04/14/2015 09:22 EDT | Updated 06/14/2015 05:59 EDT

'Ridiculous' Spectrum Auction Won't Create Fourth Canadian Wireless Player: Analyst


OTTAWA - Smaller players — even some relatively obscure ones — in Canada's wireless market will likely gain a little ground on the bigger telecom companies through the federal government's latest auctioning of spectrum, says one industry expert.

But the rules for the auction, which began Tuesday, are so "ridiculous" that Ottawa likely won't achieve its goal of creating a viable fourth major wireless carrier, said Dvai Ghose, global head of equity research and telecommunications with Canaccord Genuity.

Industry Minister James Moore announced the start of the auction — the second such bidding process so far this year — saying Canadians want the government to make decisions that will give them more choice, lower prices and better service in the wireless sector.

"Our government is working to protect the interests of consumers in the wireless sector," he said in a statement.

"Promoting a healthy wireless industry through competition is the best way to drive results for consumers."

The auctioning of airwaves covers the higher-frequency 2,500 megahertz spectrum used to provide not only high-bandwidth functions like streaming video to smartphones, but also for home Internet service in rural areas where wired service is unavailable.

Ottawa has placed caps on how much spectrum companies can own, a move that will almost shut out Rogers and Bell from the bidding because they already own large chunks of it in some regions.

Telus, considered Canada's number three telecom service provider, owns almost no spectrum in the 2,500 Mhz frequency range and is expected to buy big.

Telus was the biggest buyer in the AWS-3 auction in March, paying over $1.5 billion for 15 licences, while Bell Mobility paid nearly $500 million for 13 licences.

But companies operating in provinces where there are already four industry players are being left out because the auction "rules are so ridiculous," said Ghose.

When the last bidding process was carried out in March, 30 of the 50 megahertz set aside for new entrants went on the block. But all four firms operating in Manitoba and Saskatchewan were eliminated from bidding because they didn't qualify, he noted.

"How can that be in the public interest?" Ghose asked.

This latest auction is not expected to generate anywhere near the $2.11 billion raised last month.

However, it will open the door to a number of smaller, rural wireless providers, who use high-frequency spectrum to provide home Internet service.

Companies such as Xplornet Communications Inc., CCI Wireless and SSi Internet Inc. are all registered as bidders.

Wind Mobile, Quebecor Inc. and other mobile firms have also said they would participate in the auction.

Moore has said the spectrum auctions are aimed at increasing competition by giving smaller carriers preferential access to air waves.

But while those smaller firms so far have purchased about one quarter of the available spectrum, they collectively still only account for about six per cent of market share, said Ghose.

The big three companies — Bell, Rogers and Telus — continue to represent 90 per cent of the market.

The 2,500 megahertz auction is divided into three geographic regions, where each provider has a cap of 40 megahertz per region.

Results of the auction are expected to be announced within five days after the close of bidding.

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