TORONTO (Reuters) - Canada aims to raise a minimum of nearly C$900 million through an auction of valuable wireless spectrum, based on ground rules published by the government this week, though the sale could bring in far more as carriers vie for the frequencies.
The online document spelling out the rules marks the start of a months-long consultation process that will bed down the finer points of an auction that will shape the wireless industry for years to come. The sale is scheduled for early next year.
In selling the rights to low-frequency 700 MHz airwaves, Industry Canada, the agency in charge, wants to thwart criticism over how it handled a wireless auction in 2008.
This time it plans to keep bids anonymous to reduce the potential for collusion. It will also offer packaged licenses to eliminate the risk that bidders will win some but not all the spectrum they desire.
The 700 MHz frequencies - which travel longer distances and penetrate walls more easily than other spectrum - are compatible with a new mobile broadband technology known as long-term evolution. LTE is already being introduced into U.S. markets after an auction of the same spectrum four years ago.
Some participants in a 2008 Canadian auction of higher-frequency airwaves have privately complained that Telus Corp and BCE Inc avoided bidding against each other as they could see the blocks the other was targeting. The two carriers later built a shared national network. That auction brought in C$4.25 billion ($4.32 billion) for the government.
"With the "blind auction" structure, it will be difficult for players to know that this harmonic situation is unfolding, and a combination of risk and greed could lead to extended bidding," TD Securities analyst Vince Valentini wrote in a note to clients on Thursday.
He estimated BCE, Telus and Rogers Communications, the country's largest wireless operator, would each spend at least C$500 million in the auction.
Newer entrants such as Globalive's Wind Mobile and Mobilicity would have to stump up at least C$159 million for minimum national coverage, he said.
Of the seven blocks available, bidders will likely covet four aligned with spectrum bought by AT&T and Verizon Wireless in the United States. Verizon is a venture of Verizon Communications Inc and Vodafone Group Plc.
Those carriers hold more sway with device manufacturers and can push to ensure future smartphones and tablet computers work on those specific frequencies.
The government has said BCE, Telus and Rogers can only obtain one of these prime blocks each, leaving the new entrants and regional cable operators such as Quebecor Inc and Shaw Communications Inc to compete for the fourth.
The auction will use a "combinatorial clock auction" format which is expected to speed up the auction process. Bidders will, in subsequent rounds, offer a price for the packages of licenses they seek across 14 geographical areas of Canada. The regional blocks cover one or more province or territory, with the more populous Ontario and Quebec each split into three.
The model also encourages more transparent bidding from the very start. In the 2008 auction, new entrants that were able to bid on some airwaves declared off-limits to the incumbents were also able to bid in early rounds on other spectrum they did not need, artificially inflating the price others paid.
Taken into account variations to the rules and minimum bidding prices in different regions of the country, Industry Canada said the total amount it expects to raise in opening bids for all spectrum blocks this time around is C$897.3 million.
It set the most expensive minimum opening bid at C$69.3 million for southern Ontario, an area that includes Toronto, Canada's most populous city and its financial center.
By contrast, a license for the three sparsely populated northern territories of Yukon, Northwest Territories and Nunavut will start at C$284,000, it said.
TD's Valentini said the rules allow BCE and Telus to extend their existing partnership. Shaw could buy spectrum to use as a bargaining chip for a future network-sharing deal with Rogers, he said.
Shaw bought airwaves in 2008, but decided not to build out a cellular network.
The Industry Canada document can be accessed here: here ($1 = 0.9852 Canadian dollars)
($1 = 0.9840 Canadian dollars)
Reporting by Alastair Sharp in Toronto