AWS Auction Ends at US$4.23 bil.

The Canadian Advanced Wireless Spectrum (AWS) auction of 105 MHz of spectrum at 2GHz, which has dragged on for almost two months, has finally drawn to a close with over C$4.25 billion (US$4.23 billion) raised, massively exceeding expectations and comparisons with the U.S. AWS auction, which raised just under US$14 billion in a country 10 times the size (see United States: 19 September 2006: FCC AWS Auction Ends at US$13.9 bil.).

With 40 MHz of spectrum set aside for new players, several new regional and supra-regional players are set to enter the market (see Canada: 18 June 2008: Telus Executive Hits Out as Spectrum Costs Grow and  29 November 2007: Government Sets Scene for New Entrants to Canadian Mobile Market). Some 15 companies have provisionally won a total of 282 licences, subject to payment and proof of compliance with Canadian ownership and control requirements.

Outlook and Implications

• New entrants and Old Incumbents: The incumbent operators, locked out of almost 40% of the spectrum available, were the largest bidders, with Rogers topping the table with bids totalling almost C$1 billion (US$998 million), followed by Telus and Bell Mobility. These assets will be used to add capacity to their existing networks and fill in the gaps in their own coverage. Cable company Quebecor/Videotron dominated bidding in the Quebec region, blocking Globalive from gaining a complete national footprint. Globalive is an alternative communications provider providing low-cost services with a “no contracts, no gimmicks” philosophy under the Yak brand. Globalive was backed by Weather Investments, owner of Wind Italy, Wind Hellas (Greece) and Middle Eastern operator Orascom Telecom, as well as Novator Partners, a U.K.-based investment vehicle for Nordic telecoms player Thor Bjorgolfsson. Data & Audio-Visual, whose name suggests a data-centric network (i.e. WiMAX) build-out rather than a mobile voice network, is backed by Paul Allen's (of Microsoft) Vulcan Investments and is reported to have mainly targeted urban areas. Shaw Communications is another cable operator that is looking to build a network in its home region. Manitoba-based MTS Allstream had its plans for a national push undercut by the loss of key backers prior to the auction, but has built up spectrum in Manitoba to improve its network.

• New Networks to Boost Competition: Canada has an extremely low penetration rate for a developed country—around 60% at the end of 2007—and this is widely seen as a result of low levels of competition and high prices for services (see Canada: 9 July 2008: Canadian Mobile Tariff Outcry Continues as Carriers Set to Charge for Incoming SMS). The design of the auction was intended to introduce new players to the market and, with spectrum set aside, this was forced to happen. The new entrants will benefit from a number of conditions designed to ease their entry into the market, including mandating that out-of-territory roaming to be made available at commercial rates for at least a 10-year term of the AWS licence period. In-territory roaming is mandated for a period of five years, but for new national entrants (including consortiums) this is extendable to 10 years on meeting build-out targets. Commercial rates are to be negotiated within time limits or binding arbitration will be applied. Tower and site-sharing is also mandated to facilitate meeting deployment obligations applied to new entrants, generally set at between 30% and 50% of the area's population, although requirements fall as low as 10% of the region's population after five years. Domestic and international vendors are set to see a further windfall as the new entrants build out their networks with GSM/HSPA the likely technologies of choice.

• Calls for Windfall Investment: With the auction raising more than twice what was expected, there are already moves to attempt to use this windfall to boost the telecoms industry. Telus has already released a statement, following up earlier indignation at the growing costs of the auction, with a call for US$1 billion to be invested in building out broadband infrastructure to remote regions, as had been recommended by the 2006 Telecommunications Policy Review Panel (see Canada: 18 June 2008: Telus Executive Hits Out as Spectrum Costs Grow). The government itself notes that the money will be used to service the national debt, with no plans to directly fund telecoms projects through the windfall. Such a direct ring-fenced shift of resources from the wireless industry to fixed-line infrastructure may prove difficult.