Canada Wireless Auction in Disarray After Wind Pulls Out

Canada’s efforts to boost competition in the wireless industry are in disarray after the largest of the country’s new operators pulled out of a spectrum auction on the eve of the bidding.

Wind Mobile yesterday withdrew from the auction that begins today after its principal backer, Amsterdam-based VimpelCom Ltd. (VIP), decided not to fund its bid, Wind Chief Executive Officer Anthony Lacavera said in an e-mail. Wind, which has more than 650,000 subscribers in Canada, said yesterday dropping out of the auction leaves it with a spectrum shortfall it must address.

The mobile-phone company’s exit ruins the government’s plans to open the market to more competitors, said David Heger, a St. Louis-based analyst with Edward Jones & Co.

“It really just leaves the three big players and that’s it,” Heger said yesterday in a phone interview.

The federal government has sought to increase competition in the wireless industry by limiting the three largest carriers, BCE Inc. (BCE), Telus Corp. (T) and Rogers Communications Inc. (RCI/B), to one block of airwaves each. With the departure of Wind, there is now the risk there will be no bidders for a fourth block in some markets including British Columbia and Ontario, Canada’s biggest province, Heger said.

Rogers rose 2.7 percent to C$48.31 at 10:34 a.m. in Toronto, the most since September. BCE gained 0.7 percent to C$46.72 and Telus advanced 1.6 percent to $37.37. VimpelCom rose 3 percent to $12.61 on Nasdaq, its biggest gain since October.

Highly Prized

VimpelCom decided not to back Wind in the auction “as we remain in discussions with the shareholder with majority voting rights and the government to craft a path forward to develop Wind Canada as a strong fourth player in Canada,” VimpelCom said in an e-mailed statement. The shareholder VimpelCom is referring to is Lacavera.

Patricia Trott, a spokeswoman for Toronto-based Rogers, declined to comment, saying government rules don’t allow any of the bidders to talk about the auction.

“Whether to participate in the spectrum auction is up to the individual companies,” Jake Enwright, a spokesman for Industry Minister James Moore, said in a statement yesterday. “We do not comment on their internal business plans.”

The auction is for airwaves in the 700-megahertz frequency, prized because it allows carriers to more easily stream data-heavy content in densely populated areas. BCE, Telus and Rogers control more than 90 percent of the nation’s wireless subscribers.

Lower Proceeds

Wind Mobile was expected to buy blocks in B.C., Alberta and Ontario, said Dvai Ghose, a telecommunications analyst with Canaccord Genuity Group Inc.

The Canadian government’s efforts to stir competition was already stymied after Verizon Communications Inc. (VZ), the largest U.S. carrier, said on Sept. 2 it wouldn’t bid in today’s auction. New York-based in Verizon said in June it was interested in entering the market. Had it gone ahead, the auction rules would have allowed it to buy two of four blocks of spectrum in each region, while the Canadian incumbents would only have had access to one each.

Canada’s auction would fetch C$8 billion, based on calculations of relative prices in other U.S. auctions, Bloomberg Industries predicted in July. The U.S. government raised $19.6 billion in 2008 when it sold 700-MHz spectrum.

Yesterday’s news leaves the 700-MHz auction poised to earn the Canadian government far less, Neeraj Monga, an analyst at Veritas Investment Research Corp. in Toronto, said. He had previously estimated the auction would generate C$2.8 billion to C$3.5 billion in revenue. Revenue will be much lower, he said yesterday, “maybe half of that.”

Quebecor Expansion?

Lower revenue for the government means bigger savings for BCE, Telus and Rogers, Monga said.

Wind pulling out is a “positive for shareholders of the big three,” said Monga. “They could save a bundle on account of Wind’s withdrawal.”

Aside from BCE, Telus and Rogers, seven other operators are bidding on spectrum, including regional companies such as Montreal-based Quebecor Inc. (QBR/B)

Without Wind, it’s more likely that Quebecor will buy spectrum outside of the French-speaking province, Phillip Huang, a Toronto-based analyst for Barclays Plc, said in a note to clients.

“If Quebecor locked up the fourth prime block licenses in all top four markets, it would make it more difficult for a foreign strategic player to enter Canada,” Huang said. That would benefit Rogers, Telus and Bell, he said.

Next Auction

The new spectrum is key to the carriers’ plans to give customers faster speeds for surfing the Web and watching videos. More than 70 percent of customers at Canada’s three largest carriers use a smartphone, according to data compiled by Bloomberg Industries.

Industry Minister Moore said last week Canada will sell another segment of spectrum in April 2015, this time in the 2,500-MHz range.

To contact the reporters on this story: Gerrit De Vynck in Toronto at gdevynck@bloomberg.net; Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Jacqueline Thorpe at jthorpe23@bloomberg.net

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