Hype is already building for Canada’s next 5G spectrum auction even though wireless players just shelled out nearly $3.5 billion on airwaves required to power next-generation cellular networks.
The final price topped expectations for 20-year licences to use 600 MHz spectrum — a band excellent at travelling long distances in rural areas and penetrating buildings so networks function in urban elevators and parking garages. But analysts expect even more interest in the 3500 MHz spectrum licences that Ottawa has promised to put on the block in 2020.
Their reasons are twofold. One, BCE Inc., Canada’s largest telecommunications provider, explicitly stated it will participate in the 3,500 MHz auction after sitting out the 600 MHz round. Two, international consensus is emerging that 3,500 MHz will be vital to 5G, the networks that will enable applications like self-driving cars and smart cities.
“We could see greater interest in 3,500 MHz spectrum from incumbents than in 600 MHz as we believe the former band is better suited for 5G deployment,” Desjardins analyst Maher Yaghi wrote in a note to clients.
Barclays analyst Phillip Huang also noted that compared to 3500 MHz, the 600 MHz auction is “less strategically valuable for 5G.”
Bell surprised analysts with its decision not to buy 600 MHz licences, but in a statement indicated the choice boiled down to cost since it already has a lot of spectrum with similar characteristics. It said it doesn’t need 600 MHz to provide 4G and 5G services, adding it’s cheaper to use cell splitting technology and its existing spectrum to deliver wireless advancements.
Analysts noted that Verizon, one of the world leaders in 5G, also elected not to buy any 600 MHz spectrum when the Americans auctioned off the band in 2017.
“Bell quickly felt that pricing in the 600 MHz auction was getting expensive and it opted to keep its powder dry for next year’s 3500 MHz auction and future millimetre wave auctions,” National Bank analyst Adam Shine noted to clients.
Bell also has a network sharing agreement with Telus Corp., which spent $931 million on 12 licences in the 600 MHz band.
Using 600 MHz spectrum and 700 MHz spectrum in different regions isn’t an issue, a Bell spokesman said in an email.
Bell’s decision not to buy 600 MHz spectrum was “prudent” and will not put it at a competitive disadvantage given the network partnership with Telus, Barclay’s Huang noted.
Telus, meanwhile, paid the highest unit cost at the auction at $2.35 per MHz pop (coverage per population in an area). To spark regional competition, the auction was structured so the Big Three couldn’t compete against smaller players like Shaw Communications Inc. and Quebecor Inc., both of which paid significantly less for spectrum (Shaw paid $0.78 per MHz pop and Quebecor paid $0.99).
Telus chief executive Darren Entwistle argued that amounts to a $1.1 billion subsidy for big cable companies like Quebecor and Shaw with relatively new wireless divisions, resulting in “the highest prices paid for 600 MHz spectrum in the world.”
In a statement, he called on the government to ensure a “fair” framework for the 3500 MHz auction.
Rogers Communications Inc. acquired 52 licences for $1.73 billion or $1.71 per MHz pop.
Given the big purchase, it’s no surprise that Rogers is bullish on 600 MHz as a necessary building block for 5G networks. It also has a significant chunk of 700 MHz, which needs repurposing for use in 5G networks.
“Building a 5G network is like building a home. You need a strong foundation and 600 MHz spectrum is that foundation,” Rogers’ chief technology officer Jorge Fernandes said in a statement, adding it looks forward to combining this spectrum with other “key frequencies including 3500 MHz.”
Regardless of the chosen foundation, it’s clear that Canadian wireless providers will need 3500 MHz spectrum because the frequency range is being established as an international standard, said Gregory Taylor, assistant professor of communication at the University of Calgary.
“Canada can’t go its own way on 5G because of economies of scale,” Taylor said. The band will be critical in cities where thousands of small cells will be deployed, but less helpful in rural areas that require lower bands that can travel greater distances, he said.
While 5G standards are not a done deal yet and many questions remain about 5G’s potential — and whether its benefits will extend to rural areas — Taylor expects intense speculation about the 3500 MHz auction.
“It’s safe to say there’s going to be more interest,” he said. “Bell has kind of been holding its cards the last couple big auctions, which means they’re going to have a big war chest.”
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