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Rogers Communications Inc. spent more than $1.7-billion in the federal auction, far exceeding estimates from financial analysts.

Lars Hagberg/The Canadian Press

Canadian wireless providers spent almost $3.5-billion in a federal auction for cellular airwaves as they race to build next-generation 5G networks.

Rogers Communications Inc. spent more than $1.7-billion, while Telus Corp. shelled out $931-million, far exceeding estimates from financial analysts. The two incumbents were forced to spend heavily as the process was designed to help smaller carriers acquire airwaves at a discount to further Ottawa’s goal of stoking competition.

BCE − which has a spectrum- and network-sharing agreement with Telus − picked up no new licences in the auction, saying it did not need additional spectrum.

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The federal government announced the preliminary results of its auction of 600-megahertz spectrum − the radiowaves used to send wireless signals − on Wednesday afternoon after the close of markets. The auction, which began on March 12, was the first of three Ottawa has planned so far to offer carriers valuable new airwaves that are expected to be used in ultrafast 5G networks. The auction pulled in a total of $3.47-billion.

Three out of seven blocks of spectrum in each geographic licence area were reserved for bidding only by players with less than 10 per cent of market share. That barred the national carriers, Rogers, BCE and Telus, from bidding on those “set-aside” airwaves, prioritizing access for regional carriers such as Shaw Communications Inc.’s Freedom Mobile and Quebecor Inc.'s Vidéotron.

Buying spectrum is one of the biggest capital investments that carriers make and crucial for building reliable networks, which are key to attracting and retaining customers. The Big Three had criticized the federal government’s set-aside policy, saying it was not necessary to offer a handout to well-capitalized cable companies Quebecor and Shaw.

Rogers won 52 out of 64 licences that were up for open bidding, taking some if not all of the available licences in every province and territory. Telus claimed the remaining 12 licences, which are in Eastern Ontario, British Columbia, Alberta and Saskatchewan.

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Freedom Mobile will spend $492-million for 11 licences in B.C., Alberta and Ontario, the three provinces where it operates, and Vidéotron won 10 licences in Quebec and Eastern Ontario (where it offers service in the Ottawa area) for $256-million. The other small providers that won licences are Atlantic Canada’s Eastlink, SaskTel, Tbaytel, Xplornet and Ice Wireless.

Navdeep Bains, Minister of Innovation, Science and Economic Development, called it a “very successful auction” on Wednesday.

“It achieved our goal, which is that we see more regional competition, which will drive down prices for Canadians,” he said in an interview, adding, “We’ve actually seen regional providers more than double their share of low-band spectrum.”

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Quebecor chief executive Pierre Karl Péladeau praised the “sensible auction rules" on Wednesday, saying they “allowed for a fair division of spectrum between incumbents and regional carriers." Shaw CEO Brad Shaw said the airwaves Freedom acquired would “improve our current LTE [4G] service … [and] also serve as a foundational element of our 5G strategy.”

The next generation of cellular technology will use a mix of large communications towers and smaller cell sites and will rely on a range of different spectrum frequencies to offer continuous coverage and send large volumes of data with very little lag time.

The airwaves up for grabs in the 600-MHz auction are low-frequency spectrum, which can travel long distances and penetrate into buildings. Low-band airwaves are useful for signal strength, and Vidéotron and Freedom Mobile have said they need more such spectrum to improve their network quality.

Analysts were expecting Canadian carriers to spend a total of between $2-billion and $3-billion on the auction.

Joe Natale, CEO of Rogers, called the licences his company won “a precious and scarce resource.”

“This spectrum is vital to the deployment of 5G in Canada and we are well-positioned to bring the very best of 5G to Canadians," he added in a statement, saying Rogers went into the auction "with a clear, disciplined plan and seized this opportunity for the benefit of our customers and shareholders.”

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Meanwhile, BCE said it didn’t need the extra airwaves, stating in a news release it already has ample spectrum in the low, mid and high-frequency bands in both urban and rural areas. “Given the supply of other low-band spectrum that Bell already possesses, 600 MHz is not required for Bell to deliver broadband 4G and 5G services,” the company said.

Telus was not immediately available to comment Wednesday.

Spectrum-auction results are often expressed using the price paid relative to a megahertz of bandwidth per person in the area a licence covers. This is known as a price per MHz-pop (which stands for population).

Rogers paid an average of $1.71 per MHz-pop for the airwaves it won, while Telus paid an average of $2.35. The average opening bid price set by the government was 62.5 cents per MHz-pop (specific opening bid amounts varied across the country) and the regional carriers paid closer to that amount with Vidéotron spending an average of 99 cents per MHz-pop and Freedom spending 78 cents per MHz-pop.

The U.S. held an auction for its own 600-MHz spectrum in 2017, raising a total of US$19.8-billion. The average price paid overall was 93 U.S. cents per MHz-pop while the average price paid for spectrum licences in the top 40 American cities was US$1.31 per MHz-pop.

Canada held an auction for 700-MHz spectrum in 2014, the first time in more than a decade that low-band airwaves were publicly available. Competition for the licences was fierce, with Rogers alone spending $3.3-billion, and total proceeds were $5.3-billion with an average price of $2.32 per MHz-pop, almost six times higher than the auction’s average opening bid price of 39 cents per MHz-pop.

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The federal government still has not finalized the format or rules for the next auction of spectrum in the 3,500-MHz frequency, which is planned for next year. This is expected to be a crucial band for 5G networks, and Ottawa will have to claw some licences back from existing owners. Telus does not have any 3,500-MHz spectrum while Rogers and BCE together own about 75 per cent of the airwaves in that band through a joint venture known as Inukshuk. Rural internet provider Xplornet Communications Inc. also owns a significant amount of 3,500 spectrum, which it uses to deliver home internet service over wireless airwaves.

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