Quebecor’s Videotron throws down the national gauntlet in wireless auction

The Big 3 are about to become the Big 4.

Industry Canada’s just-completed 700 MHz auction, which raised C$5.27 billion in licensing fees from telecom operators staking their claim on the next generation of wireless services, may go down in the record books as Canada’s most lucrative-ever auction. But that’s nowhere near the most significant story. Instead, it’ll forever be known as the Videotron auction, where a once-regional wireless operator made a bold bid to become a national player and take on longtime leaders Rogers, Telus and Bell outside its traditional territory.

From Quebec to Canada

The Quebecor-owned carrier dominates the Quebec market for cable television, telephone, Internet and wireless services and already has limited presence in French-speaking communities in Eastern Ontario and New Brunswick. But it's successful $233.3 million bid on spectrum leapfrogs it into southern Ontario, Alberta and British Columbia, as well. Beyond snapping up 700 MHz licenses in its native province, the cross-country expansion isn’t just a shot across the Big 3’s bow. It’s a declaration of a new wireless war.

“I think it’s a positive step forward,” OpenMedia.ca spokesman David Christopher told Yahoo Canada Finance. “The fact that Videotron is set to expand into southern Ontario, Alberta and BC is good news for cell phone customers who live in those regions. It will lead to some extra choice, and it should really have a downward effect on pricing.”

As the eight successful bidders now prepare to bring 700 MHz-based services to market, possibly as early as year-end, Videotron’s apparently shrewd bidding could be a boon to consumers hoping for lower wireless prices, as well as investors concerned about over-extended carriers prioritizing margin over continued pricing erosion.

“Videotron's purchase of spectrum merits further examination,” says Mark Goldberg, a Thornhill, Ont., telecom consultant and founder of the annual Canadian Telecom Summit. “Only Videotron can tell us what their business plan calls for, but the company picked up its spectrum at bargain prices.”

Goldberg says Videotron spent 60 per cent less this time around – for a 20-year lease – than it did on 10-year licenses on less desirable spectrum in 2008. This could negatively impact Mobilicity, which is still seeking a buyer, and whose licenses, which cost it $243 million in 2008, may now fetch even less because they expire in only five years.

Competition after all

Videotron’s move also somewhat vindicates Industry Minister James Moore, whose plans to stoke increased competition seemed to derail last year after the auction failed to attract any foreign investors. Despite high-profile reports of American carriers Verizon and AT&T possibly crossing the border, when the dust settled only 15 domestic carriers and investors had stepped forward. By the time bidding kicked off January 14^th, a full third of them, including the current #4 wireless provider, Wind Mobile, had dropped out.

Videotron’s national expansion means Moore has achieved his goal of greater competition, only it took a domestically funded regional player to make it happen.

Rogers, whose $3.29 billion bid total in 22 regions outpaced next-up Telus ($1.14 billion for 30 licenses) and Bell ($565.7 million for 30 licenses), went for broke as it attempts to reverse softening subscriber growth and margin pressure. The bidding, which lasted for 108 rounds and just over five weeks, extended longer than originally forecast. Analysts, whose expectations had been tempered by the lack of foreign involvement, initially expected it to be all over within a couple of weeks.

Goldberg says the auction results could finally get Canada back into the global wireless game.

“We are a number of years behind the U.S. in making certain spectrum bands available,” he said. “We're looking forward to Industry Canada harvesting unused spectrum from companies that have not deployed services, enabling others to provide choice to consumers in underserved regions of the country.”

Christopher says while Industry Canada has a right to bask in the glow of arguably its most successful spectrum auction ever – the previous AWS auction in 2008 raised $4.3 billion – its work is nowhere near done as it looks forward to the 2.5 GHz auction in April 2015. In the meantime, it needs to carefully plan how the proceeds from the 700 MHz auction are spent.

“We really think it’s vital that this money that has been raised from auctioning off Canada’s digital assets be reinvested back into the digital economy to erase our digital deficit,” he said. “Rather than that money go into general government funds, it’s logical that we reinvest it in digital infrastructure to build a more connected Canada for all us.”

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca