Quebecor Inc. (QBR/B) surged the most in more than four years after spending C$233 million ($210 million) to buy airwaves in a government spectrum auction that positions the company to become Canada’s fourth national wireless operator.
Quebecor’s Montreal-based Videotron unit bought seven licenses for 700-megahertz spectrum, prized for its ability to send data through dense urban areas, in Quebec, Eastern and Southern Ontario, Alberta and British Columbia, the company said in a statement yesterday. The auction netted the Canadian government a record C$5.27 billion.
Quebecor got the spectrum for significantly less than the average price paid in the auction, Robert Bek, a Toronto-based analyst with CIBC World Markets, said in a note to clients.
“We, for now, see this as the company being opportunistic, taking advantage of the lack of competition to secure a prized asset on the cheap with no immediate need to do anything with the asset,” Bek said.
Quebecor rose 8 percent to C$25.50 at the 4 p.m. close in Toronto, the biggest one-day gain since November 2009.
Quebecor, which began offering mobile-phone service in Quebec after buying spectrum in the last auction in 2008, is poised to emerge as a challenger to Rogers Communications (RCI/B) Inc., Telus Corp. (T) and BCE Inc. (BCE) that together account for 90 percent of wireless consumers in Canada.
“It has the ability to become a national player,” Iain Grant, president of the consulting firm SeaBoard Group, said yesterday in a phone interview from Montreal. “Possibly it would involve a name change -- Canadacor.”
Quebecor Chief Executive Officer Robert Depatie didn’t specify yesterday whether the company would use the spectrum to expand outside its home province or potentially reserve it to sell at a later date.
“With the high-quality frequencies acquired in this auction, Videotron is now well-equipped to develop its network in the years to come,” Depatie said in the statement. “We now have a number of options available to us to maximize the value of our investment.”
The government had limited bidding by Rogers, Telus and BCE to encourage new entrants and smaller players to participate and meet its goal of having four carriers in each region of the country. Industry Minister James Moore said Quebecor’s move is evidence the government’s plan is working.
“They have the capacity to be and I think that they will be,” Moore told reporters yesterday in Ottawa when asked about Quebecor’s potential to be a fourth national player.
Rogers, the country’s largest carrier, was the biggest spender in the auction that began Jan. 14, bidding C$3.29 billion for 22 licenses, accounting for more than half the total raised.
“Rogers comes out of this with the best of the beachfront,” SeaBoard Group’s Grant said. Toronto-based Rogers secured a 12-year C$5.2 billion deal in November for the broadcasting rights to the National Hockey League and the additional spectrum should help it beam more hockey programming to its smartphone and tablet users, he said.
“They’ve got a lot of hockey, now they have a lot of spectrum, I can see the two being married,” Grant said.
Rogers said the 20-year licenses it bought will help it achieve that goal. Customers “want the ultimate video experience and this spectrum will allow us to deliver just that,” Rogers CEO Guy Laurence said yesterday in a statement.
Rogers “won the most coveted spectrum position in the auction,” Phillip Huang, a Toronto-based analyst at Barclays Plc, said in a note to clients. To get it, the company paid more than three times Huang’s estimate for what it would cost, he said.
The heavy price may explain why Rogers cut its dividend growth from 10 percent to five percent in its last earnings report, Huang said. Rogers finished the day little changed at C$42.90.
Telus and BCE, Canada’s two other major carriers, spent C$1.14 billion for 30 licenses, and C$566 million for 31 licenses respectively. Both were little changed at the close in Toronto, BCE at C$47.57 and Telus at C$37.96.
Telus, based in Vancouver, said in a statement yesterday that its new spectrum will allow it to deliver better mobile broadband connectivity to its customers and improve coverage in urban areas. Wade Oosterman, the president of BCE’s Bell Mobility wireless business said what it bought will help it take its network further to “towns, rural locations and remote communities across the country.”
Observers had predicted a smaller windfall for the government after foreign bidders pulled out. New York-based Verizon Communications Inc. (VZ) said in September it wouldn’t join the auction after expressing interest earlier. Wind Mobile, Canada’s largest new operator, pulled out after its backer, Amsterdam-based VimpelCom Ltd. (VIP), decided not to fund its bid.
The results came near the top of the range of C$3.4 billion to C$5.7 billion estimated by Dvai Ghose, an analyst at Canaccord Genuity Inc. in Toronto.
The last auction in 2008 netted the government C$4.25 billion, almost triple analysts’ predictions, with the big three carriers accounting for 62 percent of the spending.
Five percent of the revenue from this auction will enter into the government’s budget each year for the next 20 years, Moore said.
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