Industry Canada announced the completion of the 700 MHz license auction on February 19, 2014. The auction attracted record bidding with revenues of $5.27 billion (Cdn) after 108 rounds and 21 bidding days. The results were shaped by the need for bandwidth for mobile broadband and video, and by auction rules unique to the combinatorial clock auction (CCA) construct, as well as by the spectrum cap.
A common prediction for the auction had been for low revenues and very few rounds. The epic 331-round AWS auction held in 2008 had made it clear that Canadian operators are not shy about duking it out in a slugfest to buy new mobile spectrum capacity. They did it again in 2014.
Predictions of low revenues also demonstrate again, as was the case in the 2008 auction, that spectrum valuation needs to be done pre-auction based on the strategic value of acquiring new spectrum assets. The most important element of preparing for the auction game is to ensure you know the priorities, targets and values of the other players at the table. Past auction results and operational budgets can provide useful indicators and calibration tools, but they typically reliably underestimate auction proceeds.
The opportunity for bidders in this auction was to obtain a key advantage for mobile broadband across the county. The FCC concluded in 2007 prior to auctioning the 700 MHz band in the US that “broadband” was the relevant market for services to be offered via the 700 MHz band. Wireless broadband access is a key element of the FCC’s National Broadband Plan subsequently announced in 2010, which was coupled with a process to identify and award more spectrum capacity to eventually double what has already been awarded (as cited in LYA Report: “The Impact of 700 MHz Spectrum on LTE Deployment and Broadband in Canada”, report prepared for Rogers Communications Inc., filed in Industry Canada process SMSE-018-10, February 28, 2011).
The dynamics and results of the 700 MHz auction in Canada clearly bore witness to this. Rogers was the biggest winner, spending the most, no doubt hoping to regain its edge in mobile broadband by acquiring a national footprint in the coveted Lower 700 MHz frequency range. TELUS and Bell find themselves with a patchwork of Lower and Upper licenses, never in the same ecosystem as each other in any part of the country. But of course for each of them to have ended up this way means they had to have placed bids for these winning packages.
Together Rogers, TELUS and Bell accounted for 95% of the value of all of the bidding, a much higher proportion than in the Canadian 2008 AWS auction, and increasing valuations to $2.54 per MHz-pop. This was 80% higher than the prices paid in the US auction in 2008 and was largely focused on the licenses in the Lower frequencies. Since the Canadian process was one wherein licenses were awarded on the basis of a second-price calculation, bids placed were actually even higher than the end result indicates.
The auction was structured with a cap to ensure there would always be a fourth operator. In the bidding, though, the fourth players no doubt were caught in the increasing price vortex of the Lower 700 licenses and had no choice but to retreat to the Upper C. After the surprise withdrawal of Globalive (Wind Canada) on the day before the auction began, Quebec-based Videotron became the largest player to take on the role of fourth operator. Videotron ended the auction winning licenses in the Upper frequency range covering Quebec, Ontario, Alberta and British Columbia.