Telus Corp. (T)’s purchase of mobile-phone provider Mobilicity and the potential sale of another new entrant, Wind Mobile, is casting doubt on Canada’s ability to increase competition in the wireless market.
Telus said yesterday it agreed to buy Mobilicity, spending C$380 million ($373 million) to eliminate the company’s debt. In exchange, it would get 250,000 subscribers, plus spectrum for which Mobilicity paid C$243 million in 2008 -- an asset Telus can use to accommodate data-hungry smartphone users.
The purchase comes five years after the government auctioned off C$4.25 billion worth of wireless airwaves, setting aside a portion for new startups in a bid to break the dominance of Rogers Communications Inc. (RCI/B), BCE Inc. (BCE) and Vancouver-based Telus. The government may announce rules in the next month for an auction of 700 megahertz spectrum, sought after for its ability to transmit data in built-up areas.
“If clear additional policy incentives are not there for new entrants it will be a failed experiment,” Neeraj Monga, an analyst with Veritas Investment Research in Toronto, said in a phone interview yesterday. The government may write rules that make it easier for new competitors to finance the airwaves they buy and reduce the cost of wireless infrastructure, he said.
The industry ministry is facing “its last chance to enable sustainable competition in the wireless marketplace,” Monga said.
Telus stock was little changed at C$37.39 at the 4 p.m. close in Toronto. It climbed 15 percent this year. Twelve of 20 analysts who track Telus rate it a buy, while the other eight say hold the stock.
Even if government rules prohibit the resale of Mobilicity’s airwaves until next year, Telus is willing to wait to secure valuable assets in its fight with bigger rivals Rogers and BCE, Maher Yaghi, an analyst at Desjardins Securities, said by phone yesterday.
“If you can keep a good chunk of those subscribers, then you have a good deal in the works,” said Yaghi, who is based in Montreal and rates Telus a buy. “This is a positive for Telus.”
New wireless operators Mobilicity, Wind Mobile and Public Mobile have struggled to make inroads against the 90 percent market share Rogers, Telus and BCE command. Wind Mobile, the largest of the three new entrants, paid C$442 million for airwaves in 2008. It’s now being considered for a possible sale by its backers, a person with direct knowledge of that process said, asking not to be named because the information is private.
Rogers agreed on Jan. 15 to buy unused spectrum from Shaw Communications Inc. (SJR/B) for about C$300 million. BCE CEO George Cope said last week he wouldn’t let a recent spate of acquisitions of media companies stop him from pursuing other deals.
“If something changes in the wireless industry, we’ll be a participant,” Cope told reporters on May 9. “We’re certainly not going to step aside and ever hand over anything to our competitors.”
The Rogers-Shaw deal has yet to be approved by Industry Minister Christian Paradis. Yesterday, he said he will scrutinize the Telus-Mobilicity deal, which has to be approved by both the Competition Bureau and Paradis because of the spectrum implications.
“The Shaw agreement is subject to regulatory approval and we’ll work through the government process,” Patricia Trott, a Rogers spokeswoman, said. Rogers’s policy is not to comment on mergers and acquisitions, she said.
“Ultimately it will be consumers and the capital markets that decide how many wireless players there will be in Canada,” Jacqueline Michelis, a spokeswoman for BCE, said in an e-mail.
“Our government has taken significant action to promote competition in the wireless sector,” Paradis said yesterday in an e-mailed statement. He has said the government would like to ensure there are at least four wireless providers in each region of the country.
Telus, which is vying with BCE to be Canada’s second-largest carrier behind Rogers, said yesterday that it expects an “expeditious legal and regulatory review in view of the current circumstances Mobilicity is facing.”
“I am confident Telus will look after our employees and our customers, mitigating any disruption to their service, while offering the best outcome for all stakeholders,” Stewart Lyons, Mobilicity’s president, said in a separate statement.
Mobilicity approached Telus, said a person with direct knowledge of the carrier’s plans. While consolidation may appear to be at odds with government strategy, offering to protect Mobilicity’s customers may appeal to the government’s desire to be consumer-friendly, said the person, who asked not to be named because the plans are private.
“A lot of people understand the implications of running out of money,” said Desjardins Securities’ Yaghi. “They had to expect something -- a merger or a sale.”
While some might see the government’s strategy to boost competition as having failed, Quebec offers an example where it’s worked better, Yaghi said. In the French-speaking province of 8 million, only Quebecor Inc. (QBR/B)’s Videotron bought spectrum to challenge Montreal-based BCE.
“Now you’re seeing prices coming down at the low- and the high-end,” he said. In Ontario, the most populous province, “if just Wind Mobile had showed up and captured Public Mobile’s and Mobilicity’s subscribers, maybe we wouldn’t be in the same place as we are now,” he said.
Greg MacDonald, an analyst at Macquarie Capital Markets in Toronto, says Telus’s purchase of Mobilicity will probably be rejected by regulators.
“We do not believe this deal will get Industry Canada approval on concerns over spectrum concentration and as such we would highly discount its chances of success,” he said in a note yesterday.
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