Cable / Telecom News

3.5 GHz spectrum auction shows feds want 5G deployed, fast (UPDATED)



Auction starts today

By Ahmad Hathout

OTTAWA – The strings attached to the federal government’s 3.5 GHz spectrum, whose auction beginning today will repurpose portions of it for mobile wireless use, include a speed-to-deployment component that complements federal policy to accelerate connectivity throughout the country by the end of the decade.

Winners of the auction, which Innovation Canada said will take “several weeks,” will have to deploy the spectrum largely within the 2030 timeframe for which the federal government hopes to provide access to all Canadians to high-speed internet.

While the focus is largely on what the 3.5 GHz spectrum will do for the next-generation wireless 5G network, the spectrum to be auctioned off will allow for flexibility to use for wireless or to provide fixed wireless internet to the home, which was once the spectrum’s exclusive domain (and was once thought to be its only use).

On Tuesday, 200 MHz of the spectrum will begin to be auctioned off, with 50 Mhz set aside only for smaller providers (anyone who isn’t Rogers, Bell or Telus). It should also be a more economic auction for those smaller carriers because it will include 172 Tier 4 areas, which are smaller slices of geography in which the successful bidder will have to deploy. The smallest area by square kilometres is Fort Erie, Ontario, and by population it’s Golden, British Columbia with 6,854 residents.

There are 24 eligible bidders, including all big players except Shaw, and opening bids are currently pegged at $586.8 million. Analysts say, however, the federal government can, in the end, expect billions to be spent. Scotiabank telecom analyst Jeff Fan estimated in a research note to investors Rogers will have to spend the most at around $1.15 billion, followed by network partners Telus ($850 million) and Bell ($800 million), with smaller operators such as Videotron at $100 million and Cogeco at $50 million. However the latter two can bid on the cheaper (much cheaper, probably with Shaw out) set-aside spectrum.

BMO Capital Markets telecom analyst Tim Casey predicts a larger spend, with each of the Big Three having to spend approximately $1.25 billion each to secure the 5G spectrum they need.

The set-aside rules also limit the sale of that designated spectrum to those ineligible players for at least five years to a maximum of seven years, which is the timeframe for which the spectrum must be deployed and to avoid warehousing or “squatting.”

Carriers within large population centres will have to deploy the 3.5 GHz spectrum to cover 90% of the centre’s population within five years and 97% within seven years. Meanwhile, the spectrum must be deployed in the surrounding rural areas at 90% within seven years and 97% within 10 years. The total licence term for the spectrum is 20 years.

There are 3,440 total 3500 MHz licences, with 1,504 being auctioned off and 1,936 already held. A couple of years ago, ISED determined that some of those licences already held would be clawed back for flexible use. The vast majority of the 3.5 GHz spectrum was held by a partnership between Bell and Rogers, called Inukshuk Wireless, while the largest single owner and user of the frequencies has been Xplornet, which has used it for fixed-wireless services in the predominantly rural areas it operates in.

There have been some lingering concerns about the 3.5 GHz spectrum, considered key for 5G deployment. First, since the CRTC ruled in April — after ISED spectrum applications were due — that only regional players with spectrum and facilities could rent space on the large national networks, wholesale-based carriers have asked for a delay in the spectrum auction to reassess the competitive climate. They were denied. Cogeco has said that the regulator’s decision improves its chances of entering the wireless market. If the company is ever going to make a wireless splash, this auction is where Cogeco will cannonball into the pool.

The second concern is cost. The large telecoms have advocated against spectrum set-asides because it reduces the supply of bidding spectrum for national carriers and therefore raises their prices. They have asked ISED to let them recover from the financial strain they say they suffered due to the Covid-19 pandemic before demanding they pay for spectrum. ISED has largely put into place measures, including delayed spectrum payments, to reduce that pain, and had delayed the 3.5 GHz spectrum by six months.

Rogers was the biggest claimant in the 600 MHz auction, with Bell buying none. That leaves some intriguing possibilities as to how high Bell will bid and shell out to secure the undoubtedly critical 3.5 GHz spectrum. What’s adding to that is the relatively favourable decision in April by the regulator not to broadly open up wireless facilities to all kinds of service providers, and the undisputed win last month that kept the status quo on wholesale internet rates.

Also, with last month’s announcement the C-band spectrum will carve out space for 5G and rural broadband improvements, Rogers and Shaw proposing to merge, and with wholesale providers up-in-arms over two major decisions over the past couple of months, this decade in telecom competition is beginning to shape up.

UPDATE: Not just anyone in the auction who isn’t Rogers, Bell or Telus can buy set-aside spectrum, however.

To be eligible to bid on set-aside spectrum, ISED explained to us, Section 6.1 of the 3500 MHz licensing framework says applicants must first have demonstrated they are:

  1. registered with the CRTC as a facilities-based provider,
  2. not a national mobile service provider (i.e., companies with 10% or more of national wireless subscriber market share), and
  3. actively providing commercial telecommunications services to the general public in the relevant Tier 2 service area.

“For example,” explained an ISED spokesperson in an email, “to be eligible to bid on set-aside spectrum within a Tier 2 service area such as British Columbia or Alberta, an applicant would need to demonstrate that it is actively providing commercial telecommunications services to the general public somewhere within that Tier 2 service area. The applicant would then be eligible to bid on set-aside spectrum in all Tier 4 service areas within the Tier 2 service area. The relevant commercial telecommunications services are not restricted to commercial mobile services, and could include other retail residential or business services.

That means, for example, Quebecor/Videotron can’t bid on set aside spectrum in Alberta or B.C. – something which many have speculated about ever since Shaw pulled out, unless the Montreal-based company has network assets out west of which we are not aware. Quebecor, as any auction participant, may bid on the open spectrum blocks, which will be more expensive.

However, Bragg/Eastlink could bid on set aside spectrum in both western provinces since it owns a wired network in Delta B.C. and operates as a wired and wireless operator in Grande Prairie, Alta.