Clawback of 3.5 GHz strikes ‘reasonable’ balance, analyst says

The decision by Innovation Canada to carve-out mobile use licences from the 3.5 GHz band based on incumbents’ proportional holdings of the coveted spectrum hits the right balance for redistribution, one analyst said, as others weighed the significance of the clawback on incumbent holders. While Xplornet Communications Inc., the second-largest holder of 3.5 GHz spectrum, said Thursday it is still reviewing the decision and its impact on its fixed-wireless services in rural Canada, some analysts said the decision didn’t surprise them. “We believe strike a reasonable balance between the needs of existing licensees...and getting 3500 MHz into the hands of other facilities-based operators,” said RBC analyst Drew McReynolds in a note, adding “there is nothing in the proposed framework that surprised us in any material way.” Wednesday’s decision to allow existing holders of the 3.5 GHz to apply for new flexible licences based on how much they currently hold means the incumbents would theoretically be able to retain more of the spectrum -- which was previously only auctioned off for fixed-wireless use -- then previously proposed by the department, in which it contemplated taking back two-thirds of released spectrum. However, the more spectrum above 75 MHz they own, the more they will have to forfeit, as ISED said the maximum they can retain is 60 MHz above that threshold. In the aftermath of the decision, analysts came away with mixed initial impressions on who could have more to gain and who had more to lose. For Rogers Communications Inc. and BCE Inc., the largest holders of the spectrum through their Inukshuk wireless partnership, “this was a little less worse than expected on the clawback,” Scotiabank analyst Jeff Fan said in a quick-take email following the decision. “And a little worse for TELUS,” he added, but didn’t elaborate. The decision, which followed the Telecom Summit in Toronto, noted that the 50-50 Inukshuk joint venture would be considered one entity -- instead of two separate ones, to correspond to Rogers and Bell -- which means more relative spectrum will be clawed away. Canaccord Genuity analyst Aravinda Galappatthige noted as much when he said in a note that the combined entity has between 50 and 175 MHz of the spectrum in most service areas, meaning they would have to give up 66 per cent of their holdings, he said. A sizeable chunk. Rogers’ David Watt, senior vice-president of regulatory affairs, said in an emailed statement that the company “will continue to put our fixed-wireless 3500 MHz spectrum to use for our customers as we prepare for next year’s auction to bring together 3500 MHz, our recently acquired 600 MHz 5G spectrum and other frequencies to create a global best-in-class 5G mobile wireless network for Canadians.” The company added that in each of its top 10 areas by population, it will retain 30 MHz of the spectrum after the decision. That’s where Maher Yaghi said in a note the partnership parties will see gains. “While this represents a reduction in the amount of spectrum they would hold, the two companies still maintain spectrum in important areas even before the auction begins, which gives them an advantage.” Yaghi said he doesn’t expect this decision to have a significant impact on the players. Moreover, National Bank analyst Adam Shine said the clawback is “much smaller” than expected, estimating that Xplornet will be able to keep 80 per cent of its holdings. Senior ISED officials said in a technical briefing on Wednesday that the telecoms will still be able to bid for their relinquished spectrum. Shine noted that the parties also won’t have to return licenses “unless they have been won at auction and not until related bidders are actually ready to use their acquired spectrum.” Bell said Thursday it had nothing new to add after it said a day earlier that it was still reviewing the decision. Earlier this year, it said it would be expanding its fixed-wireless services, which uses 3.5 GHz spectrum, to over one million homes. Telus, which has been clamouring for the spectrum’s release for mobile, said in an emailed statement that it was “pleased that ISED is holding an open consultation with respect to competitive measures in the 3500 MHz band and hope that their decisions will ensure that all Canadians have equal access to this spectrum which is key to future 5G technology. “As we have stated, a level playing field throughout the transition to 5G is critical if we want to spur innovation, bridge digital divides, and compete globally.” ISED is pushing the narrative that all licensees of the 3.5 GHz spectrum will be on an equal playing field because the transition to mobile use will only occur after the auction. The department also put forward the possibility that it will consider setting aside spectrum for relatively smaller players, as it has for previous spectrum auctions, which analysts said was naturally beneficial to Quebecor Inc., which owns Videotron, and Shaw Communications Inc.’s Freedom Mobile -- the nation’s fourth major wireless player. The rules of the auction are currently being deliberated, including what kind of format it will take on and whether to set a spectrum cap for purchase. Yaghi said those rules, which he said could “likely” be determined “late this year or early next year...could have a more meaningful impact on stock prices.” On Thursday, some members of Parliament took the opportunity to comment on the decision less than 24 hours after it surfaced. Conservative MP Dan Albas, who is shadow minister for ISED, said at an industry committee hearing Thursday that the government effectively took a “hatchet” to rural connectivity with the decision. “Everyone’s taking their time to review it, so they can actually see how it’s going to damage their operations,” Albas told The Wire Report. “But what we do know is that if it does not right away reduce service it will suppress the ability for them to grow in rural areas.” — With reporting by Ahmad Hathout at ahathout@thewirereport.ca and reporting and editing by Michael Lee-Murphy at mleemurphy@thewirereport.ca

Clawback of 3.5 GHz strikes ‘reasonable’ balance, analyst says

News | June 6, 2019

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Clawback of 3.5 GHz strikes ‘reasonable’ balance, analyst says

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