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Cellphone market faces shakeup as new and old players bid $4.25B for spectrum

 
    The Canadian Press  
   

Julian Beltrame

 
    July 21, 2008  
   

OTTAWA - Canada's wireless landscape faces a major shakeup over the next year with the potential addition of a national and several regional cellphone providers offering users more services, options and lower charges.

The federal government's wireless spectrum auction concluded Monday with 15 firms - current and prospective entrants - bidding a surprising $4.25 billion for bandwidth space across the country.

"I think you will see significant changes over the next 12 months," said Iain Grant of telecommunications consultants the Seaboard Group. "You will see new players, more choices and for sure lower prices."

The total haul of the auction was almost triple analyst expectations, and some analysts said the sizable outlays of cash from industry could limit how far providers can go in cutting charges to customers.

Savings could come in additional options, rather than reduced rates, said Troy Crandall, an analyst with MacDougall, MacDougall & MacTier in Montreal.

For instance, providers may offer subscribers roll-over minutes that allows them to accumulate unused minutes for future use without additional charges.

But most Canadians should not expect to see many changes in the way they use wireless devices for at least a year as new entrants will require time to launch operations.

"It's going to be tough for new players because Canada is already at 62 per cent penetration (of cellphone usage) and people won't know the new players," said Crandall. "But I think there's room for at least one more national player."

The next step in the process, said Grant, comes in 30 days when participants in the process will be able to start negotiations, opening the door for both successful bidders, and even non-successful ones, to form a consortium to start a fourth network.

Current cellphone giants Rogers Communications Inc. (TSX:RCI.B), Bell Mobility Inc. (TSX:BCE) and Telus Communications Inc. (TSX:T) topped the bids, giving them more scope to expand their data services, including for Rogers' iPhone service.

But successful bidders also included newcomers Globalive Communications Corp., which spent $442 million on licences across the country, except in Quebec, and Quebecor Inc.(TSX:QBR.B), which bid over $554 million for spectrum in the province.

Globalive, which is currently is best known in Toronto for selling Yak long-distance services, said in a release they are preparing to become a "major presence" in Canada.

Analysts have speculated that Globalive could team up with Quebecor to establish national reach.

Not all the new players have national aspirations, however. Toronto satellite-radio king John Bitove, a partner with co-Microsoft founder Paul Allen in winning $243 million-worth of spectrum in Ontario, British Columbia and Alberta for DAVE Wireless Inc. (Data & Audio-Visual Enterprises), said his firm plans to go it alone in those markets and only in urban areas.

"We don't believe a fourth national network is viable," he said in an interview.

"First, the big three do a good job of servicing rural Canada. Second, the capital required to build a national network is significantly more than $1 billion, (so) we're focused on serving the 38 per cent of Canadians who are not currently wireless subscribers."

Regional companies such as Shaw Communications Inc.(TSX:SJR.B) of Alberta, and Atlantic Canada's Bragg Communications Inc. also bought sufficient spectrum to protect their territories or join forces in a national network.

Industry Minister Jim Prentice was unavailable for comment, but said in a release that the industry now has a chance to develop products and services that offer greater choice to Canadian consumers and businesses.

"We think consumers will be the big winners in this auction," he said.

"The auction exceeded our expectations in terms of the level of competitive bidding activity. I hope the industry keeps this competitive spirit alive as it enhances and expands its services with improved access to the spectrum."

When the government launched the auction at the end of May, most expected it would be concluded within a few weeks and earn Ottawa about $1.5 billion.

But it soon became apparent that the expectations were extremely modest. In total, there were 331 rounds of bidding over eight weeks. Companies have 10 days to pay up 20 per cent of their bid total, with the remainder due in 30 business days. The government has said the $4.25 billion bid will go into general revenue, which will likely keep Ottawa's budget in surplus even if there is a dramatic loss of revenues due to an economic downturn.

Telus said in a release the government should invest $1 billion of its haul to bring broadband Internet services to rural communities.

The big three were responsible for almost two-thirds of the winning bids, with Rogers purchasing licences worth $999 million, followed closely by Telus with $880 million in licence purchases and Bell with $741.

Prentice had set aside a portion of the 105 megahertz of spectrum for sale to newcomers only, a tactic designed to prevent the big three from dominating the auction and enticing new players. The set-aside was successful in attracting both new regional and potential national players.

But Crandall said as more and more Canadians use cellphones to transmit data and surf the Internet, which requires more bandwidth than simple voice communications, the government will likely need to hold another auction in three or four years.

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OTTAWA - Some of what was said Monday about the end of Canada's wireless spectrum auction:

-"I think you will see significant changes over the next 12 months. You will see new players, more choices and for sure lower prices." - Iain Grant of telecommunications consultants the Seaboard Group.

-

-"We don't believe a fourth national network is viable. First, the big three do a good job of servicing rural Canada. Second, the capital required to build a national network is significantly more than $1 billion, (so) we're focused on serving the 38 per cent of Canadians who are not currently wireless subscribers." - Toronto satellite-radio king John Bitove, a partner with co-Microsoft founder Paul Allen in winning $243 million-worth of spectrum in Ontario, British Columbia and Alberta for DAVE Wireless Inc. (Data & Audio-Visual Enterprises).

-

-"We think consumers will be the big winners in this auction. The auction exceeded our expectations in terms of the level of competitive bidding activity. I hope the industry keeps this competitive spirit alive as it enhances and expands its services with improved access to the spectrum." - Industry Minister Jim Prentice said in a release.

-"This is a once-in-a-lifetime opportunity to make Canada the most connected nation in the world and advance the government's own agenda of making ours an even more competitive economy. More than $4 billion has been raised in the auction and it only makes sense that Canadians and consumers should see a corresponding expansion to the broadband infrastructure and services they already enjoy." - Janet Yale, Telus (TSX:T) executive vice-president of corporate affairs, calling on Ottawa to invest $1 billion to bring broadband Internet services to rural communities.

--"The 20 MHz of advanced wireless services spectrum gained through the auction supports Rogers' continued growth strategy, and is a responsible investment particularly in the future diverse and growing opportunities to be found in broadband wireless data services." - Rob Bruce, president of Rogers Wireless (TSX:RCI.B).

-

"We believe the total cost of $190 million, or approximately five per cent of the total auction proceeds, was an appropriate investment to gain ownership of this asset and that our strategy was prudent and responsive in light of higher than expected prices. Ultimately, increased competition means the consumer wins." - Jim Shaw, CEO of Calgary-based Shaw Communications. (TSX:SJR.B)

 

 


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