers and SaskTel to open up their networks to eligible regional players, opting for a model similar to one Cogeco proposed.

“These spectrum investments, together with the recent CRTC regulatory decision on wireless services and our robust and growing regional broadband network, position Cogeco to further develop plans to enter the mobile wireless services market in a financially disciplined way in all of our core markets in Canada,” Philippe Jetté, Cogeco’s president and CEO, said in a statement.

Rural internet provider Xplornet Communications Inc., which owns Manitoba wireless carrier Xplore Mobile Inc., picked up 263 licences for $244-million. “That’s a lot more than Xplornet has ever spent on an auction in Canada,” Ms. Lemay said. “Their new owner showed that they’re willing to spend some serious money,” she added, referring to New York-based infrastructure investment firm Stonepeak Infrastructure Partners, which acquired Xplornet in 2020.

The auction, which was delayed by six months owing to the pandemic, kicked off on June 15 and lasted 103 rounds, wrapping up on July 23. Out of the 23 approved bidders, just 15 of them walked away with spectrum. In total, 1,495 out of the 1,504 available licences were awarded. Up to 50 MHz of spectrum was set aside for smaller players in areas where enough spectrum was available.

Some analysts raised concerns about debt levels at Canada’s Big Three telecoms after The Globe first reported the auction had netted record-breaking revenues for Ottawa. Analysts had originally anticipated the auction would bring in between $3-billion and $4-billion, although spectrum auction results are difficult to predict and the estimates included only the publicly traded companies: Bell, Telus, Rogers, Quebecor and Cogeco.

Bank of Montreal analyst Tim Casey wrote in a recent note that the lack of much-needed mid-band spectrum and the precedent set by U.S. telecom peers may have contributed to the higher-than-expected spending.

Rogers said it is spending the equivalent of $3.38 per MHz/POP for the airwaves and the purchase will be paid for through its existing cash balances and bank credit facilities. “We went into this auction with a clear plan and acquired the spectrum we need to continue driving the largest and most reliable 5G network in Canada and to deliver long-term value for our customers, shareholders and Canada,” Joe Natale, president and CEO of Rogers, said in a statement.

Bell chief technology officer Stephen Howe said his company now has the spectrum holdings it needs to leverage the “full capabilities of [5G] technology to help bridge the digital divide with enhanced broadband access for more rural and remote communities.”

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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