The Canadian telecom regulator is expected to hold an auction
for fourth-generation (4G) mobile and fixed wireless spectrum in
the 700 MHz band in the first half of the next year. The regulator
will be able to raise roughly C$900 million by providing several
frequency bands to Canadian mobile operators that will in turn
change their competitive positions.
Need For Auction
The present wireless market is ready for the incipient boom in
the wireless data space with expanding broadband services. Data
traffic is growing in leaps and bounds and has more than doubled
over the last three years.
Global carriers, including Canadian ones, are finding it
increasingly difficult to manage rising mobile data traffic given
competitive pressure and limited wireless spectrum licenses. Hence,
the carriers are in need of additional airwaves to expand their
high-speed services and support 4G LTE mobile broadband
services.
We believe Canadian operators will try to make the most of this
opportunity and participate in the auction process. Winning
frequencies will aid operators in deploying advanced LTE mobile
services.
Auction Structure
The Canadian regulator intends to keep bids anonymous by
offering packaged licenses. The spectrum will be auctioned in 14
regions; each having five prime blocks with paired spectrum and two
blocks of unpaired spectrum. This would reduce the potential for
winning all the bids desired by individual companies, in particular
the large caps.
Notably, the three major Canadian mobile operators,
BCE Inc.
(
BCE
),
Telus Corporation
(
TU
) and
Rogers Communications Inc.
(
RCI
) can acquire a prime block each. The remaining blocks will be
reserved for smaller carriers such as Quebecor Inc. and
Shaw Communications Inc.
(
SJR
) and new entrants. The winning conditions depend on the timely
roll out of 700 MHz LTE services to rural areas by the bidder.
Further, the auction calls for more foreign investment. The
recent removal of restrictions on the foreign investment in
Canadian telecom companies (having less than 10% of market share)
has permitted some companies such as Wind Mobile and Mobilicity to
bid in the auction process.
Bottom-line
We will be carefully watching the actions of these Canadian
companies and their advantages from the auction process. While
waiting for the auction process to start, we are maintaining our
long-term Neutral recommendation on BCE, Telus, Rogers and Shaw
Communications. For the short term, the stocks hold the Zacks # 3
(Hold) Rank for the short term (1-3 months).
The 700 MHz auction will be followed by the 2500 MHz auction
within a year.
BCE INC (
BCE
): Free Stock Analysis Report
ROGERS COMM CLB (
RCI
): Free Stock Analysis Report
SHAW COMMS-CL B (
SJR
): Free Stock Analysis Report
TELUS CORP (
TU
): Free Stock Analysis Report
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