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Wireless companies’ spectrum gains could have lasting effect on 5G quality, pricing

December 11, 2023

Canada’s recent spectrum auction awarded telecom companies 4,099 spectrum licences.

As an underdog in Canada’s recent spectrum auction, Execulink Telecom Inc. CEO Ian Stevens acknowledged that “inexperience and budget” were working against his company compared with some of the bigger players.

The event, which spanned a month, featured 22 telecom providers bidding on licences for wireless spectrum, the electromagnetic frequencies that enable smartphone communications.

When it wrapped up late last month, Canadian wireless companies had collectively spent about $2.1 billion on chunks of 5G bandwidth in the federal government’s most recent spectrum auction. Though cellphone owners don’t often think about these technicalities, experts say the results could affect future prices and the quality of their mobile phone and internet plans.

“Make no mistake, the cost of your cellular service includes the cost of the spectrum that has been purchased over the years for the service provider that you choose,” said Stevens, whose Woodstock, Ont.-based provider formed a consortium with fellow regional carriers Nexicom Inc. and Wightman Telecom Ltd. to bid in the auction.

Together, they won 38 licences at a price of around $17.7 million.

“For Canadians to have competitive choices in cellular, there need to be pathways for new entrants like ours, through an auction process like this or otherwise, to provide a service for them,” said Stevens, who also serves as vice-chair of industry group Competitive Network Operators of Canada.

Ottawa touted the 3,800 MHz band — considered a mid-band wireless frequency that can carry a lot of data over long distances — as ideal for services like 5G, as well as rural internet connectivity.

It’s “about as good as you’re going to get for finding that compromise where it’s pretty fast and yet it can go far,” said Gregory Taylor, an associate professor with University of Calgary’s communications, media and film department.

He said it wasn’t long ago that 5G service was “hyped beyond anything,” with insiders predicting lightning-speed mobile service was just around the corner. But that scenario, which Taylor said would have required “transmission towers on every lamppost” in order to move massive amounts of data, hasn’t materialized.

He said deploying 5G on the 3,800 MHz frequency is a reasonable alternative, even if “not at the super speeds they had talked about four or five years ago.”

Telecommunications consultant Mark Goldberg called it the “Goldilocks” of spectrum bands.

“It’s not too low, not too high. It gives you both coverage and capacity, and it’s seen as really important as people are using up far more data these days,” he said.

“Our 5G networks have not been as fast as the 5G networks in the U.S. and that’s been blamed on just the availability of spectrum. So this option will allow the carriers pretty much to catch up to their U.S. counterparts.”

Companies collectively acquired 4,099 spectrum licences in the auction, according to the provisional results announced Nov. 30.

Telus Communications Inc. was awarded the most licences — 1,430 for nearly $620 million. Bell Canada was awarded 939 licences for $518 million, followed by Rogers Communications Inc., which spent $475 million for 860 licences.

Quebecor Inc.’s Videotron, which has been seeking to solidify itself as a fourth national carrier since purchasing Freedom Mobile earlier this year, spent almost $300 million to secure 305 licences.

Videotron needed to “take risks” and put forth a big spend in order help advance its goal of gaining market share, said John Lawford, executive director of the Public Interest Advocacy Centre.

“To the extent that Videotron gets spectrum, they can roll out their own 5G faster,” he said.

“Presumably, you could have more Videotron towers with Videotron spectrum, and they wouldn’t have to be roaming … on, let’s say, Telus or Rogers out west, and they can expand more out west more quickly.”

Despite the presence of many smaller providers in the auction, Lawford called Videotron the only company of the “potential new entrants with any real hope.”

Ottawa said the auction was an important step to promote competition in the wireless services market. But the process tends to advantage the big carriers, which can afford to spend the most to acquire spectrum for their already sprawling networks, while the smaller independents “often get boxed out,” said Taylor.

“They just can’t match the bids. They can often barely hit the required initial bid,” he said.

“And then after that … are they going to actually use (the licences)? Or will they strategically purchase the licence to sell it later?”

Challenges for smaller providers extend beyond just outbidding the big carriers, said Matt Hatfield, executive director of OpenMedia, an advocacy group that promotes internet affordability.

He said even when independent companies are successful, building out a functional, affordable local network is often an unrealistic ambition.

“The easiest and most natural thing for them to do with the spectrum is actually just sit on it for a while, maybe try to do some build out … and then in three, five, seven years say, ‘Hey, we tried, it didn’t work. Now it’s time to sell to Rogers or Bell,’” said Hatfield.

“It is and has always been unrealistic for the government to expect small providers to be able to build a physical network that directly competes with the Big Three.”

The government’s rules for the auction included a 100 MHz spectrum cap on how much combined 3,800 MHz and 3,500 MHz spectrum — a similar mid-band frequency auctioned in 2021 — any provider could acquire, in order to reserve spectrum for smaller competitors.

Licences in the 3,800 MHz band also include deployment obligations that require companies to “use or lose” the spectrum they win within certain timelines.

Hatfield said the cost of spectrum incurred by the carriers would undoubtedly lead to higher mobile prices as companies recoup their investments.

“We can debate the percentage, but there’s absolutely some (passing) of these costs to consumers,” he said.

“Because this is to some degree a tax on consumers, we need to make sure that the benefits are also being used to subsidize Canadians who have the most difficulty accessing service — rural Canadians, Indigenous Canadians and Canadians with more affordability challenges.”

But Taylor noted the funds raised by Ottawa through the process also create the potential for relief.

While spectrum auctions often get lost in the shuffle for Canadians yearning for better telecom service prices, he said consumers shouldn’t forget that Ottawa uses them to add money to its coffers.

That could lead to improvements in both coverage and price of services, especially in rural areas, he said.

“For funding of our government services, for use of a public resource and perhaps for better service and lower prices, this could matter,” Taylor said.

“We are auctioning off public airwaves. This

is ours, the frequencies — we own it collectively. So what happens to it matters for all of us.”

Sammy Hudes, The Canadian Press