Wavelength auction gives small firms leg up
Ottawa earmarks wavelength block for smaller players
— Shares of the three largest wireless providers took a hit on Monday after the federal government announced plans to auction valuable wavelength rights with more than half set aside for new entrants.
The move basically enables newcomers, many of which are struggling, to grow their networks at a much lower cost since they won’t have to bid against the three dominant players that currently account for the lion’s share of the market.
But critics charge it’s an attempt to artificially adjust the market to promote government policy and a favoured group of wireless providers.
“We welcome competition, but all competitors new or old should follow the same rules. Spectrum is a valuable national resource and shouldn’t be given to selected companies at a bargain. It’s a cost to taxpayers,” said Bell Canada spokesman Mark Langton.
Bank of America Merrill Lynch analyst Glen Campbell cut his recommendations on Rogers Communications Inc. and Telus Corp. from “Buy” to “Sell” because of greater competition from upstarts seen as beneficiaries of the government’s announcement.
In total, a 30 MHz block of socalled Advanced Wireless Services (AWS) wavelengths will be earmarked for new entrants in each region of the country. To ensure that the spectrum stays in the hands of the upstart carriers, the government plans to include tough provisions against any future sale or transfer.
Canada’s federal government controls the rights to the nation’s airwaves, leasing or selling chunks to users such as broadcasters and wireless companies as a way to generate revenue. Thus, spectrum rights are among the most important assets for companies in this sector.
Shares in Rogers Communications fell 1.53 per cent $48.21. BCE Inc. shares slumped 0.64 per cent to close at $48.21, and Telus declined 1.63 per cent to end the session at $39.33.
“The rules for this auction will encourage more competition in the wireless market while ensuring the interests of consumers come first,” federal Industry Minister James Moore told reporters in Toronto.
Prime Minister Stephen Harper’s government has been pushing to increase the number of wireless companies in Canada in the hopes of pushing down costs for consumers, though so far with limited success. Much hope was put on the arrival of Wind Mobile and Mobilicity, with both spending billions in capital investments since 2008 but today Mobilicity is in bankruptcy protection and Wind is struggling to find a new investor to help shoulder the cost of badly needed network expansion after its Netherlands-based owner VimpelCom Ltd. revealed plans to sell its equity stake.
News of the spectrum auction comes less than three weeks after Quebecor Inc. announced it is ready to become Canada’s fourth wireless player, even buying Mobilicity and Wind to build out its network — but only if Ottawa is willing to meet conditions, including forcing the major players to reduce the cost of access to their networks.
RBC analyst Andrew Calder said the terms of the new spectrum auction provide motivation for Quebecor to join the fray and acquire Wind and Mobilicity because otherwise it won’t be able to bid for spectrum outside of Quebec. “There may be an incentive to begin consolidating new entrants,” Calder said in a note to clients.
“I think (Moore’s announcement on spectrum) is a very good move for the industry,” said Tony Lacavera, chief executive of Wind. It’s “a positive development that brings more clarity on spectrum and I think the market desperately needed that.”
Ottawa’s strategy has been enormously controversial, even among new entrants.
Earlier this year government officials reportedly warned Telus to drop its efforts to buy Mobilicity, sparking frustration across the industry. The explanation was that Mobilicity held valuable spectrum that had been set aside specifically for new entrants.