Bell, Telus blame Ottawa’s auction rules for driving up prices of 5G airwaves

Companies say government’s practice of setting aside wireless airwaves for smaller carriers is inflating their costs

Executives at Telus Corp. and BCE Inc. blamed Ottawa’s practice of setting aside wireless airwaves for smaller carriers with inflating their costs in a record-breaking, $8.9-billion 5G spectrum auction, while Quebecor Inc.’s CEO lauded the policy for allowing its subsidiary Videotron Ltd. to expand beyond its home province.

In a bid to encourage greater competition in the wireless market, Ottawa set aside up to 50 megahertz of spectrum – airwaves used to transmit wireless signals – for smaller carriers in areas where enough licences were available.

Analysts said the size of that so-called set-aside, combined with the airwaves’ critical importance for fifth-generation wireless services, contributed to stiff competition between Rogers Communications Inc., BCE’s Bell Mobility and Telus in the auction, which wrapped up July 23 after 103 rounds of bidding.

Combined, the three national wireless carriers shelled out $7.35-billion for licences to the mid-band airwaves, which are in the 3,500-megahertz range, with Rogers spending the most, at nearly $3.33-billion for 325 licences. Desjardins analyst Jerome Dubreuil called the results, which were announced Thursday afternoon, “a thorn in the side of 5G profitability prospects.”

The mid-band spectrum is considered beachfront property for fifth-generation wireless technology because it combines capacity – the ability to carry large amounts of data – with coverage, or the ability to travel long distances. Telecom executives say the airwaves will allow them to finally unlock the true potential of 5G, which promises much faster speeds and is expected to power internet-ofthings applications such as smart manufacturing and autonomous vehicles. South of the border, an auction for similar airwaves netted US$80.9-billion.

“It provides the speed and capacity necessary for future 5G services, and the reach of the spectrum is ideal to cover a number of topologies – urban, suburban and rural – so it’s very valuable spectrum indeed,” Stephen Howe, BCE’s chief technology officer, said in an interview Friday.

Despite the steep cost – Bell paid, on average, $3.06 per megahertz-pop (MHz/ POP) for the airwaves – Mr. Howe said he’s “very pleased” with the results of the auction, which saw Bell pick up 271 licences for a total of $2.07-billion. (Per MHz/POP is a key measurement of spectrum prices that refers to the price paid relative to a megahertz of bandwidth for each person in the area a licence covers.)

Telecom executives said that Ottawa should consider how high spectrum costs impact investments and wireless prices when planning future auctions. The federal government is expected to sell more mid-band radio waves in early 2023, while an auction of the much higher-frequency millimetre band is slated for 2024.

“When we spend money on spectrum like this, there’s other things we can’t spend money on,” Bell Mobility president Claire Gillies said in an interview.

Darren Entwistle, president and CEO of Telus, said high spectrum costs are inconsistent with “the government’s own affordability agenda.” The Liberal government has repeatedly urged the national carriers to slash their wireless rates.

In a news release issued Thursday, Mr. Entwistle said U.S. carriers paid on average $1.19 per MHz/POP in their most recent 5G spectrum auction, while Canadian carriers paid $3.28 per MHz/POP.

“Canada’s position as a global network leader is being undermined by burdensome regulations governing access to spectrum and its cost,” Mr. Entwistle said during a conference call Friday to discuss the company’s second-quarter results.

“If we are going to accelerate the government’s innovation and affordability agendas, and if we are going to transition successfully into a 5G world, we need a responsible, forward-looking and predictable regulatory policy that ensures expeditious, fair and economical access to this national asset,” he added.

Innovation Minister François-Philippe Champagne said in a statement Thursday that the auction is a “key step” in Ottawa’s plan to promote competition, improve rural connectivity and ensure that Canadians benefit from 5G. “As intended, small and regional providers have gained access to significantly more spectrum, meaning that Canadians can expect better wireless services at more competitive prices,” Mr. Champagne said.

The set-aside policy that contributed to higher costs for the Big Three carriers was a boon to Videotron, which was able to acquire 294 blocks of spectrum for $830million. More than half of that investment was in four Canadian provinces outside of Videotron’s home market of Quebec: Ontario, Manitoba, Alberta and British Columbia.

“If you want to have a competitive landscape … the set-aside is necessary,” Quebecor president and CEO Pierre Karl Péladeau said during a conference call Friday to discuss the telecom’s expansion plans.

Mr. Péladeau said Videotron was able to acquire set-aside spectrum at an average cost of 92 cents per MHz/POP – significantly lower than what the Big Three paid in the open portion of the auction.

Mr. Péladeau said Videotron plans to expand either by acquiring Shaw Communications Inc.’s wireless business or by becoming a mobile virtual network operator, or MVNO, in those provinces as it builds out its own infrastructure. (The Canadian Radio-television and Telecommunications Commission recently issued a ruling forcing the Big Three national wireless carriers and SaskTel to open up their networks to eligible regional players who wish to become MVNOs.)

Analysts have predicted that regulators could force Rogers, which has struck a deal to acquire Shaw for $26-billion, including debt, to sell off the Western Canadian cable company’s wireless division in order to preserve competition.

Mr. Péladeau said Videotron has the skills, track record and “financial wherewithal” to become the fourth wireless carrier in the provinces where it has acquired 3,500 MHz spectrum. “We now intend to take on and break that oligopoly in English Canada, to provide Canadians in Ontario, Manitoba, Alberta and B.C. with the same competitive [environment] and pricing and client experience that have made our success in Quebec,” he said.