You’ll read a lot of facts and figures about Industry Canada’s 700 MHz billion-dollar spectrum auction, which starts Tuesday. But the focus of many in the telecom industry will be on how much Wind Mobile gets.
That’s because Wind is the only bidder with ambitions to be a national carrier and challenge the big incumbents: BCE Inc.’s BellCanada, Rogers Communications and Telus Corp.
If Wind — which started signing subscribers in Ontario in December, 2009 and spread to B.C. and Alberta –can’t get a lot of spectrum, industry analysts believe it can’t continue to seriously challenge the Big Three.
It will come down to how much money it has to bid with.
On the other hand, the trio are facing significant regional competition: Eastlink in the Maritimes, Videotron in Quebec, Manitoba Telecom in Manitoba, SaskTel in Saskatchewan.
All four are also in the 700 MHz auction and are expected to confine their bidding to those regions.
But with Mobilicity — like Wind operating in Ontario, B.C. and Alberta — in protection from creditors and unable to bid (although it’s major Canadian investor, John Bitove, is bidding by himself) — there’s a lot of attention on what Wind does.
There are those who believe that Bell, Rogers and Telus provide enough price competition.
That doesn’t include Industry Minister James Moore and the rest of the Harper government, who note that the Big Three have 90 per cent of wireless subscribers and own 85 per cent of the cellular spectrum Ottawa has sold or made available since 1985.
Up for grabs starting tomorrow  is what everyone calls the best spectrum the government has ever offered: Ideal for data-hungry smart phones, spectrum in the 700 MHz band — with mobile devices that can use it — penetrates buildings better than the frequencies used now, meaning handset signals won’t automatically slump when going into a structure.
For carriers, signals in the 700 MHz band travel farther, meaning fewer antennas and towers are needed to cover a given area. That could be a significant cost saving.
The federal government will likely pull in over $2 billion in revenue from the complicated electronic bidding format. Nice money, but no one believes it will get as much as the $4.25 billion it unexpectedly raked in after the last auction was held, in 2008, where new entrants pushed up the bidding.
The lower revenue expectation comes despite the fact that 700 MHz spectrum is better than the spectrum in the 1700/2100 MHz bands (called AWS) auctioned in 2008.
Why? Because there are fewer bidders than in 2008 — only 11 this time — and, despite federal relaxation of investment rules, no new big foreign carriers or investors are backing new or small bidders. Combined with different rules no one expects the bidding will drag on for 40 days, as it did in 2008. Most industry experts believe it will end in four weeks. One we spoke to thinks it could be over in two.
“There’s a view that we’re not going to see as vibrant an auction as we had in 2008,” says telecom consultant Mark Goldberg.
And, he notes, unlike the 2008 auction, where the government publicly released round-by-round results, there will only be silence from Industry Canada until the bidding is over and the results certified.
That means there won’t be any of the daily excitement — and speculation on bidder strategies — of 2008, as the industry watched the bidding go up and up and up.
Even bidders won’t know this time who is bidding on what.
The government’s aim is to make bidder focus their attention on what they want, not on what competitiors’ strategies are.
For bidding purposes the country has been divided into 14 regions (Manitoba, Alberta, B.C. and New Brunswick are regions. So are Southern Ontario and Southern Quebec). The frequencies are split within each region are into seven alphabetical blocks. But for technical reasons the real fight will be over four blocks B, C, C1 and C2, the so-called prime real estate.
As large national carriers, Bell [TSX: BCE], Rogers [TSX: RCI.B] and Telus [TSX:T]Â are restricted from gaining more than one of these blocks. Therefore the assumption by industry experts is they will get them. That leaves the other bidders to fight over the remaining block.
With the resources of owner Quebecor behind it, there’s little doubt Videotron will get what it needs in Quebec. Ditto Sasktel in Saskatchewan and MTS in Manitoba. Eastlink has the resources of owner Bragg Communications.
For Wind, the question is will how much money will its major financial backer, Amsterdam-based international carrier VimpleCom Inc., give it  to play?
VimpelCom has said it wants to shed its interest in the Canadian unit. So it’s unlikely it will give chairman and CEO Anthony Lacavera unlimited resources. The question is how many provinces does Lacavera have money to bid on?
Under Industry Canada rules Lacavera — and other bidders — have been forbidden from talking about the auction since they were certified as participants last fall.
Wind does have one thing going for it, Goldberg said. The auction rules favour national carriers. So, for example, if at the beginning of the auction Wind puts down $160 million to buy licences in all 14 regions on blocks not being bid on by the Big Three, the regional-only bidders — MTS, SaskTel et cetra — have to make combined bids that are more than $160 million. If not, Wind gets the spectrum.
Assume several regional bidders increase their offers in the second round, but their the total doesn’t reach $160 million, there’s a third round. If the bids then stop going up and still don’t surpass $160 million, Wind gets the spectrum.
If their bids go over $160 million, Wind has the opportunity to bid higher.
Or, Goldberg adds, it can then change the package of licences it wants.
This is because the auction format — called a combinatorial clock auction (CCA) — encourages bidders to create packages of licences they want. Previous auctions were essentially winner take all in each region.
(One way of looking at this, of course, is that it’s also a way for the government to squeeze higher prices out of bidders).
There are risks to all bidders in the CCA format: One expert told ITWorldCanada.com after a European auction under this format last year that the carrier that won the second largest number of licences paid more than the carrier that bought more spectrum.
Iain Grant, managing director of SeaBoard Group, a Montreal-based telecommunications consultancy, noted that Wind’s strategy could affect other bidders.
If Wind doesn’t want to bid in the Western provinces, that could be an opportunity for Eastlink to pick up spectrum there, where it has some rural cable networks.
