Providence Said to Be Exploring Offer for Wind Stake

Providence Equity Partners Inc. is considering acquiring a stake in Canadian wireless provider Wind Mobile, people with knowledge of the matter said, as Canada continues its effort to create a fourth national carrier.

The people asked not to be identified because the information is private.

Providence, with a track record of investing in wireless communications, could provide Wind Mobile with the backing needed to acquire spectrum so it can expand. The Canadian government has been pushing aggressively for another national provider, saying the best way to reduce wireless rates and improve service is through added competition with Rogers Communications Inc., BCE Inc. and Telus Corp.

The federal government’s latest effort on that front was to announce a surprise wireless spectrum auction that will be held in March 2015, in which 60 percent of the new block of spectrum would be reserved for smaller players holding less than 10 percent of the national market and less than 20 percent of market share among provincial wireless subscribers.

Wind Mobile Chief Executive Officer Anthony Lacavera said last month the company needs to acquire more mobile-phone spectrum to take on Canada’s major wireless carriers. He has also said Wind needs a C$400 million to C$500 million ($461 million) investment to upgrade its network to long-term evolution technology, or LTE.

Market Share

Wind Mobile had 735,000 subscribers at the end of May. While that’s up from 650,000 in December, it falls short of the company’s target for 1.5 million in its first three years after beginning operations in December 2009. It has its own network in parts of Ontario, Alberta and British Columbia and network-sharing partnerships with Rogers in other areas.

Wind Mobile’s customers account for less than 3 percent of Canada’s wireless market. About 90 percent of Canadian consumers are covered by Rogers, BCE and Telus.

Lacavera’s AAL Corp. controls 35 percent of the equity and two-thirds of the voting rights to Globalive Wireless Management Corp., which operates in Canada under the Wind Mobile brand. The remaining equity and voting rights are controlled by Cairo-based Global Telecom Holding SAE, formerly known as Orascom Telecom Holding SAE. VimpelCom Ltd. has a controlling interest in Global Telecom Holding.

VimpelCom Stake

In January 2013, Orascom entered into an agreement to buy out Lacavera and take control of the company. It eventually withdrew its bid in June of that year, with the the Globe and Mail reporting then that federal officials were prepared to block the deal for unspecified national security concerns. VimpelCom has since withdrawn funding for Wind and wrote down Wind’s value to zero.

VimpleCom CEO Jo Lunder said in May that the company may swap its Wind stake for a larger operator in Canada or sell it.

Andrew Cole, a spokesman for Providence, declined to comment, as did Cheryl Wright, a spokeswoman for VimpelCom, and Robert Sauer, a spokesman for Wind Mobile.

Providence, the Rhode Island-based private-equity firm, was an investor in Calgary’s MetroNet Communications Corp. before it was acquired by AT&T Canada Corp. in 1999. It was also part of the group led by Ontario Teachers’ Pension Plan that put together a bid for BCE in 2007 before it was terminated the next year. Providence is an owner of Canadian data center operator Q9 Networks Inc., in partnership with Ontario Teachers’ and Madison Dearborn Partners LLC.

Quebecor’s Plans

Quebecor Inc. has emerged as a likely candidate to consolidate the other smaller players in the Canadian wireless market, after CEO Pierre Dion said he was prepared to push ahead to try to become the fourth carrier with its Videotron brand. That plan would involve “major investments” in spectrum as well as consolidation with willing partners, Quebecor said.

Jeff Fan, an analyst with Toronto-based Scotia Capital Inc., said Quebecor holds the strategic cards and will likely wait for the right conditions before expanding nationally. Consolidating Wind Mobile and struggling carrier Mobilicity, which is under credit protection, would be “critical” for its success, he said in a July 15 note to clients.

It’s not clear whether Providence has any interest in the Mobilicity assets, according to the people familiar with the situation.

Exit Strategy

Dvai Ghose, a Toronto-based analyst at Canaccord Genuity Group Inc., estimates it would cost roughly C$600 million to acquire the assets of both Wind and Mobilicity. Another C$647 million would be required to purchase the necessary spectrum, he added.

A major hurdle for any private-equity player interested in Wind would be the lack of a clear exit strategy, he said.

While carriers including Microcell Telecommunications Inc. and Clearnet Communications Inc. have been snatched up by incumbents, Canada has blocked Telus’s proposed acquisition of Mobilicity three times, saying it won’t let the company take control of its smaller competitor’s spectrum, making that route unlikely.

Bill Wolfe, a Toronto-based analyst with Moody’s Investors Service Inc., said the lack of a clear exit may be a deterrent because of shorter investment timelines for buyout firms.

“You have to have a pretty airtight investment thesis at the outset,” Wolfe said in an interview. “There’s no instant gratification in this. It’s going to take many years to build a successful business and a lot of money.”

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