Few surprises in 600 MHz auction framework: analysts

Innovation Canada has released its framework for the 600 MHz spectrum auction, now scheduled for March 2019, and it will set aside 43 per cent of spectrum for “regional competitors and potential new market entrants,” according to a Wednesday release. Since the government had previously introduced its plan for the spectrum last year, analysts were not surprised by the move — which they said would mainly benefit Shaw Communications Inc. and Quebecor Inc. Details like the auction structure, timing and opening bids, as well as conditions on transferability, licence terms and deployment requirements on the spectrum “are in-line with our expectations and generally consistent with previous auctions,” RBC Capital Markets analyst Drew McReynolds said in a research note. The opening bid for a national 10 MHz block is $220 million, while the total for the opening bids is $1.5 billion, said McReynolds. Desjardins analyst Maher Yaghi also pointed out in a Friday note that the set aside is in line with previous auctions held over the past decade. He added that Quebecor and Shaw “need this spectrum to continue growing their wireless subscriber base and are likely to bid on all three blocks set aside in the regions where they operate. These companies want that spectrum, but they also want to ensure that no one else enters the market or sells the spectrum to incumbents in the future.” Yaghi estimated that Shaw could spend about $410 million on three blocks of 10 MHz, and Quebecor around $202 million, “if no other new entrants bid against them on the three blocks.” He added Cogeco Inc. is eligible to participate, but considering the high cost of building a network, it isn’t clear if they will do so. Earlier this year, Cogeco expressed renewed interest in the wireless space, but whether that will continue in the wake of the CRTC’s decision declining to mandate WiFi-first mobile virtual network operators (MVNOs) remains to be seen. Analysts also said that the deployment requirements shouldn’t be an obstacle for the companies who want to take part. “While there are 5-year, 10-year, and 20-year buildout requirements, these are historically very loosely enforced and unlikely viewed as significant hurdles for potential bidders,” Barclays Capital analyst Philip Huang wrote. Since the main wireless players in general aren’t hurting for spectrum, Huang said Shaw has the most to gain, given it has the smallest spectrum portfolio. “For the Big 3 and Quebecor, we believe the 600MHz licenses will help address rural coverage, and perhaps more importantly, block out any new competition (e.g. foreign players) in their respective markets,” he said. Canaccord Genuity analyst Aravinda Galappatthige also pointed to Shaw’s spectrum holdings, noting its growing subscription count shows "there is clearly a need for greater low band spectrum and the 600 MHz auction can potentially fully load up Freedom from that standpoint. This could also help reduce network capex spend, as fewer cell sites are required at this band. This can be another checked box for the company as it moves ahead with its network and brand build.” He also said he expects the incumbents to spend less this time around compared to the 700 MHz auction in 2014, when Rogers Communications Inc., BCE Inc. and Telus Corp. spent $5 billion. “We think a good estimate at this stage would be $700-800M per incumbent,” said Galappatthige. The big three were vocal about their opposition to setting aside spectrum for smaller competitors ahead of the release of the auction framework. If it did go ahead with the set-asides, the three incumbents told Innovation Canada, they should be smaller than the 30 MHz the government proposed. Meanwhile, Shaw issued a press release Wednesday praising ISED’s plans. “The 600 MHz spectrum auction is an important step towards correcting the significant imbalance in lower frequency spectrum holdings between the Big Three incumbents—Bell, Rogers and Telus—and new competitors. Over 90 per cent of available low-band spectrum in Canada is currently in the hands of the Big Three, which reflects a concentration of market power that includes over 90 per cent of all Canadian wireless subscribers,” the release said. — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Bryson Masse at bmasse@thewirereport.ca

Few surprises in 600 MHz auction framework: analysts

News | March 29, 2018

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Few surprises in 600 MHz auction framework: analysts

News | March 29, 2018

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