The future viability of Montreal-based Microcell Telecommunications Inc. has been called into question, after the company announced it may not be able to meet the conditions necessary to secure a $264 million line of credit.

The announcement was made recently in conjunction with the wireless-phone company’s second quarter earnings release. In a news release, the company stated that it is unsure if it can meet all the mandatory conditions to secure additional credit, now or in the future. In order to gain access to $264 million, Microcell must meet all the conditions, but if it fails the company says it could default on its long-term debt agreements. The company’s financial statements show it is carrying about $1.9 billion in long-term debt.

“Given this context, there is significant uncertainty regarding this company’s ability to continue as a going concern,” read the release.

Despite its current difficulties, Jeremy Depow feels there is a place in the market for the wireless phone company.

“There is a place for them (Microcell), but they’ll need to refocus on what markets they are going to serve,” stated the Ottawa-based telecom analyst with Yankee Group Canada. “Traditionally, Microcell has focused on the youth market and tried to sell a lot of prepaid services, which is quite difficult in Canada given the low margins that carriers have to deal with.”

Jacques Leduc, Montreal-based chief financial officer (CFO) and treasurer for Microcell, said his firm has a presence in many markets.

“Microcell has a very strong brand in the mass market, we also have various products and service that attractive not only to the mass market, but also the corporate and small business,” he said.

Brownlee Thomas, Montreal-based senior telecom analyst for Giga Information Group, described Microcell’s future as “very precarious.”

“As soon as [Rogers AT&T Wireless] made that announcement that they were going global system for mobile communications (GSM) and general packet radio service (GPRS), I thought Microcell’s days are probably numbered,” she said. Thomas was referring to Rogers AT&T Wireless’s buildout of its national digital wireless network, which in June of this year reached 93 per cent of the population, making it as extensive as the company’s analogue network.

If Microcell exits the wireless service market customers will probably face higher service costs because it has been the “strongest pressure on prices,” Thomas added.

A positive sign for Microcell was that total revenues for the second quarter rose $12 million compared to the same period a year ago. But it did not offset expenses that caused the company to report a net loss of

$199.2 million, during the three-month period ending June 30.

The number of new customers increased by 43,000 in the quarter, compared with 63,200 during the same period last year.

“We have a good quality network and good phones with GSM, we have the capability to satisfy needs of different market segments, and we have a certain number of corporate and small business as part of our subscriber base,” Leduc stated. “We have provided quality service in the past and currently provide that same quality service to our customers, and the company at the end of second quarter has liquidity of $122 million.”

A special committee comprised of board of director members has begun considering various plans of action that could include debt restructuring, recapitalization, potential capital infusion or other types of transactions, with no set timetable to complete this task, according to Leduc.

“The first step in a process like this is to look at the value of different alternatives and initiate discussion with the groups of secured lenders,” he said.

Depow said he felt the company will need some outside investment to continue operations while it considers its options.

“In order for them to survive they are probably going to need some investment from the outside to keep them going, while they begin looking more closely at markets that can turn out more revenue, such as the business market,” he said.

The small and medium business market would be a good target for Microcell, because of its 2.5-generation network with data speeds that would be attractive to some businesses, as well as the GSM network that can provide service in Europe with certain roaming agreements, according to Depow.

Thomas agreed the small business market is the one the company should focus on. But a missed opportunity by Microcell to include Blackberry service like its competitors has hurt its ability to move into the enterprise market, she added.

Microcell sells under the Fido brand and is the smallest of the four major Canadian wireless-phone companies.