On the eve of the start of the billion dollar spectrum auction Wind Mobile has withdrawn as a bidder — to the surprise of the telecom industry — because its major financial backer won’t give it money to participate.
The move was posted Monday afternoon on Industry Canada’s 700 MHz spectrum auction Web site, which suddenly listed Wind’s parent, Globalive Wireless Management Corp., as pulling out of the auction.
Bidders had until noon Monday to withdraw and still get their initial deposits back. If Wind had wanted to bid on all regions across the country as a national carrier, that would have been $160 million.
The move means that incumbents Bell Canada, Rogers Communications and Telus Corp. don’t face competition from existing carriers in fighting for spectrum in three key markets: Ontario, Alberta and British Columbia. Mobilicity is in protection from creditors and can’t afford to bid, and Wind just withdrew.
“Wind Mobile’s shareholder VimpelCom decided not to fund Wind Mobile’s participation in this auction,” the company said in a statement. However, it said VimpelCom “remains in discussions with the federal government and Wind Mobile’s other shareholder, AAL Holding, to craft a path forward that will continue to build Wind Mobile as a strong competitor in the Canadian wireless market.
“From Wind Mobile’s perspective, there will be no change in our day-to-day business as a result of this decision. Wind Mobile remains firmly committed to serving our customers and we are determined to continue to be a vital influence on mobile competition in Canada. In a few short years, we’ve grown into the country’s fourth wireless carrier, with more than 650,000 subscribers, and we’re looking forward to bringing True Mobile Freedom to even more Canadians in the future.”
In a Tweet to subscribers, Wind chairman and CEO Anthony Lacavera tried to reassure his 650,000 subscribers: “It is business as usual at Wind – we do need more spectrum so I am not happy we had to withdraw from 700 but onwards and upwards for here!”
VimpelCom issued a statement saying it decided not to fund Wind in the auction because it is in discussions “with the shareholder with majority voting rights” — meaning Lacavera and AAL Holding — and Ottawa on a way to “craft a path forward to develop Wind Canada as a strong fourth player.”
The move was unexpected because Wind had plenty of time to pull out — or not apply to bid — before now. On the other hand, because VimpelCom officials have been cool on the future of the Canadian division in their future plans there has always been questions about how much money it was willing to forward to Lacavera to bid.
Now the question is what is Wind’s future?
VimpelCom tried last year to take full control of the company but was stopped by the Harper government.
In the short term Wind will continue operations. However, as a startup it isn’t profitable yet and still needs cash just for daily operations. In addition, the division needs money to expand its network with the spectrum it already bought in the 2008 auction. Wind operates in Ontario, Alberta and British Columbia. Among the company’s unused assets are millions of dollars spectrum it holds in the Maritimes and other parts of the country it hasn’t deployed yet.
Beyond that, VimpelCom and Lacavera may be at Ottawa’s door to allow it to sell the company to one of three very willing buyers — incumbents Bell, Rogers and Telus. Financially-troubled Mobilicity is already trying that and has been rebuffed twice. But if Mobilicity and Wind say they are the only buyers, what will Ottawa do?
Wind’s withdrawal from the auction makes Ottawa’s 2007 dream of having a number of new foreign-supported carriers challenge the big three look even more hollow than ever: Shaw Communications decided against building a wireless network after spending $189 million on spectrum in the 2008 auction; Mobilicity is in protection from creditors; Public Mobile is about to be sold to Telus; and Wind’s future is up in the air.
Ottawa already turned down what was thought to be one of Wind’s saviors, Accelero, when it tried to buy the Allstream division of Manitoba Telecom Services. Accelero is headed by Egyptian telecom mogul Nagib Sawiris, whose Orascom Telecom Holdings was Wind’s original financial backer. VimpelCom bought Orascom in 2010.
Lacavera had talked about getting back with Sawiris, and Accelero’s bid for Allstream was thought to be an initial move. The idea would be to marry Allstream’s national fibre optic network to Wind’s cellular network.
Industry analyst Mark Goldberg says Ottawa has been a source of problems. “Unfortunately Canadians are paying the price for … rules that are simply too unstable, inconsistent and at times incomprehensible.”
Financial analyst Dvai Ghose, head of research at Canaccord Genuity, wrote to investors that Wind’s withdrawal “is a big surprise and a major blow to the Canadian government, as Wind is the largest Canadian new entrant with 650,000+ subscribers and is the only new entrant with a foreign carrier that has financed its operations and spectrum.
“On the other hand given 1) VimpelCom’s clear indication that it wants to exit Canada; 2) Industry Canada seems to be blocking AWS new entrant sales to incumbents, even after their five-year set asides expire, and sale to an incumbent is the only obvious exit strategy for VimpelCom; 3) Industry Canada never approved VimpelCom’s application to assume control of Wind from Tony Lacavera, leaving us to wonder why VimpelCom would want to continue to finance Wind, when it does not even control the asset; 4) Wind’s results to date have been consistently underwhelming; and 5) even if VimpelCom had purchased the 4th prime block of 700 MHz at the reserve price in Western Canada and Ontario (there is now no obvious buyer of the fourth prime block in these markets), it would still have to pay over $100 million for spectrum at the reserve price and build LTE at the cost of several hundreds of millions of dollars, perhaps the announcement is not such a surprise.”
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