BMI View: The regulator has blocked attempts by Rogers , Bell Wireless and Telus to acquire the smaller players in the market, such as WIND and Mobilicity , resulting in the new entrants struggling to remain afloat and offer challenge to three established operator . I n this environment BMI believes it to be unlikely that a fourth large operator will emerge. In the fr equency auction in March 2015, WIND, Eastlink and Videotron all managed to boost their spectrum holdings significantly, but BMI is still sceptical of the emergence of a strong fourth market player. With some of the hi ghest ARPUs in the world, a low- cost strategy would have some success in attracting subscribers. However, the Canadian market is predominantly postpaid and 3G/4G focused, with customers willing to pay higher rates for better quality, speed and coverage.
Since the second half of 2014 Telus has outperformed all other operators in terms of net additions with 413,000 new subscribers up to Q115, meanwhile MTS was the only operator to shed subscriptions. All other operators have reported net additions over the last nine months.
That said, considerable progress was made in migrating customers to higher value plans, which has resulted in a modest uptick in average revenues per user (ARPUs), as well as sales of smartphones. As Rogers, Bell, Telus, MTS and SaskTel have fixed infrastructure they can leverage to upsell additional or converged services, they are in a largely unassailable position and can therefore justify the considerable expense in building out their 4G LTE networks.
Key Trends And Developments
In May 2015, nine operators were selected as provisional licence winners in the Broadband Radio Service (BRS) spectrum auction in the 2,500-2,690MHz band. Of the 318 licences auctioned, the operators have won 302 licences, worth CAD755.37mn (USD626.49mn). The licensing is especially aimed at providing broadband services in rural areas and increasing the spectrum availability nationwide to facilitate 4G mobile services on smartphones and tablets. The licence winners include Telus, Videotron GP, Rogers Communications, Eastlink and MTS Allstream.
The Canadian government closed the auction of the AWS-3 spectrum band covering 1,755-1,780MHz and 2,155-2,180MHz, with WIND Mobile emerging as the biggest winner in March 2015. The country's attempts to encourage a strong fourth player have been well-documented by BMI but have consistently fallen short. This auction saw 60% of the available frequencies set aside for the smaller operators, with the remaining 40% open to all qualified bidders. Aside from WIND, Eastlink and Videotron also significantly boosted their spectrum holdings. Two of the three national operators, Telus and Bell, also acquired spectrum at a much higher price, with Rogers notably absent. Struggling Mobilicity also did not register a bid, pulling out at the last minute after it was unable to secure financing. There will also be another opportunity for operators to acquire spectrum in April 2015 through a 2,500MHz frequency auction.
In September 2014, VimpelCom agreed to sell its majority stake in the fourth largest mobile operator WIND Mobile, to minority shareholder Globalive and a number of investment funds for CAD135mn (USD122mn). The proceeds will go to VimpelCom in repayment of part of the debt owed to the company, bringing the total value of the deal to CAD300mn (USD272mn). Canada's government approved the sale of Globalive Wireless (WIND Mobile) to an investor group, after deciding that the deal will boost competition in the mobile market. The approval was granted with conditions including pledge by Wind Mobile's new ownership to significantly invest in new spectrum and expansion of network infrastructure across Canada.
The lack of a truly competitive challenger means that Canada's reputation as a staid, low-momentum market has not altered and, as BMI's Developed Markets Risk/Rewards Indices show, it lacks appeal to many potential investors, particularly those whose business plans rely heavily on capital-intensive infrastructure.