My Cell Phone Bill is Helping Pay Down The National Debt!?

So more players are buying more spectrum, what does this mean for me (the consumer)?

This week saw the Canadian Government auction off a significant amount of wireless spectrum which apparently raked approximately $4billion into Canadian coffers. The purpose of the auction is to supposedly, "lead to massive new upgrade opportunities for device and infrastructure vendors alike. These changes will increase capacity and to increase the network speeds to accommodate “wireless data”.

Some details of the auction according to Canada.com :

The auction means competition from other players for the three established cellphone players: Rogers Communications Inc. (TSX: RCI.B), Telus Communications Company (TSX:T) and BCE's Bell Mobility Inc. (TSX:CE).

The big three players were leading bidding on Monday, but they can't bid on the 40-megahertz of spectrum specifically reserved for new players in the cellphone market.

Dominant cellphone player Rogers had bid $874.6 million for 47 licences, said Industry Canada's website.

Telus, currently owner of Canada's third-largest cellphone business in terms of subscribers, had bid $790.7 million for 53 licences.

Bell Mobility, currently Canada's second-largest cellphone company in terms of subscribers, had bid $708.2 million for 48 licences.

Quebecor Inc., which owns a regional cable and phone business that has relied on Rogers to provide the network for its wireless service, had bid $582.5 million for 17 licences.

Toronto-based Globalive Wireless had bid $431.9 million for 34 licences. It owns the Yak long-distance and Internet access business.

So what we can deduce from these reports? All of the big Canadian players are willing to shell out large amounts of cash to ensure their future in the existing networks. I am not sure what would happen to existing and new spectrum contracts if Canada were to uncharacteristically adopt new technology, such as a 3G or the coming 4G network which will supposedly allow for significantly faster rates of data and information transfer. Would the contracts carry over to the new superior networks?

I will be anxiously awaiting to see what type of new competition, and price competition, the 40 megahertz of spectrum reserved for new players in the cellphone market. We could probably call Globealive wireless a new competitor, perhaps even Quebecor. There is NO WAY the industry could call Koodo mobile, a fresh face on the Canadian mobile market, a new competitor because it is owned by Telus and operates on the Telus network. But what other incumbents were able to make a crack at the Canadian wireless spectrum auction?

UBS Investment Research said Globalive and Atlantic-based Bragg Communications Inc. were two of the most active new entrants for bidding in major Canadian markets.

"Globalive continued to fight for a spot in Quebec and became a high bidder in Ottawa and Windsor, Ont., while Bragg was defending its position in Atlantic Canada and became a high bidder in Barrie and London (Ont.)," UBS said in a research note.

In other bidding on Monday, Toronto businessman John Bitove's Data & Audio-Visual Enterprises Wireless Inc. had bid $238.2 million for 10 licences.

Shaw Communications Inc. (TSX:SJR.B), owner of Canada's second-largest cable business after Rogers Cable, had bid $188.4 million for 23 licences.

**As a sidebar plug to Globealive Communications, I sincerely hope that Globealive is able to crack into the market. I have been a customer of their Yak Long Distance Cell service and have been nothing but impressed with the quality of the service, its pricing and customer service.

So what will this mean for Canadian wireless consumers? "Canadians will soon be treated to faster networks, a larger selection of handsets and much more affordable pricing structures that could cut in half the average cost of owning a cellphone from $60 a month", said industry consultant Mark H. Goldberg.

Personally, I wouldn't hold my breath. The national carriers have a lot of weight to throw around and though they may be realizing that the fat days of high rates and poor service are ending- they must realize the long term profitability to spend upwards of $500 million on spectrum contracts. These companies don't really fight with their competition for customers, they are happy pillow fighting with marketing campaigns and gimicks. They are not going to drastically change their business model and endager their marketing position.

The fact that they will all spen such large amount in the auction for ongoing contracts will eat into the profitability of their business plans and keep rates up for consumers.

This fact, in combination with mobile users increasing appetite for data and video content will require ongoing upgrades of the networks and allow providers lots of opportunity to bill consumers depending on how often they use their Facebook application or watch Youtube videos on the train ride home. For those who use their mobile phone in the more traditional sense, here's hoping that sometime in the near future I will be able to phone Vancouver and not have to pay for a satellite to beam a signal out there as opposed to beaming a signal across town. It is all the same!

As for the $4 billion dollars that was raised in the auction. It has been said that it will go towards paying down the national debt, which is a noble cause I feel. There was some speculation about the money going towards a program to increase internet access across Canada, which sounds like pork barelling to me but I would feel a lot better if I could research the companies that would be awarded the contracts to provide the equipment and services to communities across Canada....perhaps a blog posting in the future!

DO