Analysts surprised by Bell’s lack of 600 MHz, incumbent spend

BCE Inc. walking away from the 600 MHz spectrum auction with no licences, and the amount the winning incumbents ended up paying for the spectrum, came as a surprise to some financial analysts. National Bank analyst Adam Shine said in a research note that while the general expectation was that Bell wouldn’t spend a lot on the 600 MHz, “nobody expected zero spending.” The results were released Wednesday after markets closed, showing that Rogers Communications Inc. spent the most, nabbing 52 licences for $1.7 billion, followed by Telus Corp., which spent $931.2 million for 12 licenses. “Among the Big 3, each has different spectrum holdings and different strategies,” with Rogers competing with Bell and Telus’ shared networks, he noted. Desjardins analyst Maher Yaghi said that the $1.71/MHz/pop that Rogers paid in the auction is a good price, “as the company likely used a solid bidding strategy to secure this important spectrum.” Yaghi said he expects the company to start deploying the spectrum by the end of the year, and possibly to start small-scale 5G testing in some markets. He also said he was surprised to see Bell walk away empty-handed, and “that this was a missed opportunity over the long term as 600MHz is a building block for 5G,” though not necessarily a barrier to 5G deployment, given that some of the largest U.S. carriers are also opting out of 600 MHz. Barclays’ analyst Phillip Huang agreed Bell walking away with no spectrum was unexpected, but said given Bell’s “network partnership with Telus, we believe management’s decision to not acquire any 600MHz spectrum at this price was prudent, and will not create any future competitive disadvantage.” Canaccord Genuity analyst Aravinda Galappatthige said in a note that the big surprises of the auction were the price the incumbents paid for their spectrum -- higher than Canaccord’s estimates and higher per MHz/pop than the U.S. 600 MHz auction garnered -- and how much spectrum Rogers acquired. He said Rogers’ aggressive acquisition of the 600 MHz was surprising “given their solid 700MHz holdings,” but said that it’s likely a result of the company’s “desire to improve its coverage prior to a 5G rollout.” Shine also said after Rogers’ big outlay in the 2014 700 MHz auction -- where it was also the biggest spender -- “many thought the company’s appetite might be more muted.” But he noted that “Rogers has always said that its founder never saw a MHz that he didn’t want to buy.” In comparison, Galappatthige said Shaw Communications Inc.’s Freedom, who was eligible to bid on the 43 per cent of spectrum set aside for companies other than the big three, “paid a paltry $0.78/MHz-pop, which allows the company to bolster its coverage without meaningfully impacting their balance sheet." In a press release, Telus Corp. blamed the set-asides for the high price of spectrum the incumbents paid. Telus CEO Darren Entwistle said in the release that the company “secured the spectrum it needed in spite of the challenges given the set-aside design resulted in inflated pricing for the open spectrum blocks.” He added that the “average price per MHz-pop paid by the national carriers in the open auction was $1.08 higher on average than what was paid by those in the set aside, which equates to an approximate subsidy of $1.1 billion by Canadian taxpayers.” Entwistle called for a “fair and economically sanguine framework” for the upcoming 3500 MHz auction. The government is currently in the process of determining what the auction will look like. When asked by the Wire Report Wednesday about what lessons the government will take from how the 600 MHz played out when making decisions about the next auction, Innovation Minister Navdeep Bains declined to offer any specifics. Analysts also already have their eyes on the next two auctions of 5G spectrum, with Yaghi and Galappatthige predicting there will be more interest from incumbents in the upcoming 3500 MHz auction than there was in the 600 MHz. Galappatthige said there will be “substantial demand” for both 3500MHz and mmWave spectrum, and that Bell will be “very active” in those auctions “given their relative lack of spectrum in the mid-high bands.” Galappatthige said that given “that the 600MHz auction exceeded our expectations with only two of the incumbents truly active, we see the potential for elevated demand to drive up prices in the upcoming auctions.” — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Ahmad Hathout at ahathout@thewirereport.ca

Analysts surprised by Bell’s lack of 600 MHz, incumbent spend

News | April 11, 2019

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Analysts surprised by Bell’s lack of 600 MHz, incumbent spend

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