ISED, the Canadian spectrum regulator, conducted a single-round sealed-bid auction of spectrum licenses left over from previous auction processes. This “Residual” Auction was completed on July 25, 2024 and consisted of 225 licenses for sale, mostly in the 3500 MHz and 3800 MHz bands along with a few in 600 MHz and 2300 MHz.
- Only 56 of the licenses were sold, 25% of the licenses available, with revenues of only C$5.6 million.
- The result was far overshadowed by the reserved price value of the unsold licenses of C$41.2 million.
- In terms of MHz-pop, 88% were not sold. These include valuable and very useful licences in Vancouver (4 blocks), Edmonton (3), Calgary (3) and Winnipeg (2).
- Of the MHz-pop covered by the sold licenses, 77% went at reserve price. And we are happy for all the winners of spectrum at these attractive price points.
While we applaud ISED for going forward quickly for a residual auction of this mid-band 5G spectrum, it is somewhat surprising that ISED had in mind that it might actually sell all of these licenses, especially the leftover 3800 MHz licences in key western urban markets. In addition to the above, we note that :
- 90% of the licences on offer were leftover from the 3800 MHz auction process that ended only 8 months ago in November 2023. So this was the second auction process where ISED was unable to sell all of its 3800 MHz licenses.
- There is a cap of 10 blocks across 3500 MHz and 3800 MHz that was put in place for the 3800 MHz auction, and when also considering the 3500 MHz auction results, it was clear that interested parties would be prevented by the cap rule to acquire all of the 3800 MHz licences in certain areas – even prior to the 2023 auction. And this included the fourth players such as Freedom Mobile, Eastlink and Videotron.
- Despite that, ISED retained the same rules for 3800 MHz spectrum in the Residual Auction resulting in 80% of the licenses going unsold.
- For the 600 MHz licenses on offer, on the other hand, ISED removed the set-aside restriction, and these licenses were sold.
There has been no change in the industry structure, competitive landscape or policy and licensing rules since the 3800 MHz auction in November 2023 that would have changed expectations surrounding who the buyers could be for these licenses.
In addition, there is significant uncertainty surrounding spectrum policy in Canada, which may have contributed to the low level of interest, particularly in major markets.
- In March 2023, on the approval of the Rogers/Shaw/Freedom transaction, ISED put in place a moratorium on “high impact” license transfers, in anticipation of a review of the overall spectrum policy framework, intended to include a public consultation.
- Almost 18 months later, no such consultation has been initiated and licensees have been “left hanging” with a moratorium on transfers until a “Revised Framework” is in place at some unknown point in the future.
- A small telecom service operator or potential investor in a company in Canada does not know the terms and conditions on what it would be buying, given the lack of clarity on spectrum policy. This is a material barrier for investment.
Specifically for the Residual auction, ISED’s streamlined process, put in place in 2021, allows it to change the rules for an auction if licenses have already gone unsold in at least one previous Residual Auction or if it consults on changing the rules prior to the first Residual Auction.
The 10 block 3500/3800 MHz cap remained in place for all bidders, creating a classical “double-edged sword”… the streamlined process gets licenses to auction more quickly, but with the same rules, many leftover licenses would not be expected to sell the second time around any more than they were in the original auction.
A Few Takeaways
Two bidders accounted for 85% of the auction revenues: Bell Canada was the largest at 55%, winning 18 licenses. Netfox, an ISP with no existing spectrum, accounted for 30% of revenues and 52% of the MHz-pop sold.
As noted above, major markets in Western Canada went unsold. Netfox acquired five licenses in 3800 MHz covering Halifax and two in St.John’s.
Other sold licenses were all in secondary markets and in the Far North.
Detailed bidding information is not yet available, but there was clearly some contention for the licenses Bell acquired since Bell paid 43% over the reserve price.
The auction was conducted on a second-price basis, meaning that the winning bidders pay the price of the highest losing bidder. There was slight over-demand for the licenses won by ABC Internet and Ecotel.
Process and What’s Next
Now that there are 169 licenses unsold in a residual process, ISED can eventually run another residual process to try to sell them again.
Critical elements to put more of this spectrum to work for the benefit of Canadians would be to modify the 3500/3800 MHz spectrum cap rule enabling at least some industry participants and investors to acquire more spectrum as well as update the spectrum license transfer framework to provide clarity.
Please contact us for more information and on how we can support you in your spectrum-based businesses. LYA’s core competencies include assessment of spectrum opportunities, license valuation and support in regulatory and policy processes, including auctions.