Spectrum auction outcome – a “bonanza” for Canadian business

The entry of new players into the Canadian wireless arena is the banner news from Ottawa’s recently concluded spectrum auction.

But the next big fallout, industry watchers say, could be a massive business boost for a range of companies.

The new players, they note, will need to build out their networks to successfully compete against the incumbents.

And that will likely mean a lot of new business for existing – or new – firms.

On the face of it, telecom equipment providers are the most obvious beneficiaries.

These mood among these providers has been buoyant mood ever since the Feds, on Monday, awarded no less than 292 broadband licenses to five small Canadian telecom firms and incumbent companies.

One company simply exhilarated about the future is Ottawa-based DragonWave Inc.

DragonWave designs and sells carrier-grade microwave equipment and high-capacity broadband wireless systems for network operators and service providers.

The fact that auction bidders plunked a total of $4.2 billion to obtain the licenses, illustrates how vital broadband is to the market, according to DragonWave CTO Erik Boch.

And this, he says, bodes well for his company.

Expanding their networks to reach more customers will now be a priority for new license holders, Boch says.

“These companies will now build out their infrastructure. They’ll need high bandwidth and backhaul connections. That fits squarely into our market.”

Noting that the new spectrum would generate additional traffic, he said his company’s high-bandwidth microwave systems “are ideal for moving that data from cell phone towers and base stations back to the core of the Internet.”

Boch is optimistic that some operators – looking to save money by avoiding laying down expensive fibre optic cable – will take a look at DragonWave’s offerings.

The same sanguine outlook is shared bigger networking equipment vendors such as Nortel Networks – which already does business with Bell, Telus and Rogers.

The company says it is in an excellent position to help other operators who plan to deploy 3G or advanced 4G wireless broadband.

Toronto-based Nortel pitched its CDMA (code division multiple access) products and its development work in 4G LTE (long term evolution) systems for future mobile broadband.

“Nortel is an ideal vendor/partner for a new entrant,” said company spokesman Mohammed Nakhooda. “The breath of our portfolio acts as a one-stop-shop – not just for equipment but services as well.”

New entrants in the wireless space will serve as a catalyst for Canadian business, according to Lucas Skoczkowski, CEO of Redknee Inc., a Toronto-based seller of converged billing packages that manages phone companies’ prepaid and post-paid voice and data customers.

He said as the new operators develop more services and options to compete with other players, more jobs would be created.

“Expect this development to spawn more construction in the industry, boost jobs in the service sector, generate marketing contracts and employ more content developers.”

But it will be some time before cell phone users experience better service and feature options or lower fees, said Skoczkowski. “In the big picture, subscribers will see these benefits two to three years from now. But the market definitely cannot continue its current approach.”

He foresees bundles that allow subscribers greater customization, better service, and more payment options.

“Apart from pre-paid and post-paid options, you’ll see a hybrid of both models, perhaps even sponsored or advertiser supported payment model,” he added.

Canadian wireless adoption, which has been kept at a low 80 per cent because of high cost, will likely grow to 120 per cent, Skoczkowski said.

Whether all new entrants will actually use their recently purchased spectrum licenses to develop services for the public remains to be seen, says a lawyer for a public advocacy organization in Ottawa.

“Mergers and acquisitions [may] negate any benefits of an anticipated competition,” said Michael Janigan, executive director and general counsel for the Public Interest Advocacy Centre.

We could have a repeat of larger players gobbling up smaller telecom companies, he said, recalling the acquisition of case Clearnet Communications Inc.by Telus in the year 2000.

It’s possible one of the bidders – finding the costs of building the necessary network infrastructure prohibitive – might seek to be bought out instead by one of the incumbents, he said.

Other barriers that might lead a new entrant to sell out include: a slowing economic climate, slow turnout of subscribers due to long term contracts with incumbents, and the efforts and expenses of developing brand recognition.

This would be an unfortunate development because studies of telecom industries indicate an increase in the number of operators leads to a decrease in service cost for subscribers.

“Studies in the U.S. indicate that whenever a fourth or fifth player enters one of that country’s regional markets subscribers experience a substantial reduce in service fees,” Janigan said.

The recently concluded spectrum auction is expected to open up the cell phone market long dominated by Rogers Communications Inc., Bell Mobility Inc. and Telus Corp.

At least one Canadian expert believes the auction results could lead to the emergence of a new national carrier.

But this won’t happen overnight, said Michael Geist, Canada research chair of Internet and e-commerce law at the University of Ottawa.
Regardless, “these changes can’t come too soon – given Canada’s dismal wireless ranking worldwide.”

For many of the new entrants, there is still concern about the capital needed to compete effectively, Geist said.

“Opening the market to foreign competition might ultimately be necessary in order to raise the market to global standards.”

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Jim Love, Chief Content Officer, IT World Canada

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