OVER THE LAST TWO YEARS, the Canadian government’s ambitious Canada’s Wireless Policy took great steps from being a strategy to becoming a reality. The amount of spectrum made available to mobile wireless operators (and to fixed wireless operators) increased significantly, as Industry Canada delivered three auctions (700 MHz in March 2014, AWS-3 in March 2015 and 2500 MHz in April 2015) and is getting ready for a fourth one, scheduled in August 2015.
August 2015: Industry Canada’s residual auction
Industry Canada is holding its third auction in 2015 – a sealed-bid auction for “Residual Spectrum Licences in the 700 MHz and AWS-3 Bands”. This auction will be for the remaining licences that stayed unsold in the previously held 700 MHz (2014) and AWS-3 (2015) auctions.
On the auction block, there is 45+45 MHz of spectrum in the AWS-3 band – for Tier-2 service areas in Manitoba (2-10), Saskatchewan (2-11), and in Yukon, Northwest Territories and Nunavut (2-14). To make the spectrum more accessible to potential bidders, the 45+45 MHz of spectrum was further split into three blocks of 5+5 MHz each, and bidding in the northern parts of Canada will be done for Tier-4 service areas separately: for Yukon (4-170), Nunavut (4-171) and Northwest Territories (4-172).
When the residual 700 MHz licences (i.e. not sold in the 2014 700 MHz auction, and also allocated on a Tier-4 service area basis for the North) are added, there is a total of fifteen AWS-3 licences and three 700 MHz licences that are to be auctioned. All licences will be awarded as 5+5 MHz licences, for respective areas, and for a period of 20 years.
Auction format
Industry Canada is bringing innovation to the auction format. The sealed-bid format will in this auction allow for a number of combinations (i.e. combinatorial bids). The algorithm to select the winning combination and determine pricing for the licences won will be the same as used in combinatorial clock auctions (CCA) in 2014 for the 700 MHz and in the 2015 for the 2500 MHz spectrum licences.
This “combinatorial sealed-bid format” will facilitate bidding on a larger number of combinations with different prices, which should reflect true valuations by individual bidders, while reducing their exposure risk. However, the format will deliver combinatorial complexity that may pose challenges for certain participants. As this is the first time this particular format of the auction is used, it remains to be seen how many combinations will actually be submitted and how they will affect the outcome – the winning combination of bids and the final payouts.
Bidders
The companies that will participate in the auction are: Bell, MTS, Rogers, SaskTel, SSi Micro, and Telus.
It’s worth noting that Rogers did not participate in the AWS-3 auction in March 2015, so it is safe to assume that their interest for AWS-3 licences will be low. On the other hand, Bell won most of the Northern licences in the 700 MHz auction (2014), with Telus being the only other 700 MHz winner in the North who is showing up in this auction.
In brief, Rogers may be primarily interested in the 700 MHz licences, and Telus may also want to expand their holdings in the 700 MHz band. In addition, it is also safe to assume that northern operator SSi will be mostly interested in the 700 MHz licences.
When it comes to AWS-3 licences, Bell is the only holder of those in the North (they already have 10+10 MHz), and they may want to add more spectrum to their holdings. Telus could be the other party mostly interested in these, along with MTS and SaskTel who may be looking to increase holdings in their respective areas (Manitoba and Saskatchewan).
From the set of bidders participating in the August auction, Rogers, SaskTel, MTS and SSi currently don’t have any AWS-3 spectrum holdings. In addition, SSi does not have any 700 MHz holdings as well.
Opening Prices
The opening prices for the licences are:
- $85,000 for one 700 MHz licence, Nunavut ($0.265/MHz/POP)
- $90,000 for one 700 MHz licence, Yukon ($0.265/MHz/POP)
- $110,000 for one 700 MHz licence, Northwest Territories ($0.265/MHz/POP)
- $16,000 for one AWS-3 licence, Nunavut ($0.05/MHz/POP)
- $17,000 for one AWS-3 licence, Yukon ($0.05/MHz/POP)
- $21,000 for one AWS-3 licence, Northwest Territories ($0.05/MHz/POP)
- $618,000 for one AWS-3 licence, Saskatchewan ($0.06/MHz/POP)
- $1,086,600 for one AWS-3 licence, Manitoba ($0.09/MHz/POP).
To keep things in perspective, it’s worth remembering that the prices paid for AWS-3 licences (March 2015 auction) ranged from $0.10/MHz/POP (Wind) and $0.11/MHz/POP (Eastlink and Videotron) for the set-aside block reserved for new entrants, to $2.96/MHz/POP (Bell) and $3.02/MHz/POP (Telus), and that the prices paid for the C1 block in the 700 MHz band were: $0.65/MHz/POP (Eastlink); $0.73/MHz/POP (MTS, SaskTel); and $0.83/MHz/POP (Videotron).
The opening prices for the residual AWS-3 licences – for the incumbents that will participate in the auction – look attractive, and to a certain extent to regional operators.
The prices for residual 700 MHz (C1) licences also look attractive. This is a prime spectrum for coverage, but the larger question of interconnection (of these cellular “islands” in the Canadian North) with other cellular networks (and satellite systems) and potential roaming arrangements remains open.
