Next spectrum auction to net gov’t lower amount than previous one: UBS

A new report from UBS Securities Canada Inc. predicts that Industry Canada’s next spectrum auction, expected to take place in late 2007 or early 2008, will generate revenue for the federal government on the order of approximately $1.1 billion. This is about $400 million less than the 2001 spectrum auction brought into the government coffers (RoW, Feb. 5/01). To make its assessment, the investment bank analyzed spectrum licence prices from Industry Canada’s last auction of PCS frequencies, the recently completed Federal Communications Commission spectrum auction and the change in prices between the last two major auctions in the United States. The company notes that the price per MHz per population (Pop) for spectrum in the most recent US auction was US$0.53/MHz/Pop. This was a significant drop compared to the prices in the 2001 spectrum auction of more than US$4/MHz/Pop. Canada’s 2001 spectrum auction recorded a price per MHz per Pop of US$0.73. The company estimates that the price per MHz per Pop in the upcoming auction will be even lower: $0.38 with total proceeds being about $1.1 billion (see table below for more preliminary auction estimates). UBS Canada says the lower spectrum auction haul is the result of a number of factors. There is an impact on total prices from the fact that the Southern Ontario market represents such a large portion of the overall auction haul. In 2001, this market made up 83% of the total value, according to the investment house, which also estimates that this market will represent about 80% of the 2007/2008 spectrum auction’s value. UBS Canada also predicts that the spectrum licence prices in Canada will decline at a rate similar to that experienced in the United States. The conclusions are based on research found in Q-Series: Canadian Wireless, Wireless disruptive forces – noise or reality? which suggests, however, that the overall auction haul will depend largely on the rules the government sets. Industry Canada is expected to release the spectrum auction consultation paper before the end of the year that will discuss potential rules such as a set aside of spectrum for new entrants (RoW, July 27/06). In its report, UBS Canada highlights a spectrum set aside for new entrants and the re-introduction of a spectrum cap for existing licence holders as factors that could influence licence prices. But foreign ownership rules, notes the investment banking firm, could have the greatest impact on spectrum licence pricing as well as overall industry structure. However, UBS Canada notes that the government probably won’t implement such changes any time soon. "With a minority Conservative government and potential implications on the broadcasting sector and the Ministry of Canadian Heritage, we believe significant changes to Canadian telecom foreign ownership rules before the spectrum auction are not likely," reads the report. The report also suggests that there won’t be any significant changes to the competitive landscape in Canada’s wireless industry in the near term, despite the availability of new 3G spectrum as well as the deployment of citywide Wi-Fi networks such as the one being rolled out in Toronto. An upcoming issue of Report on Wireless will have a study on the potential impact of Toronto’s Wi-Fi network on the mobile wireless players. The UBS research notes that unless there are conditions favourable to new entrants coming into the market, such as a set aside of spectrum, the re-introduction of a spectrum cap, mandated resale and roaming and antenna tower sharing, and the removal of foreign ownership restrictions, the Canadian wireless sector will remain largely a three-player market.

Next spectrum auction to net gov’t lower amount than previous one: UBS

News | December 4, 2006

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