BCE Acquisition of MTS Could Open the Door to More Consolidationby
Approval of merger would end years-long four-player policy
Quebecor, Shaw waiting in the wings to see final decision
BCE Inc.’s proposed C$40-a-share acquisition of Manitoba Telecom Services Inc. may open the door to renewed consolidation in the Canadian wireless market and upend the competition policy the previous government fought for years to implement.
Montreal-based BCE agreed to buy MTS for about C$3.1 billion ($2.5 billion) in cash and stock Monday, paying a 22 percent premium to MTS’s closing price of C$32.84 on Friday. BCE said it will sell one third of MTS’s subscribers to Telus Corp., another one of Canada’s three biggest wireless carriers.
The deal presents a test to Prime Minister Justin Trudeau’s months-old Liberal government: continue the policy of his Conservative predecessor, which pushed to create four wireless competitors in each market, or take a new path and let BCE consolidate.
“This would set a significant precedent, as it would reduce Manitoba to a three-player wireless market from four,” Aravinda Galappatthige, an analyst with Canaccord Genuity Corp., said in a note to clients. Dropping the four-player requirement could also give a green light to Quebecor Inc. to sell its wireless spectrum outside Quebec, or even let Shaw Communications Inc. exit the wireless market by selling Wind Mobile to another carrier, he said.
That would shake up the years-long policy of the Conservative government, which gave up hundreds of millions of dollars in potential government revenue by subsidizing spectrum sales to new entrants to prop them up and increase competition.
The rest of the industry is watching to see how the government responds, David Heger, an analyst with Edward Jones & Co., said in a phone interview. Wireless competition isn’t likely to be as big an issue for the Liberal government as it was for the last one, he said.
“It’s probably not the biggest priority for this current government considering the economic situation in Canada,” Heger said. With commodity prices lower than they were for much of the last decade, the government’s agenda includes increasing infrastructure spending and helping build out a more innovation-focused economy.
If the deal goes through without any changes, it could prompt Quebecor to flip the spectrum it bought at a subsidized price in 2014 to another carrier, Heger said.
The deal will face scrutiny from the Canadian telecommunications regulator, the Competition Bureau and the minister of Innovation, Science and Economic Development, Navdeep Bains.
“Of course we want more competition, more choice and more availability of service,” Bains told reporters at Canada’s Parliament on Monday. A spokesman for his office declined to comment further on the Manitoba Telecom deal.
“Expect the deal to pass regulatory hurdles,” Michael Rollins, an analyst with Citigroup, said in a note to clients. Selling some of MTS’s subscribers to Telus means no one company would have more than 50 percent market share, he said.
That would potentially make the market more competitive than it is now, with subscribers split between Rogers, Telus and BCE rather than MTS dominating the province’s wireless sector, MTS Chief Executive Officer Jay Forbes said in an interview.
BCE plans to spend C$1 billion building higher-quality wireless and landline networks across the province over the next five years. That’s C$100 million more than MTS was planning to spend independently, Forbes said in an interview.
The extra spending will be “welcomed” by regulators, Citigroup’s Rollins said.
BCE Chief Financial Officer Glen Leblanc said he expects the deal to take nine to 12 months to close. Until then, the industry will have to wait and see, Canaccord’s Galappatthige said.
“We have heard very little from the new Liberal government on telecom policy, particularly on the matter of wireless competition,” Galappatthige said.
“Against that backdrop, making a call on the regulatory outcome is tricky.”