Here's everything you need to know about today's wireless spectrum auction — and why you should care

A dozen Canadian companies will bid on Tuesday for a slice of newly released wireless spectrum. While the new spectrum has the potential to make internet-connected devices such as cellphones work better, don't expect faster and cheaper cellphones any time soon.

12 telcos will get in on the action, but don't expect an industry shakeup

Wireless spectrum is the name for the invisible electromagnetic bands that allow wireless devices to talk to each other. (Kiyoshi Ota/Bloomberg)

What's happening?

Starting at 10 a.m. on Tuesday, Ottawa is auctioning off wireless spectrum in the 600 megahertz range to a dozen companies that will bid on the rights to use airwaves for the next 20 years. The bidders are major wireless firms like Bell, Rogers and Telus, along with nine other smaller companies, all of which are listed on Industry Canada's website.

One name noticeably absent from the list is Montreal-based Cogeco Inc., which says it won't be in the running but maintains it is still interested in expanding its wireless service.

What is spectrum?

Spectrum is the term used to describe electromagnetic waves that travel within a certain wavelength. Spectrum is the invisible signal that allows wireless service providers to transmit data across long distances to cellphones and other internet-connected devices. AM and FM radio travels over a certain part of the wireless spectrum. So do television signals. The band up for grabs on Tuesday is in the 600 megahertz range.

Check out this explainer video for more about what spectrum is and how it works:

Ever wonder what wireless spectrum is, and why the government auctions it off from time to time? Then check out this, our helpful explainer 1:28

Why are companies bidding on it?

A quality wireless network runs on a number of different bands, so your device can always get a signal if one of the spectrum bands is temporarily unavailable where you are — in a remote rural area, or several metres below the ground in a downtown parking garage, for example.

A reliable network has a good mix of low and high megahertz, because, broadly speaking, the lower the number, the better it is at travelling over long distances and into hard-to-reach places. The higher the number, the better it is at moving large amounts of data. Relatively low-frequency spectrum in the 600 megahertz band is useful for filling in existing network gaps. With more and more internet-connected devices, networks need more and more spectrum to keep that data flowing, no matter where you are.

How does the auction work?

Starting at 10 a.m. on Tuesday, companies involved in the auction will bid for the rights to use seven blocks of spectrum, in 16 different areas across the country — 112 different blocks in total. Bids will be anonymous, and work on what's called a "combinatorial clock" format. You can read more about the complicated rules here but the gist is that it makes sure winning bidders pay more than the second-place bidders would have paid, but nothing beyond that. It also makes sure companies get multiple blocks of spectrum to ensure they have a big enough network.

Previous spectrum auctions led to the creation of new wireless companies that challenged the incumbents a little. (Angel Garcia/Bloomberg)

Similar to previous ones, the auction has been set up, as best as possible, to ensure that incumbents don't gobble up all the spectrum. In this case, three out of the seven spectrum blocks up for grabs in each market have been set aside for new players — meaning Bell, Rogers and Telus can't buy them. That's done to encourage other companies to offer services to compete with them. The rules also stipulate that those newcomers can't turn around and sell their spectrum to the Big Three, at least for the first five years.

There are minimum bids in every block up for grabs, too. The minimum bid for a block to service Nunavut and Yukon, for example, is $48,000. But a block of that same spectrum in southern Ontario will cost at least $85,302,000 — because a winning bidder could use that spectrum to sell services to so many more people, thus recouping their investment.

When will we know who won?

Probably not for a while. To avoid gaming the system — having companies put in bids they don't want, just to drive up the price for a rival — Ottawa is going to stay completely silent about how the process is going until five days after the bidding has ended.

Analyst Vince Valentini at TD Bank said in a research note last month he expects the process could take a month or two. 

In keeping with the slow pace, he also doesn't expect feverish bidding, as some of the big companies will likely be saving their money for higher-band spectrum that's coming down the line.

So, why should I care?

Well, your wireless service is likely to improve, once bidders start deploying their newfangled spectrum. That means if you're already a wireless customer, you should expect fewer coverage dead zones and dropped calls, even as companies roll out even faster 5G networks. And theoretically, it could give you more options of companies to choose from. A similar auction in 2008 led to the birth of companies like Wind, Public Mobile and Mobilicity.

But don't expect your cellphone bill to come down — at least in the short term.

Analysts say telecom companies are likely to spend at least $2 billion on this auction, and an outlay like that isn't generally what prompts them to turn around and cut their prices.

"It takes a while for this spectrum to be used," says Laura Tribe, executive director of consumer-focused telecom watchdog OpenMedia, but says prices will likely go up before long.

As more and more devices connect to the internet on faster 5G networks, there will be more demand for data over them, which is why wireless companies need more spectrum. (Simon Dawson/Bloomberg)

Tribe cites recent stories of incumbent players raising their prices on big-data plans, which they launched in late 2017. Companies justified those moves when they were reported because they said they were investing in and updating their infrastructure to give customers better service.

"This is a really clear example of what that looks like," Tribe says.

She says the auction could be good news for consumers if it manages to get the spectrum in the hands of new companies that can truly shake up the industry.

But TD's Vince Valentini says he doesn't expect any new names to step up in a big way.

A 2014auction in which companies spent an average of $2.32 per megahertz pop — an industry metric referring to the amount of bandwidth passing one person in the coverage area in a spectrum licence — raised more than $5 billion. The next year, in 2015, an auction of so-called AWS-3 spectrum, in which Rogers didn't even buy, raised $2.1 billion, or an average of $1.49 per megahertz pop.

Valentini doesn't expect the per person price tag for this batch to go up. "We would be shocked and disappointed if anyone coveted this 600 spectrum to the point of paying $3 or more per megahertz pop," he said. "And we see very low odds of new entrants trying to disrupt the bidding outside of their current wireless footprints."

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