Cautionary data below for those betting the spectrum sales will not fetch a good price - the trend is not your friend....
Ottawa set for wireless windfall
Bids for a slice of the cellphone market top $2.5-billion, exceeding expectations
SIMON AVERY
From Wednesday's Globe and Mail
June 4, 2008 at 12:14 AM EDT
One week into a complicated bidding process to auction off a swath of the country's wireless spectrum there is already an early winner – the government.
Industry Canada has raised about two-thirds more money than early estimates of what the spectrum would fetch, and the selloff is still only in the first of three bidding stages.
As of Tuesday afternoon, 20 players had bid more than $2.5-billion for the 105 megahertz of space the government is releasing.
Before the bidding began on May 27, financial analysts were forecasting that Ottawa would collect no more than $1.5-billion.
This is in part because the auction was designed to keep prices affordable for new players by earmarking 40 megahertz out of bounds to the three, deep-pocketed incumbents in telecommunications – Rogers Wireless Communications Inc., Bell Mobility Inc. and Telus Corp.
“The results have exceeded every analysts' expectations so far,” said Dvai Ghose of the investment bank Genuity Capital Markets.
Even the federal government assumed in its budget that the auction would garner only between $1.5-billion and $2-billion.
When the United States auctioned off a comparable band of spectrum almost two years ago, it sold for one-sixth the price of what the Canadian spectrum was valued at as of Tuesday's bids, according to a standard industry calculation that measures price per megahertz and population served, Mr. Ghose said.
Some of the most aggressive bidding is actually coming from outsiders, including Globalive Communications Corp., the seller of Yak long-distance services.
Globalive had placed $226.7-million worth of high bids Tuesday.
Globalive is backed by two telecom billionaires from abroad: Weather Investments, controlled by Egypt's Naguib Sawiris, and Novator, founded by Bjorgolfur Thor Bjorgolfsson of Iceland.
Data & Audio-Visual Enterprises Wireless Inc., a venture between Canadian satellite radio king John Bitove and Microsoft Corp.'s co-founder Paul Allen, is another foreign hopeful. It had $174.1-million worth of high bids Tuesday.
“Foreign money is the key surprise here,” Mr. Ghose said.
Overseas investors appear willing to pump money into Canada's wireless industry even though regulations prohibit them from having a controlling interest in any domestic telecom player, he said.
Anthony Lacavera, Globalive's chief executive officer, said foreign investors are attracted by the clarity and transparency of Industry Canada's auction process and by the still untapped potential of the Canadian wireless market.
“They see that Canada has an unusually low penetration [rate] for the developed world. Relative to Canada's economic might over all, wireless development is lacking,” he said.
The auction prices are getting high, he conceded, but the upfront cost of spectrum is only one of many costs to consider in a wireless business plan.
Prices for mobile handsets and network equipment, for instance, are steadily decreasing, he said.
Analysts say that the higher bids mean participants will need to tweak their business plans to accommodate the higher upfront costs.
“Incumbents will incur higher spectrum [capital expenditure] than forecast,” Jonathan Allen, an analyst with RBC Dominion Securities Inc., said in research note.
For new entrants, “we may see outright withdrawals from the auction if business cases cannot be supported, or bidders may tone down their business cases and become more regional,” he said.
reportonbusiness.com
More info on auction:
electronista.com
reuters.com
google.com |
