Did the auction participants overpay by $2 billion?

loonieWe’ve been following the developments of the Canadian Wireless Spectrum Auction since it started. It’s actually impressive to see the ongoing saga unfold just like an episode of “As the World Turns”.

Over the past year or so we’ve seen Rogers, Bell and TELUS somewhat reduce their prices (this could be an economy thing), their sub brands have removed the System Access Fees, but more importantly have had their share of time commenting on the new Canadian players: Globalive, DAVE Wireless and Public Mobile.

The new incumbent Gobalive seems to be the main target by the Big 3. Perhaps it could be from the $442 they paid and literally came out of left field. There has been concerns about the Bell, Rogers and TELUS sharing their towers and more recently about how much foreign ownership they actually have. Globalive CEO Tony Lacavera says these are just “challenges” they will overcome.

Public Mobile and DAVE Wireless are the quiet ones. Public Mobile, who recently revealed their distribution channel only spent $53 million in the auction. They will offer to value conscious Canadians a $40 monthly “unlimited flat-rate talk and text package, with no term commitment, no credit checks, no fine print and no surprises”. Even at the 2009 Canadian Telecom Summit last week Public Mobile CEO Alec Krstajic stated that his competition, because of the spectrum be bought, is not the old or new carriers: “The reality is, here is what you guys will do, if you go up at the upper end of the market to what I call over-served, you will have a situation where you will cause pricing to be more competitive, they will become more competitive, they will drop their prices to compete with you… If you look and smell like an incumbent you cause them to become more competitive and they make it really tough, they’ll put their foot on your throat”.

DAVE Wireless (they will be changing their name before officially launching) spent $243.1-million during the auction will offer phones with no-contract, unlimited voice & text messaging, free voice mail and long distance within Canada. Sounds familiar and much like current offerings. The good news for DAVE wireless is that have announced a couple key pieces of news. First, their device lineup will include BlackBerry and Android devices. Very good way to start a new wireless brand. In addition, they’ve recently signed a partnership with T-Mobile in the States for all their roaming. So even though you don’t hear too much drama unfold from DAVE Wireless, they are flying so far under the radar now that I’m sure we will all be shocked when they officially roll out. This is just how John Bitove operates.

With all this being said, The Star reports that Rogers, Bell and Telus now say there’s evidence that shows the federal government’s actions to open up the Auction to new entrants may have actually hurt the $12.7 billion industry. In a report filed to Industry Canada says the government encouraged “gaming” to drive up auction bids for a record total of $4.46 billion. Michael Hennessy, TELUS SVP of regulatory and government affairs said that they have done an Independen study that shows “auction participants overpaid by as much as $2 billion for spectrum compared to what similar slices of airwaves have fetched in other countries, including the United States.” With overpaying, Hennessy says “This will push the industry back into a cumulative cash flow negative position for a number years”. Stating that the extra money should have been spent on building rural and remote regions, not areas urban areas with good coverage. “It’s very unclear now what the business case will be for the new entrants given that they are going to enter with plans that, to me, are reflective of the status quo” Hennessy said.

TELUS has been the most outspoken by far, but Bell stated in the filing that any failure of any of the new carriers is a “strong indication” that the Canadian wireless market cannot support more than three carriers. This all comes down to competition. New carriers coming into old territory. I mean if I was one of the carriers and these new kids came on the block I would do everything in my power to stall and capture as much business as I could before they get customer number 1.

Overpaying or not, the new players are coming fast, strong and with a great deal of fresh confidence. Will you be giving them a go?

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