An auction for highly coveted 5G airwaves that, according to sources, has raised a record-breaking $8-billion will leave Canada’s Big Three telecoms more indebted as they look for ways to monetize the newest generation of wireless technology, analysts say.
The total proceeds, first reported by The Globe and Mail on Wednesday, are greater than the $3-billion to $4-billion that analysts had anticipated, although spectrum auction results are difficult to predict and the estimates include only the publicly traded companies: BCE Inc. , Telus Corp. , Rogers Communications Inc. , Quebecor Inc. and Cogeco Communications Inc.
Bank of Montreal analyst Tim Casey said the expenditures are proportionately in line with a recent auction in the United States for similar airwaves, which netted US$80.9-billion. The airwaves that Ottawa is selling are in the 3,500-megahertz range and are considered beachfront spectrum for 5G because of their ability to carry larger volumes of data over long distances. (Spectrum refers to the airwaves used to transmit wireless signals.)
“We do believe the lack of mid-band spectrum in the medium term, as well as the precedent set by U.S. telecom peers, played its part in driving upside pricing tension,” Mr. Casey wrote in a note to clients. “Despite the sticker shock, the development is manageable for the incumbents given their scale,” he added.
The auction, which kicked off June 15, is in the assignment phase and is expected to end on July 23, according to two industry sources. 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 more than $8-billion. The Globe is not identifying the sources because they are not authorized to discuss the auction publicly.
Bell, Telus and Rogers declined to comment, citing rules that prohibit bidders from discussing the auction until the results are made public. Innovation, Science and Economic Development Canada has said it will announce results within five days of the close of the auction.
Desjardins Securities analyst Jerome Dubreuil said the telecoms’ willingness to pay such high prices for licences to the airwaves suggests they see major opportunities to earn revenue from fifth-generation wireless technology, which is expected to power new technologies such as smart manufacturing and driverless cars.
However, Bank of Nova Scotia analyst Jeff Fan said the spending is “difficult to justify” because carriers in the United States, who are about one to two years ahead of Canadian telecoms on deploying 5G, have not seen significant revenues from 5G.
Rogers, which has struck a deal to buy Shaw Communications Inc. for $26-billion, including debt, was the most indebted of the major telecoms prior to the auction, Mr. Fan said in a note to clients. He noted that the high spectrum price makes it more likely that Rogers will sell off Shaw’s wireless assets, a move that some industry observers have said may be necessary in order to appease regulators.
“We would also not count out other non-core asset sales including its Cogeco shares or sports assets,” he added.
Royal Bank of Canada analyst Drew McReynolds said the expenditures should be viewed within the context of recent regulatory decisions, which have been favourable to the large telecoms. The Canadian Radio-television and Telecommunications Commission recently reversed a 2019 decision lowering wholesale broadband rates and decided not to mandate wireless network access for competitors without their own spectrum or infrastructure.
Shares of Rogers were down 0.4 per cent to $66.60 on the Toronto Stock Exchange on Thursday, while BCE Inc. fell 0.2 per cent to $62.28 and Telus declined 0.6 per cent to $27.95.
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