Last week the much awaited 3500 megahertz auction kicked off here in Canada. It was delayed from the original date earlier this year due to COVID-19 restrictions.
There are a couple things that are notable about this auction. Firstly, smaller geographic regions are being auctioned off, where previously a spectrum license was granted at the provincial level. This opens the door a bit for any carriers that are not one of the ‘Big-Three’ (Rogers, Telus and Bell) in allowing them to purchase a smaller (and hopefully more affordable) region to bootstrap their growth. Recent CRTC regulations have seriously handcuffed MVNOs when it was announced that any company providing mobile services must have an existing Canadian network. This is a departure from the US model, where MVNOs became major players by purchasing access to existing networks at wholesale rates and then reselling the service.
One caveat to this restriction is that if an MVNO has some Canadian network footprint, they can still purchase from the Big-Three and resell those services. While the motivation behind this legislation was an attempt to block foreign providers from flooding the Canadian market with cheap resold services, which may box out local providers in execution it did more harm than good. The impacts to the already struggling MVNO providers was really detrimental. Providers that previously operated on a pure-play MVNO model are faced with either embarking on a network build, or bowing out of the market entirely. So what does this mean to the auction? More of the smaller providers will be itching to purchase spectrum so that they can build out network footprint, but this will be at great expense. The dream of creating competition to drive end customer mobility prices down won’t come to fruition any time soon, as these smaller players struggle to pay of their spectrum purchase and expensive network builds. Assuming of course, they can even afford spectrum to begin with. If the last auction was any indication, things are going to get pretty pricey.
The other thing that jumped out as interesting to me was who is NOT participating in the auction. Shaw is not participating due to the Rogers bid to purchase them, which wouldn’t close until 2022. While the Shaw subsidiary Freedom Mobile could have participated on their own, they but opted not to. This is disappointing since Freedom has the fourth largest subscriber base in Canada and could have given the Big-Three a run for their money.
In addtion to Freedom Mobile, TekSavvy has been a great disruptor in the past few years with a solid reseller model for Internet and recently Television services, but after the CRTC regulations mentioned above, TekSavvy pulled out of the spectrum auction. In particular, the legislation that overturned lowering the wholesale rates charged by the Big-Three. I can’t say I blame them. Not only have TekSavvy pulled out of the auction but they issued a press release stating that they are now scrapping their plans to become a mobile provider entirely. These are exactly the negative impacts I’m talking about. This vibrant player that has been a rising star in the past few years, and was poised to offer some great competition that might actually drive customer rates down. Now they are forced to pull out because it is completely obvious that they won’t be able to compete if they face higher wholesale prices alongside a big purchase of spectrum. With these two players knocked out of the running, there isn’t much competition to keep the Big-Three from gobbling up most of the spectrum, save for a few little pockets in rural areas.
So what does the outcome of this auction mean? Likely nothing. The smaller players are going to be outbid. With most of the spectrum going to the usual suspects, things will continue much like they currently are. For better or for worse.