TORONTO – While the recent advanced wireless spectrum auction has no immediate ratings’ impact, the outlook for the Canadian Wireless sector has been revised to stable from positive because of prospective changes in the business environment, Moody’s Investors Service said Wednesday.
"The auction is one milestone in a series of events that are expected to unfold over the next three-to-five years," says Moody’s vice-president Bill Wolfe.
In the near term, participation by new entrants is expected to increase competition. "The number of spectrum holders has increased in every region, and most now have at least one new entrant with a viable business that the wireless product will augment," says Wolfe. While the wireless market is expected to grow, a substantial portion of that growth is likely to go to the new entrants, beginning in 2009. "However, individual ratings incorporate this development and no adjustments are necessary at this time," says Wolfe.
Bidders paid much more than was expected to purchase the spectrum (over $4.2 billion) from the Canadian Government, which may be interpreted as providing evidence that Canada’s wireless sector is somewhat underserved. However, Moody’s suggests the auction may result in too much competition in many regions, and it seems inevitable that some of the new entrants will fall short of their expectations.
"In light of increased competition, it is unlikely that Canada’s foreign ownership rules will be modified," said Wolfe.
Basically, the auction participants can be grouped into four categories, says Moody’s. These include the three incumbent national service providers, new entrants with cable connections with retail telecommunications customers, incumbent prairie province telephone companies, and other new entrants.
Overall, the three cable companies are expected to be the strongest of the new competitors. The two prairie province telephone companies and Globalive will likely be influential non-cable competitors. Most of the other participants are expected to trade their positions before having to build networks.
According to the ratings agency, likely next steps and potential rating catalysts include: potential roaming and network alliances formed, networks and subscribers acquired, networks upgraded to fourth generation standards and the 700 MHz spectrum distributed by the federal government. That spectrum, currently used by conventional TV stations, will be available as of September 1, 2011, when broadcasters have to switch to digital.
In addition, BCE/Bell and Telus are likely to upgrade their networks to a GSM compatible standard to protect their franchises, says Moodys. These follow-on developments are expected to continue through 2012 and may result in ratings adjustments over time, reads the release.