Impact on Canadian mobile market landscape
While the residual licences auction may not itself bring major changes to the Canadian mobile landscape in terms of the spectrum holdings, it may open the opportunity for mobile coverage in the North, and for increased capacity and speed of connectivity in Manitoba and Saskatchewan. None of these changes are expected to happen immediately as it takes time to roll-out even the most modest cellular network infrastructure and, in addition to that, the AWS-3 ecosystem is not available to the market yet (see chart below).
It is the Canadian summer spectrum “shuffle” that took place in June (Rogers acquiring Mobilicity; AWS-1 spectrum transactions between Shaw, Rogers and Wind) and in July (AWS-1 spectrum transactions between Wind and SaskTel and Wind and MTS) that may have greater impact, as AWS-1 ecosystem is already deployed (or ready for deployment for those who have not used it yet).
It is worth taking a look at the existing spectrum holdings (as of August 2015) across select number of LTE-capable bands, normalized for differences in spectrum holdings across different service areas. The approach taken was to normalize the spectrum holdings against population served. *
AWS-3: Are we there yet?
The AWS-1 was standardized by the 3GPP as LTE Band 4, and the ecosystem of networks and devices supporting AWS-1 band already exists. At the same time, the AWS-3 still needs to be ratified as a new standardized band which will eventually fully encompass (and extend) current LTE band 4. Once ratification by the 3GPP happens (expected by September 2015), the component and device manufacturers will no doubt start working on accelerating their releases of compatible devices which will be able to utilize both AWS-1 and AWS-3 licences.
It is worth noting that 3GPP’s LTE Band 10 only partially covers the AWS-3 band, and therefore is not suitable for addressing the needs of all mobile operators who now have AWS-3 licences (including the licence holders of J block in the U.S., or J1 and J2 blocks in Canada).
In the U.S., the AWS-3 auction (FCC auction 97) grossed almost $45B and will be a very important driver in this acceleration of the AWS-3 ecosystem. Canadian AWS-3 auction in March 2015 brought $2.1B (Canadian dollars) and it is expected that Canadian AWS-3 licence holders will also benefit from the ecosystem predominantly developed for the U.S. market.
Carrier aggregation
Technological innovation in newer generations of LTE (LTE-Advanced) technology – in the form of carrier aggregation – allows operators to aggregate their spectrum holdings across different bands and deliver higher speeds to end-users. Carrier aggregation will provide benefits to operators and consumers alike.
As of now, only Rogers and Bell have launched network capabilities allowing carrier aggregation (Rogers combining their 2500 MHs spectrum, along with 700 MHz spectrum and AWS-1 spectrum; and Bell combining their 2500 MHz, AWS-1 and PCS spectrum) providing high user speeds – above 150 Mbps (claimed by Rogers) or above 200 Mbps (claimed by Bell).
We can expect that other Canadian mobile operators will follow soon and that, once the AWS-3 spectrum is standardized and ready for deployment, there will be further options for carrier aggregation utilizing more spectrum in an expanded range of combinations.
Impact on Canadian consumers
Recent regulatory changes done by the CRTC (following the CRTC 2014-76 public consultation on mobile wireless wholesale services) in the form of a new regulatory framework for mobile wireless wholesale services CRTC 2015-177, should act as a stimulant for further competition among mobile wireless operators, and deliver better options for Canadian consumers.
With landmark work done by Industry Canada over the last couple of years – through auctions (700 MHz in 2014; 2500 MHz in April-May 2015; residual auction of 700 MHz and AWS-3 licences in August 2015) and also through the Digital Canada 150 program and initiatives like Connecting Canadians, the foundations for improved connectivity and better networks and services have been put in place.
The future growth of wireless in Canada is dependent on availability of new spectrum, and market forces driving new products and services. It is also dependent on wider consumer adoption of wireless applications and consumption of mobile content. Mobile video and gaming, mobile payments/ banking and Internet-of-Things are some of application areas that may see the biggest growth in the years to come.
Alex Pavlovic is director of technology at Nordicity. He has over 20 years of telecom, working in leading telecom hardware 
and software vendor environments (Newbridge, Alcatel, Alcatel-Lucent, Amdocs), where he focused on large service providers and their wireline, wireless and converged networking environments. Since July 2014, Alex he has been with Nordicity.
Nordicity is a consulting firm specializing in policy, strategy, and economic analysis in the media, creative and information and communications technology sectors, with offices in Ottawa, Toronto, Vancouver and London (UK). The company participated in the 2500 MHz BRS auction in April 2015, working for a national wireless operator preparing them and navigating them through the auction.
* Normalization is done for the actual spectrum holdings against the population served, and this is referred to as “weighted MHz”, by using this formula: Where M is the number of service areas (in a particular Tier) in which an operator has licences.
Example: In case of two service areas, say
– Service Area A, population 2M, licence for 20 MHz, paid $10M
– Service Area B, population 2M, licence for 10 MHz, paid $5M
This formula would give Weighted MHZ.POP = (2M*20 MHz+2M*10MHz)/(4M) = 15 MHz.
The actual $/MHZ-POP is then calculated as: TOTAL AMOUNT PAID / WEIGHTED MHZ-POP.
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