Expect a pressure-packed, high-demand, 3500 MHz auction in 2020
BAY STREET’S TELECOM industry analysts were a little surprised at the $3.47 billion collectively shelled out by Canada’s wireless carriers for 600 MHz spectrum (except for Bell, which shelled out nothing for no 600 spectrum) in the federal government’s just-completed auction.
“(I)t appears the competition amongst (the big three) was far fiercer than expected, driving the price up to $1.89/MHz-pop and leading to a total spend of $2.65B,” wrote Canaccord Genuity’s Aravinda Galappatthige in a note to investors, which said he had expected the trio of Rogers, Bell and Telus to spend about $1.7 billion in total.
Of course, analysts say each company has good reasons for bidding (or not) the way they did. There have been more than a few queries to the Cartt.ca inbox as to whether Bell Canada lost out on this auction. “BCE stayed on the sidelines as the prices rose above the level where it felt it made more sense to split cells and leverage new technologies for capacity,” noted Scotiabank’s telecom analyst Jeff Fan. Bell has existing low-band spectrum (at 850 MHz) which the company said it can re-farm for 5G.
“Our position on the 600MHz auction was that for the incumbents, 600MHz was a ‘nice to have’ and not a ‘must have’. If we stick to this logic, then we do not believe BCE lost out and that not having 600MHz will not affect its competitive position in 5G because of re-farming,” wrote Fan, who said the auction took in about $600 million more than he was modeling.
Observers have noted, too, that during the U.S. 600 MHz auction, Verizon also bought nothing while AT&T spent less than US$1 billion, so BCE coming away with none is not unprecedented.
“We believe Rogers was a motivated bidder in part to counter: (1) BCE's and Telus’s spectrum and network sharing arrangement, and (2) the fact that Rogers has fewer cell towers than BCE and Telus across Canada, making low-band spectrum relatively more important given its longer propagation characteristics,” wrote BMO Capital Markets analyst Tim Casey in his note to investors. He added the auction brought in $1 billion more than his estimate.
As well, Rogers will not have to go through the process of refarming its 850 MHz spectrum for 5G, “which definitely saves Rogers money down the road,” wrote Fan. “The question is how those savings compare to the premium Rogers paid for the 600MHz licenses” and for Bell, will the cost of re-farming its 850 be lower than what it would have cost to keep bidding on 600?
But why did Telus spend the way it did? The company itself pinned the blame for higher costs on the auction’s design, but “if Telus and BCE share a network, why did Telus spend $930M compared to BCE's $0?” asked Fan. “Recall that BCE already has 3.5GHz, which is critical for 5G, and it should be in a position to bring more 3.5GHz licenses to the sharing arrangement for 5G,” he answered.
Low-band spectrum was something the likes of Vidéotron and Shaw (Freedom Mobile) really did need. Fan pointed to the U.S. market where T-Mobile spent US$8 billion on 600 MHz spectrum because it didn’t have much in the lower bands, and is already using those radiowaves to push into 5G. He expects Freedom and Vidéotron to mimic T-Mobile’s moves.
“Since T-Mobile is deploying its initial 5G network on 600 MHz with handsets already available including the latest iPhone XR and XS, both Shaw and Quebecor are in positions to launch 5G on 600 MHz in 2020/2021 in their respective markets (subject to the timeline of freeing up the frequency currently used by TV broadcasters),” wrote Fan.
“We think this can help further narrow the network gap against the incumbents and pave the path for the launch of Shaw premium wireless brand in western Canada.” – Jeff Fan, Scotiabank
“We see this as a potential marketing advantage for both Shaw and Quebecor. For Shaw specifically, we think this can help further narrow the network gap against the incumbents and pave the path for the launch of Shaw premium wireless brand in western Canada.”
Depending on how fast the market moves, however, having no 600 MHz spectrum and needing to do a lot of work to refarm 850 spectrum and cell split, could leave Bell at a disadvantage.
“(T)he one potential disadvantage for BCE is that some operators… are already launching 5G on 600 MHz and that could give the other Canadian operators a lead on 5G if they decide to pursue that path. How much of a lead that gives them over BCE will depend on the timing of BCE deploying 3.5 GHz.”
One thing the analysts (and industry stakeholders) do agree on is the results of this auction, coupled with the great many technological developments ongoing with 5G standards, software and gear, means the next auction, of high band 3500 MHz spectrum, will be incredibly competitive (as well as the millimetre wave spectrum auction after that). This means there is huge pressure on Innovation, Science and Economic Development, which has yet to release its proposed 3500 MHz auction framework.
“3.5GHz spectrum will be a mission-critical band for 5G mobile commercial use (3400-4200MHz), as it is increasingly becoming the global backbone band for 5G and most of the G8 nations have already licensed it (or are in the process of licensing it). There is significant 5G equipment ecosystem momentum building that includes the 3.5GHz band for early 5G deployments,” wrote Casey.
Rogers and Bell together (and others) own some 3500 MHz spectrum but in its consultations (which we covered here), ISED proposed some of it may be reclaimed and auctioned again.
“(W)e believe 3.5GHz is a key band for 5G and this auction will be highly-coveted,” added Fan. “The exact details will be determined soon when ISED finalizes the 3.5GHz consultations in the coming weeks or months.
“The key decisions will include the determination of the amount of claw-back from BCE and Rogers to be re-auctioned, as well as the auction framework (whether there will be another set-aside). In order to have the auction take place in 2020 as ISED had indicated, we understand the consultations have to be released by early June.”
