Quebecor Seen Thriving as Verizon Wireless Threat Fades
Quebecor Inc. (QBR/B), the best performing mobile-phone provider in Canada, is poised to be one of the biggest winners in a government auction of wireless airwaves now that Verizon Communications Inc. (VZ) has said it doesn’t plan to expand north.
While Canada’s three largest carriers, Rogers Communications Inc. (RCI/B), BCE Inc. (BCE) and Telus Corp. (T), can only acquire one block each of airwaves in an auction of wireless spectrum this month, Quebecor has no limits. With New York-based Verizon backing away from the Canadian market, Quebecor will face fewer challenges from competitors in acquiring the spectrum it needs to feed data-hungry smartphones and tablets. Verizon Chief Executive Officer Lowell McAdam said in an interview yesterday the company had no interest in expanding to Canada.
“If Verizon doesn’t show up, they’re actually in a very strong position to buy a block of spectrum that will not be very expensive,” Maher Yaghi, an analyst at Desjardins Securities Inc., said of Quebecor. “Wireless is currently providing them with a nice growth platform.”
Canadian telecommunications stocks have tumbled since May on concern that the largest U.S. carrier will expand to Canada by entering the wireless auction on Jan. 14, and buy a smaller Canadian company such as Wind Mobile.
Quebecor rose 3.2 percent to C$23.29 at the close in Toronto today. BCE, Rogers and Telus also soared.
Before today’s gains, Quebecor, whose Videotron unit offers mobile-phone services in Quebec, had dropped 1.9 percent since June 17, when Verizon said it’s interested in buying Wind Mobile. That compared with a 9.5 percent drop for Rogers, a 7.5 percent decline for Telus of Vancouver and 2.4 percent for BCE.
Verizon confirmed yesterday it will purchase Vodafone’s 45 percent stake in Verizon Wireless in a $130 billion transaction that gives it full control of the most profitable U.S. mobile-phone carrier.
Including dividends, Quebecor stock has returned 29 percent over the last 12 months before today, at least three times more than its three bigger Canadian competitors. Among cable providers, Quebecor’s performance is second only to Cogeco Cable Inc. (CCA) of Montreal, which has returned 35 percent.
Quebecor would have been better insulated than its larger rivals since Verizon would have had to build a network from scratch in Quebec or rely on roaming agreements with other companies even if it had acquired a carrier such as Wind Mobile or Mobilicity, Andrew Calder, vice president of global research at RBC Capital Markets, said in an Aug. 28 phone interview. Wind, Mobilicity and Public Mobile, another small carrier, don’t have wireless networks in Quebec.
Verizon’s interest in a northern toehold triggered a national lobbying campaign by BCE, Rogers and Telus to change the auction rules. They say the rules favor foreign carriers, which don’t face bidding restrictions in the spectrum auction. The government has said it will block purchases of small firms that curb competition, making it difficult for the largest Canadian carriers to buy companies like Wind. The government has rejected the calls from the carriers, saying it wants to promote competition and lower prices.
Quebecor Chief Executive Officer Robert Depatie said on an Aug. 8 conference call with analysts that Verizon’s entry would have a “catastrophic” effect on regional wireless providers. Still, the company didn’t join the lobbying campaign by taking out newspaper or television ads, as its bigger competitors did. Quebecor publicly lobbied against Montreal-based BCE’s C$3 billion ($2.84 billion) acquisition of Quebec broadcaster Astral Media Inc., holding meetings with more than 50 government officials.
Depatie told analysts his company was “somewhat” protected from Verizon’s entry by spectrum holdings it acquired in 2008 and an agreement with Toronto-based Rogers to share the cost of building and operating a faster network. Quebecor doesn’t face the same restrictions as BCE and the other larger companies because Quebecor doesn’t have as much market share.
Quebecor spokesman Martin Tremblay didn’t respond to a phone call and e-mail seeking comment.
Verizon’s decision not to enter Canada may benefit Quebecor by lowering the company’s cost of acquiring airwaves. Spectrum licenses allow companies to use portions of a nation’s radio frequencies to transmit voice calls and Internet access to devices such as phones and tablets. Gaining more licenses gives companies more capacity to offer faster speeds and handle higher volume.
Quebecor’s wireless operations, introduced in 2010, have helped offset slowing growth in the Montreal-based company’s cable business and falling revenue in its news division. The company had 451,100 mobile subscribers at the end of June, up 30 percent over the previous year.
Sun Media Corp., Quebecor’s publishing unit, said in July it will close 11 newspapers and cut 360 jobs in a move to save C$55 million a year.
“That Videotron asset really is a gem,” said Stephen Groff, a portfolio manager at Cambrige Global Asset Management, a unit of CI Investments Inc. that manages over C$7 billion. “Quebec is a unique marketplace, and having the special French content mixed with the cable offering can give you a good bundled play.”
Quebecor’s ratio of net debt to earnings before interest, taxes, depreciation and amortization is the second highest among Canadian wireless and cable companies, next to Cogeco Cable. Chief Financial Officer Jean-Francois Pruneau told analysts Aug. 8 the company has the “financial flexibility” to buy spectrum in the auction, which will be carried out in January.
The company paid C$555 million to acquire 17 airwave licenses in the government’s last sale in 2008. The licenses include rights in Toronto and other parts of Ontario, the country’s most populous province. Companies must submit deposits for the January auction by Sept. 17.
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