Spectrum auction set to transform Canada's mobile market - 331 rounds of bidding ends market's Advanced Wireless Services auction

Last week, the Canadian government called an end to its Advanced Wireless Services (AWS) auction after two months and a reported 331 rounds of bidding. The auction raised C$4.25 billion (US$4.24 billion), over twice the amount many analysts had predicted. The new airwaves - in the 1710 to 1755MHz and 2110 to 2155MHz bands - are capable of supporting advanced mobile technologies such as WCDMA-HSPA (and later LTE) and could be the catalyst to a wave of new high-speed mobile services in Canada.

As was the case with the recent 700MHz auction in the US, it was the incumbent mobile players who spent the most money and won the most licenses. Market-leader Rogers Wireless spent just under C$1 billion to secure 55 licenses covering most of the country, followed by Telus (C$880 million, 59 licences) and Bell Mobility (C$741 million, 54 licenses).

However, Canada's decision to reserve 40MHz of the 105MHz spectrum available for new market entrants prevented the auction from being a carve-up between the incumbent operators. This policy - which was heavily criticised by the incumbents - meant that 15 different companies shared the 282 licenses on offer. Most prominent among these new players were Globalive, which spent C$442 million on 30 licenses covering the majority of the country; Quebecor, which bought 17 licenses for C$555 million mainly concentrated around its home territory of Quebec; and Data & Audio-Visual Enterprise (DAVE) Wireless, which spent C$243 million to secure 18 licenses concentrated in Canada's largest cities, including Ontario, Vancouver, Edmonton, Calgary and Victoria. There were several other players that bought spectrum on a regional basis such as cable company Shaw Communications, which bought 18 licenses for C$190 million in the Western Canada and Northern Ontario areas.

Although none of these new entrants are automatically able to compete with the established players on a national level, analysts have hinted that many of the new licensees may look to partner with other players with complementary spectrum footprints. An alliance between Globalive and Quebecor, for example, would create an operator with genuine national reach and scale. However, it is estimated to be another year before any new operators are up and running.

If the auction does result in the creation of a major new player, Canada will be hoping that the increased competition will stimulate a market that is surprisingly under-developed in terms of high-speed mobile services. By the end of first-quarter 2008, Rogers Wireless, the country's only GSM operator, had just 3.15% (233,289) of its 7.4 million connections on high-speed WCDMA and WCDMA-HSPA networks, while CDMA operators Telus and Bell each had a little over 4% of connections on the higher-speed CDMA2000 1xEV-DO and CDMA2000 1xEV-DO (Rev A) networks.

The AWS spectrum - and the emerging threat from new competitors - should expedite the rollout of high- speed services by incumbent operators moving forward. For the existing CDMA network operators, the new spectrum is also seen as a possible tactic for transferring to the next-generation GSM technology roadmap (WCDMA-HSPA, LTE) while at the same time protecting revenues on their existing networks. In this sense, they could follow the example of US CDMA operator Verizon Wireless, which has announced that it will use the spectrum acquired in the recent US 700MHz auction for LTE.

Matt Ablott, Analyst, GSMA Intelligence:

It was a bold move by the Canadian government to reserve such a large chunk of the new spectrum for new market entrants, and the early signs are that at least one new national operator and several key regional or niche players should emerge to challenge the incumbent operators. The spectrum is not as advanced as the 700MHz airwaves recently auctioned in the US (an auction not expected in Canada for another 18 months) but it is well suited to high-speed technologies such as WCDMA, WCDMA-HSPA and (eventually) LTE, which will see Canadian operators offering many consumers genuine mobile broadband services and speeds for the first time. By arriving relatively late to the game, Canadian operators will benefit from widespread vendor support and, more importantly, a wide range of compatible handsets. Rogers Wireless, for example, has already launched Apple's iPhone 3G and is set to launch the WCDMA-HSPA-compatible Blackberry Bold very soon. Both these high-profile devices are based on GSM technology, and is perhaps another reason why Canada's CDMA operators may see the AWS spectrum opportunity as a way of switching to the GSM technology roadmap.