For a while this summer, the incumbent carriers were beating the drum over a potential spectrum coup committed by U.S.-based Verizon Wireless. Under the current rules, telcos with over 10% wireless share are only allowed to bid on one spectrum block per region; all other bidders are welcome to two. Verizon was rumoured to enter Canada and scoop up more spectrum than the other guys, potentially picking up WIND Mobile and Mobilicity in the process.
The whole fear exercise came to naught, as Verizon’s CEO claimed his company’s rumoured expansion into Canada was “way overblown.” Indeed, according to Jeff Fan, a Scotia Capital analyst, no U.S. carriers are taking part in the upcoming 700Mhz spectrum auction. Initial bids were due earlier this week, and on Monday, September 23rd, we’ll find out which companies are in the race, but little else.
According to analyst Mark Goldberg, due to the anonymous nature of the bidding process, and the limited information afforded to the public, we’ll only know the list of “provisionally qualified bidders” by the end of October — those who have dropped a downpayment of 5% of the deposit — which will be amended in November upon completing the remaining 95%.
The way the auction works is interesting: it will be divided into “Service Areas,” largely broken into provinces or chunks of province, based on population. For example, Ontario is divided into “Eastern Ontario and Outaouais,” “Southern Ontario,” and
“Northern Ontario,” with an eligibility points breakdown of 57, 524 and 16 respectively, per paired block of spectrum.
To win a paired block, bidders must spend $130,000 per eligibility point, which in Southern Ontario equates to (524 * 130,000) $6.81 million. Unpaired blocks, which are slightly less desirable, obviously require fewer eligibility points. For a company like Rogers, for example, to purchase a paired block in every region, they’ll have to pay for all 1,221 eligibility points for a total of $158,730,000.
There is a lot more to it, but $158.7 million appears to be the starting point for a telco to capture a single national paired block throughout the 14 regions into which Industry Canada has divided the country.
The lack of a U.S. presence, according to Fan, is obviously good for Canadian telco shareholders, and he believes “their decisions to not enter is due to… the lack of attractive return in entering Canada, the potential regulatory backlash in the U.S. (for VZ and AT&T), and Canadian regulatory uncertainty.”
WIND Mobile and EastLink have already committed to bidding in at least some regions, and the possibility of a foreign telco bidding, while diminished, is still a factor.
[source]CARTT, Telecom Trends, Industry Canada[/source]