Spectrum Auction Price Tag May Hit Canada’s Wireless Companies

(Bloomberg) -- Canada’s wireless spectrum auction is reported to have raised about C$8 billion ($6.4 billion), a record-breaking number that was higher than expected, according to RBC Capital Markets.

The figure suggests the industry’s three dominant players -- BCE Inc., Rogers Communications Inc. and Telus Corp. -- may have spent heavily to boost their efforts to roll out faster 5G services across a country that is the world’s second-largest by area.

RBC analyst Drew McReynolds had forecast those three companies would spend a combined C$3.25 billion in the auction, with two smaller players, Cogeco Communications Inc. and Quebecor Inc., spending a total of C$650 million, McReynolds said in a note to investors. The auction also included other small companies.

The Globe and Mail newspaper reported the C$8 billion figure, citing two industry sources that it didn’t name. It didn’t say how much each company spent.

“It is somewhat higher than what the market was expecting which was in the C$5 billion to C$6 billion range,” said Max D’Alessandro, a fixed-income portfolio manager at FDP in Montreal. “Telcos can tap their credit lines and stagger the issuance over time so as to diminish the impact of coming all at once with big deals.”

McReynolds said a spectrum cost of that magnitude is “negative” but that the impact for shareholders will probably be modest. Each additional C$500 million in spending erodes BCE’s net asset value by 55 Canadian cents a share and Telus’s by 40 cents a share, the analyst wrote.

For Rogers, the largest Canadian wireless company by subscribers, the comparable hit to NAV is about C$1 per share, he said. Rogers is in the process of trying to buy Shaw Communications Inc., a western Canadian rival that owns the no. 4 wireless provider, Freedom Mobile.

McReynolds added that it’s still unknown how much each company spent, “along with the associated nature and amount of spectrum acquired.” The sale, which is for 3,500 MHz spectrum, is slated to end by July 23, The Globe said.

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