Amid a bidding frenzy between Canada’s national wireless carriers in the country’s first auction for airwaves that will support 5G technology, experts say big spender Rogers Communications Inc. got the best value for its money.
Following a familiar pattern, the company bid high on valuable low-frequency spectrum – which can carry strong cellular signals over long distances and into buildings – and will pay more than $1.7-billion for the 600-megahertz airwaves it bought. But unlike a 2014 auction where it shelled out $3.3-billion, a closer look at the provisional results, which were announced on Wednesday, shows Rogers paid a reasonable average amount compared with its competitors for the 52 licences it snapped up this time. And those include 100 per cent of the available airwaves in Southern Ontario, a densely populated jewel in any Canadian carrier’s crown.
Meanwhile its rivals BCE Inc. and Telus Corp., which have a spectrum and network sharing agreement, charged in opposite directions, with Telus spending big and BCE going home empty handed. Now the pair is left with a patchwork of new airwaves across the country and disparate views on the value of the spectrum.
Telus chief executive Darren Entwistle said buying the 12 licences his company acquired for $931-million is “critical to the advancement of our national 5G growth strategy,” (and he lamented the auction rules that forced the national carriers to pay more than their regional rivals, Quebecor Inc.'s Videotron and Shaw Communications Inc.'s Freedom Mobile, who were able to bid on reserved airwaves).
But BCE says it is looking to future auctions for more important 5G spectrum and can make do with its existing airwaves for now. Chief technical officer Stephen Howe confirmed on Thursday that BCE pulled out of bidding when it determined the prices exceeded the value it placed on the airwaves.
“I think the fact that Rogers got [all the available spectrum] in Southern Ontario is a big, big win for them. It will help enhance the quality of service in that area, which is really critical for them,” Johanne Lemay, co-president of telecom consultancy Lemay-Yates Associates Inc., said in an interview on Thursday. She added that Rogers also got half the available airwaves in other key regions such as British Columbia, Alberta, Southern Quebec and Eastern Ontario (which includes the Ottawa region).
“Among the incumbents, they are the big winner.”
The auction lasted about a month and included 54 rounds of bidding. The format is notoriously complicated and carriers often seek the advice of outside experts, such as math PhDs who travel the world consulting on spectrum auctions.
“This auction was a complex game of chess, and we took full advantage of the opportunity," Rogers chief technology officer Jorge Fernandes said on Thursday.
A key measurement for judging investments in spectrum is the price per “megahertz-pop,” which means the price paid relative to a megahertz of bandwidth for each person (population) in the area a licence covers.
Ms. Lemay said in this year’s auction, Rogers “didn’t get squeezed like they did for the 700.” In the 2014 auction for 700 MHz spectrum, Rogers paid an average price of $4.32 a MHz-pop for the licences it acquired, a steep amount by most domestic and international comparisons.
For the 600-MHz airwaves, Rogers will pay an average of $1.71 a MHz-pop. “We believe that is a good price as the company likely used a solid bidding strategy to secure this important spectrum,” Desjardins Securities’ Maher Yaghi said.
Telus, on the other hand, will pay $2.35 a MHz-pop on average for the 12 licences it acquired. Scotia Capital analyst Jeff Fan noted that is well above the prices American carriers paid in the 2017 U.S. 600 MHz auction.
In reports to clients after the auction, most financial analysts accepted BCE’s explanation that it bowed out of the process as a pragmatic act of “price discipline,” and cited the company’s plans to repurpose some of its existing low-band spectrum for 5G technology and add more cell sites to its network to improve coverage. Analysts also noted the company’s argument that neither of the two biggest U.S. players, AT&T and Verizon Communications Inc., have acquired 600 MHz spectrum, and the scale of those companies makes them key to the development of both network equipment and consumer devices that work with their airwaves.
Still, Rogers is now in a position to move faster on network upgrades. The company says it will immediately begin adding new radios to its cell sites that use both 600- and 700-MHz frequencies and will be upgradeable to 5G when smartphones that support the new technology are available.
At this point, BCE and Telus cannot do the same across the country. Although BCE’s Mr. Howe said there are other instances where his company and Telus don’t have the same amount of a certain type of spectrum and that they make it work using network engineering.
But some are wondering how valuable Telus’s investment will turn out to be. “Given [Telus’s] national network sharing arrangement with BCE and BCE’s lack of 600 MHz spectrum, it is unclear what part this spectrum will play in their 5G network strategy,” BMO Nesbitt Burns analyst Tim Casey said.