Canada wireless bids raise bar for Big 3 carriers

TORONTO (Reuters) - Canada’s big mobile-phone carriers have spent much more than expected in the government’s auction of new wireless airwaves, and that could leave them more vulnerable when any newcomers enter into the market.

So far, the auction has raised C$4.2 billion ($4.1 billion) in proceeds as competitors duel for the rights to airwaves in markets across the country. Bids are still trickling in, but the auction is expected to end soon.

The amount raised is already more than double the initial estimates. The Big Three -- Rogers Communications Inc RCIb.TO, Telus Corp T.TO and BCE Inc BCE.TO -- have been forced to bid more aggressively than analysts had expected in an expensive effort to expand their networks or limit the reach of any newcomers.

The level of spending in the auction “is going to place additional pressure on all players -- Rogers, Bell and Telus, as well as the smaller regional carriers that want to come into the market -- to find creative ways to deliver next-generation services without breaking the bank,” said Carmi Levy, an industry analyst at AR Communications.

“It raises the stakes for everyone involved,” Levy said, referring to the bidding process. “The prices for spectrum went way beyond what anyone anticipated, but at the same time it showed that no one was willing to back away from the table.”

Rogers, which owns Canada’s biggest wireless company, has C$949 million in committed high bids. Telus is next highest at C$847.5 million, and BCE, Canada’s biggest phone company, is third with about C$729 million committed.

“Clearly, the spending on spectrum has turned out to be much higher than expected,” National Bank Financial analyst Greg MacDonald wrote in a note to clients. “In fact, in the case of Rogers, it looks like it will end up spending roughly C$550 million or $0.85 (Canadian) more per share than we had originally expected.”

MacDonald cut his price target on the stocks of Rogers and Telus because of how much they are spending, dropping Rogers to C$56 from C$58 and Telus to C$47 from C$50.

If the carriers spend too much, they will be left with less to spend on marketing their services once the new entrants come on stream.

Telus will likely face at least two major competitors -- Shaw Communications Inc SJRb.TO and privately held Globalive Communications -- in its core Western Canadian market, MacDonald wrote.

This means “the competitive environment will begin to heat up in the one to two-year time frame,” he added.

Globalive, which currently offers cheap long-distance service, may also come knocking on Rogers’ door in its main Southern Ontario market.

Even so, MacDonald said, Rogers is better positioned to tackle new competition than Telus, which he said is the most vulnerable of the Big Three incumbents.

($1=$1.01 Canadian)

Reporting by Wojtek Dabrowski; Editing by Frank McGurty