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 - Analyst Report), Telus Corporation (TU - Analyst Report) and Rogers Communications Inc. (RCI - Analyst Report) can acquire a prime block each. The remaining blocks will be reserved for smaller carriers such as Quebecor Inc. and Shaw Communications Inc. (SJR - Analyst Report) 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.