Canada Disallows Telus’s Purchase of Mobilicity Spectrum

Canadian Industry Minister Christian Paradis blocked Telus Corp. from acquiring the airwave licenses of smaller competitor Mobilicity as part of his government’s efforts to safeguard consumer choice.

Paradis’s decision throws Telus’s C$380 million ($368 million) takeover of Mobilicity into doubt. The deal, announced May 16, would have allowed Vancouver-based Telus, Canada’s third biggest wireless operator, to absorb the smaller company’s wireless spectrum, prized by operators seeking more airwaves to satisfy data-hungry subscribers.

Canada auctioned spectrum in 2008, setting aside for five years some licenses for smaller players to boost competition in a wireless industry dominated by BCE Inc., Rogers Communications Inc. and Telus, which still control about 90 percent of the market. After the five-year moratorium ends, the government will continue to block on a “case-by-case” basis any spectrum sales it deems would undermine competition, Paradis said in the statement today from Ottawa.

“Our government is clearly committed to encouraging competition in the wireless market,” Paradis said, adding the decision was based on Telus’ application to buy Mobilicity before the spectrum moratorium ends next year, leaving the door open for Telus to resubmit a bid.

‘Disappointing’ Decision

Paradis has said he wants four major wireless providers in every region of the nation. The minister said today he won’t allow large operators to buy any spectrum reserved for smaller players before the moratorium ends.

Ted Woodhead, senior vice-president, regulatory affairs at Telus, said he’s “disappointed” with the decision.

“We’re going to take this back and look at it and consider our options,” he said, adding that he didn’t think the door was permanently closed on a Telus-Mobilicity deal.

New operators Mobilicity, Wind Mobile and Public Mobile have struggled to make inroads against the three largest carriers. 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.

‘Inevitable’ Bankruptcy

Tony Lacavera, Wind Mobile founder and CEO, said he welcomed the decision because it supports the notion of a fourth carrier. Wind now has over 600,000 subscribers and secured more than half of the industry’s net new subscribers in the fourth quarter of last year, Lacavera said.

Dvai Ghose, an analyst at Canaccord Genuity Corp., is more pessimistic, saying in a research note that it’s now “inevitable” Mobilicity will go bankrupt and Wind Mobile and Public Mobile, may not survive.

“While it looks like incumbents will not be allowed to buy new entrants, it is not at all clear how independent new entrants can survive, especially if potential investors are being told that they will not be allowed to sell new entrants to incumbents,” Ghose said, adding that Telus remains his “favored” wireless company.

Rogers, Canada’s largest wireless operator, struck a deal in January with Shaw Communications Inc. that gives it an option to buy unused spectrum from Shaw for about C$300 million. Current rules prohibit the transfer of ownership of spectrum purchased in the 2008 government auction before 2014.

Telus stock rose 21 cents, or 0.6 percent, to C$36.00 at 3:10 p.m. in Toronto. Rogers dropped 32 cents, or 0.7 percent, to C$46.45.

Asked about the Rogers transaction, Paradis said the company has yet to apply for a review of the spectrum transfer.

“We’re in the process of reviewing what Industry Canada announced,” Stewart Lyons, president of Mobilicity, said in an e-mailed statement. “We’ll be speaking with Telus and other stakeholders and will have more to say in due course.”

Today’s decision means the start of Canada’s next spectrum auction is delayed to Jan. 14, 2014, from an initial date of Nov. 19, Paradis said.

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