Department expected to rule on Shaw-Rogers spectrum transfer before Sept: Analyst

Industry Canada is expected to issue a decision before September on Rogers Communications Inc.'s bid to buy Shaw Communications Inc.'s AWS “set aside” spectrum, Scotia Capital said in a research note. The Industry Department said Thursday it will hold the 700 MHz auction starting Nov. 19. The department also announced a consultation on new rules governing the transfer of spectrum licences to national incumbent carriers as Rogers seeks to buy Shaw's AWS spectrum that was set aside for new entrants. The department must approve the spectrum transfer, and Scotia Capital analysts Jeff Fan and Warren Hastings said in the research note Thursday that they expect Industry Canada to issue a decision before September on Rogers' bid to buy the spectrum licences for $325 million to $350 million, including $50 million for an option. The spectrum deal, announced in January, gives Rogers an option to purchase Shaw's spectrum after a deadline in September 2014, when a five-year moratorium is lifted on the transfer of that “set aside” spectrum to incumbents. New entrant carriers have criticized the agreement, saying it undermines the AWS auction rules that aimed to encourage competition by ensuring that spectrum would be set aside for new entrants to the wireless market. “If the proposals are adopted, we expect IC will conduct a preliminary assessment of the spectrum license option agreement and issue a decision before Sept 2013, well ahead of the actual transfer in Sept 2014. Even if IC were to deny SJR's transfer, we do not see new entrants finding the necessary funding to buy SJR's license and becoming bigger competitive threats in the west,” Scotia Capital said. Anthony Lacavera, former CEO of new entrant Wind Mobile, told The Wire Report in an interview Thursday that he was encouraged by the proposed rules on spectrum transfers because it signals that the government will not put more spectrum into the hands of the incumbents if that spectrum was intended to encourage a fourth player in the wireless market. "For me, this creates a really interesting dynamic where you no longer have spectrum speculators in the 700 MHz auction. You're going to have people who are committed to building,” Lacavera said. He said Shaw's spectrum sale to Rogers would earn the company about $135 million in profit by purchasing the licences for $190 million and holding onto them for five years. At a media availability Thursday, Industry Minister Christian Paradis would not say whether a decision on the Shaw-Rogers deal would be issued before the 700 MHz auction starts Nov. 19. Scotia Capital said it continues to forecast that the 700 MHz spectrum auction will generate proceeds of about $2.6 billion for the federal government, with each incumbent telco spending an average of about $750 million. Total auction proceeds are likely to be below $2.6 billion, Scotia Capital said, and if each incumbent spends up to $750 million, that would mean the firm estimates new wireless entrants and regional players would collectively spend about $350 million on 700 MHz spectrum licences. BMO Capital Markets analyst Tim Casey said in a research note Thursday that Industry Canada's new rules for spectrum transfers and its cap regime for the auction—which limits each incumbent to one “prime” block of spectrum per licence area—may affect how industry consolidation shakes out following the auction. “The spectrum caps put in place for the 700MHz auction will continue to be in place for five years following licence issuance. Therefore, no transfer of licences or issuance of new licences will be authorized if it allows a licensee to exceed the spectrum cap during this period,” BMO said. “This introduces another level of intricacy in assessing potential consolidation scenarios going forward. Spectrum holdings and permutations of paired blocks could complicate a sale of a new entrant to an incumbent or consolidation amongst new entrants,” the research note said. New entrant carrier Wind Mobile, owned by Amsterdam-based parent company VimpelComLtd., said last October that it was not engaged in “any active merger discussion,” though the company last spring said it had met with other new entrants to discuss possible consolidation or spectrum and network sharing. Moody’s Investor Services said last year that new entrants Wind Mobile, Public Mobile Inc. and Mobilicity must consolidate or merge with incumbent carriers to generate greater return on investment. BMO said in the research note that the final 700 MHz auction rules issued Thursday will not address the new entrants' financial challenges, with the exception of regional cablecos Videotron Ltd. (owned by Quebecor Media Inc.) and Eastlink (owned by Bragg Communications Inc.) “As such, we believe the potential impact on incumbent carriers will be minimal. In short, the oligopoly remains intact and near-term dividend growth appears to be sustainable for the big three,” BMO said, referring to Rogers, BCE Inc. and Telus Corp. Industry Canada's plan to hold consultations to make 750 MHz of mobile spectrum available by the end of 2017 would come in addition to a total 528 MHz of mobile spectrum currently available for commercial services, BMO said. That 528 MHz includes spectrum to be licenced in the 700 MHz auction this year and a 2500 MHz auction in 2014, the firm said. —With reporting by Simon Doyle at sdoyle@thewirereport.ca and copy editing by Danika Grenier at dgrenier@thewirereport.ca

Department expected to rule on Shaw-Rogers spectrum transfer before Sept: Analyst

News | March 8, 2013

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Department expected to rule on Shaw-Rogers spectrum transfer before Sept: Analyst

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