‘That was a lot to spend,’ analyst says of Rogers’ auction activity

Rogers Communications Inc. spent more than expected in the government’s 700 MHz spectrum auction, while Videotron, owned by Quebecor Inc., expanded its network across the country for a relatively low price, analysts said on Thursday. The results of the 700 MHz wireless auction, released on Wednesday, showed Rogers invested more than $3.2 billion in contiguous paired channels of A and B spectrum in the most populated Canadian markets, despite the infancy of the technology that takes advantage of the A spectrum. “We did not expect to buy the A block in every major market and wonder when it can be deployed,” Canaccord Genuity analyst Dvai Ghose said in a research note on Thursday. Ghose noted that the $3.29 billion Rogers spent was about three times the $700 million to $1.3 billion analysts were expecting the company to put out for this auction. The B, C, C1, and C2 channels are considered prime blocks largely because of their use by major carriers in the United States. AT&T already operates on the B and C bands, while Verizon Communications Inc. operates on C1 and C2. Troy Crandall, an analyst at 3Macs, said in a phone interview that Rogers' purchase of the A and B blocks could be a risky idea. "By the time they have a product for it and we're seeing contributions from that it might be December 2015," he said. "Maybe 10 or 15 years from now we'll be able to tell if that was a smart move or not. We'll wait and see how technology improves and capacities improve to see if there's a need for how much spectrum they have. That was a lot to spend." Rogers’ huge outlay for spectrum should quell rumours about a potential takeover of Shaw Communications Inc. by Rogers, Crandall said, because the money spent in the 700 MHz auction is about 15 per cent of the company’s market capitalization and puts Rogers in a worse financial position for executing any deal. "They have a lot of debt,” said Crandall. “They better make sure this goes right here because if it goes south, they're going to have trouble paying it off." Videotron was “virtually gifted” its purchase of $233 million on C1 blocks of prime spectrum in Quebec, southern Ontario, Alberta and British Columbia, said National Bank analyst Adam Shine in a research note. In an interview with Bloomberg Thursday, Prime Minister Stephen Harper said: “We want to see at least four players in all markets across the country. I don’t think it necessarily has to be the same four players, but I think we have seen some evidence elsewhere to suggest that the oligopolistic tendencies of the industry tend to break down a little bit as you move from three to four.” Shine and Ghose were both cautious about the prospect of a national Videotron rollout anytime soon. Although the purchase of bandwidth comes with mandatory deployment requirement, Ghose said that he “ not envisage national expansion or LTE deployment for some time.” “Incumbent regulatory risk may be declining and we do not expect more competition anytime soon,” he said. Shine said that Quebecor might look to buy one of the smaller carriers, such as Wind Mobile or Mobilicity, before it decides what to do with the new Videotron spectrum. “It may be that Quebecor wishes to see what transpires with Mobilicity as well as the government’s evolving wireless regulation before showing its cards and officially committing itself to a potential rollout of a national wireless platform,” he said. Drew McReynolds, an analyst with RBC Dominion Securities, said in a Thursday research note that Quebecor has several options for the estimated $450 million of unused spectrum it holds, including previous purchases, aside from building itself into a fourth national carrier. McReynolds said the company could hold onto its spectrum in hopes of changes to the government’s spectrum-transfer policies with an intention to sell the spectrum to a company outside of the big three incumbents. Or, he said, it could buy one of the new entrants and build a national carrier, or it might bring in a new strategic partner. Verizon, which made noise about entering the Canadian market last summer and uses the same 700 MHz spectrum purchased by Videotron, could come to Canada as part of partnership with a Canadian carrier, McReynolds said. That would upset the current wireless market more than a national Videotron network, he noted. BCE Inc. was “the winner” of the auction among the big three incumbents, said Barclay’s analyst Phillip Huang in a research note. Bell spent $566 million on 31 licences, at the low end of expectations, while Telus Corp. picked up 30 licences for $1.1 billion, spending slightly more than analysts expected. The two companies have network- and infrastructure-sharing agreements for different technologies that date back as early as 2001 and continue to share space on the latest 4G networks. “Bell has more spectrum than Telus does,” said Crandall. “It might be something where Bell is telling Telus that they need to get their spectrum holdings up so that they can really share equally on bandwidth.” The two companies now have a C block and C2 block of 700 MHz spectrum in all of the country’s heavily populated markets. “Bell and Telus have a long history of sharing assets and sharing a vision,” analyst Amit Kaminer of the SeaBoard Group said in an interview. “They can share the spectrum and they can make it work.” Bell and Telus also bought all of the available 700 MHz spectrum for the D and E blocks, which are unpaired and unidirectional, making them unsuitable for smartphones or other consumer wireless devices. Kaminer said the spectrum could be used for other applications including machine-to-machine communications and network management. “There’s always a black swan, and someone could find an application for those unpaired blocks in a very innovative way,” he said. — With reporting by Peter Henderson at phenderson@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

‘That was a lot to spend,’ analyst says of Rogers’ auction activity

News | February 20, 2014

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‘That was a lot to spend,’ analyst says of Rogers’ auction activity

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