The Canadian auction for an average of 111 MHz in the 3500 MHz band raised a record setting C$8.91 billion (US$7.16 B). That’s an average of C$2.28/MHz-PoP (US$1.83); or a global record high for this spectrum band. Or, to bring another meaning into this, operators paid C$270 for each mobile subscriber! For another perspective, the US C-band auction was the most expensive auction at US$$0.94/MHz PoP after it raised US$80.9 B (unloaded) [see here].
| Service Provider | C$/MHz-PoP |
|---|---|
| Bell | 3.0579 |
| Eastlink | 0.4026 |
| Cogeco | 1.1348 |
| ECOTEL | 0.6812 |
| Iristel | 0.1451 |
| Rogers | 3.3803 |
| Saskatel | 2.5498 |
| Sogetel | 1.7753 |
| Star Solutions | 1.4921 |
| TBayTel | 0.6511 |
| Telus | 3.3734 |
| Thomas Communications | 0.5046 |
| Valley Fiber | 1.3821 |
| Vidéotron | 0.8584 |
| Xplornet | 0.8341 |
| Auction average | 2.2828 |
| Open spectrum average | 3.2746 |
| Set-aside spectrum average | 0.9402 |
Reasons for the High Valuation
There are several reasons for this result. Obviously, the amount of auctioned spectrum is very small for 5G services. Two additional factors that contributed to this result are: 1. Up to 50 MHz was set-aside for regional operators, and 2. High opening price in the three largest metro areas (Toronto, Montreal, Vancouver). Consider that a single 5G frequency carrier bandwidth is 100 MHz, but only 140 MHz was available in the 3 largest metro areas. Moreover, the starting price was C$0.232/MHz-PoP, which is the highest of any auction in comparable band. I expect that the metro areas accounted for the vast majority of the auction proceeds. In fact, Cogeco reported paying C$205 m – 69% of their spending – for 30 MHz of set-aside spectrum in Toronto, or C$0.97/MHz-PoP. The price the incumbent operators paid would be triple that, I guess! [You may like to check my perspective on the auction before it started: see here.]
New Game Rules
I believe some service providers felt that this auction will set them apart from others, and better position them for the future. Rogers, Bell and Videotron in particular led in spending. Rogers and Bell already had an advantage of owning 30 MHz in this band [almost nationwide]. This auction was an opportunity to set themselves apart from Telus.
The key point to realize here is that in the 5G era, the value lies in the amount of mid-band spectrum a service provider has. It’s not that low-band spectrum is no longer valuable. Low band spectrum is a foundation for mid-band spectrum. But the key point is that speed and capacity come from bandwidth first, before anything else.
New Competition
Videotron made important acquisitions outside Quebec which strengthens its future position as potential 4th nationwide service provider. The absence of Shaw from this auction helped Videotron especially as Cogeco failed to secure significant assets in metro areas (only 30 MHz in Toronto). If Cogeco had an eye on Shaw’s wireless assets, it would have been necessary to secure more of the 3500 MHz spectrum. In any case, it is necessary to have low-band spectrum to make any good use of the 3500 MHz spectrum. The dynamics among the regional players will be interesting to watch in the future.
An Eye on the Future
With the C-band auction scheduled for 2023, operators will have a crack at 250 MHz of spectrum, with additional 80 MHz planned for private networks. This makes for 450 MHz of combined bandwidth in 3500 MHz and 3700 MHz bands. But 5G radios typically come in 200 MHz frequency bandwidth, while some more expensive ones support 400 MHz. Operators are better off aggregating their spectrum into a single allocation to use, for instance, a single 100 MHz carrier. This will not be possible unless there’s an agreement among the operators and ISED for spectrum re-assignment. Working out the mechanics for such a re-assignment is difficult.
Another issue is related to economic risks in this Covid era. With interest rates at record low, operators may feel it’s attractive to borrow and spend in this auction. For this reason, this auction is strategic as it serves to position operators for the future. The situation in 2023 is likely to be very different. In any case, it makes one wonder whether the results of this auction are another sign of inflation in the economy. Whatever it is, it certainly is another form of taxation that will be passed on to consumers.
Last Words
I prepared a brief with more details on the auction. You can get a link to download by entering your name and email: