Lower prices for AWS-3 auction ‘attractive’ for new entrants: analyst

The minimum opening bids for the entirety of the available spectrum in the upcoming AWS-3 auction total $162.45 million, with a $97.45 million minimum for the blocks set aside for smaller carriers, Industry Canada said Monday as it launched a consultation on its proposed auction framework. In a Monday research note, RBC Dominion Securities analyst Drew McReynolds said the auction, which was announced earlier this month, has an “attractive” minimum price for the set-aside spectrum and that its framework “remains supportive of a fourth national wireless player.” “Although there are still many moving parts that need to be connected … we would be surprised if a recapitalized fourth wireless player did not emerge over the next 12 months,” McReynolds said in the note. Of the 50 MHz of spectrum up for auction, 30 MHz will be set aside for “operating new entrants,” or those with less than a 10 per cent national market share and less than 20 per cent market share in the region in which they are seeking spectrum, a definition that appears to include Wind Mobile and Mobilicity, but not Manitoba Telecom Services Inc. or Saskatchewan Telecommunications Holding Corp. Independent telecom consultant Mark Goldberg said in a phone interview that the opening bids in the upcoming auction are “about 60 per cent off the opening bids from the AWS auction that took place in 2008.” He said that because the rules specify only those who are using spectrum in the area they are bidding can bid for the set-aside block, that there are regions where there is only one possible bidder. “You have to not only own spectrum in the region you bid in, but you have to be actually using that spectrum,” Goldberg said. For instance, while new entrants Mobilicity, Wind, and Videotron own spectrum in the Toronto area, Videotron never deployed it while Mobilicity is in bankruptcy protection. “So in effect, there is going to be one bid, and there is no reason for them to bid anything more than the opening bid,” he said. Goldberg said it amounts to “quite a gift from the Canadian taxpayers,” given that the 2008 auction raised nearly a billion dollars “for not terribly much spectrum,” and the AWS-3 auction will allow “new entrants to triple or quadruple their total holdings.” Iain Grant, a telecom analyst with the Seaboard Group, said in an email that the reason the prices are lower in this auction may be because “ it is a different economic time, and the primary bidders, the incumbents, are still absorbing the 700 MHz spectrum, not as hungry as they were.” He added that while “the prospect of lower auction pricing, and more visibility in the auction dynamic is good news for Wind, Eastlink and Quebecor (and, in theory, for Mobilicity) it may not matter as much as it seems.” That’s because neither Wind nor Mobilicity “are flush with cash,” and while Videotron “has money and a national ambition (in theory),” it doesn’t qualify to bid on the set-aside spectrum outside of Quebec, Grant said. Canaccord Genuity telecom analyst Dvai Ghose said in a research note Monday that at $97.45 million, the total minimum price for the entirety of the set-aside spectrum is less than half of what he had predicted would be the price of spectrum for a national rollout of Quebecor’s wireless services. Yet the price is still a hurdle for the company, he said, adding “we stress that Videotron would most likely have to acquire at least WIND to be eligible to bid in large markets outside Quebec.” Ghose added that the auction rules stipulating that only carriers already providing wireless services are eligible for set-aside spectrum in that region provide an incentive for consolidation among the smaller wireless players. “This suggests to us that Videotron has to buy WIND, and perhaps Mobilicity, if it wants to bid for the AWS-3 set aside outside Quebec, as Videotron has no existing wireless operations outside Quebec,” he said. As the United States is holding its AWS-3 auction in November 2014, Ghose added it is unlikely that there will be devices that take advantage of the spectrum “for some time, further highlighting Videotron’s challenges” in becoming a national wireless carrier without the appropriate spectrum. The Quebec company picked up 700 MHz spectrum in the government’s auction earlier this year, but technical barriers remain and Ghose noted it could be two or three years before that spectrum can be put to use for a full-featured wireless network. Ghose added in an email that the government's proposal "has the harshest build requirement ever" from Industry Canada, requiring half of the population in populated markets to be covered in five years. He said that means "Videotron would have to build quickly," and brings up the question of "why they are so focused on roaming rates when they have to build over a relatively short period." In their research notes, Ghose and McReynolds pointed to an upcoming series of decisions on domestic wholesale wireless roaming from the CRTC as important to the future of any new fourth national wireless carrier, from Quebecor or otherwise. Ghose said the big decisions on wholesale roaming aren’t expected until “spring 2015,” and that “market uncertainty” will continue until they are settled. Wind Mobile chief regulatory officer Simon Lockie said in an email that the “set-aside of AWS-3 is a critical and positive pro-competitive move by the Government, and of course WIND will be participating actively in the Government’s process. The devil’s in the details, of course, and WIND will do what it can to ensure that the Government is clear on our perspective.” Quebecor declined to comment. In a media briefing Monday, an Industry Canada official said any sale of spectrum purchased in the auction will be subject to the government’s spectrum license transfer policy, “wherein the government looks at a case by case basis of each transfer to look at its impact on spectrum concentration and the spectrum available for competition.” She added that the AWS-3 band is very similar to and performs in a similar way to 2500 MHz spectrum. “We’ve proposed opening bid levels that are consistent with the opening bid levels that were decided on for the 2500 MHz auction,” she said. Industry Canada will accept comments on its proposed framework for the auction until Sept. 4, with a reply deadline of Oct. 2. It said in the consultation notice it “intends to review the comments received and publish its decision outlining a technical, policy and licensing framework in advance of the proposed auction timeline of March 2015.” — With reporting by Anja Karadeglija at akarad@thewirereport.ca and reporting and editing by Peter Henderson at phenderson@thewirereport.ca

Lower prices for AWS-3 auction ‘attractive’ for new entrants: analyst

News | July 28, 2014

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