Wind Mobile is in talks to buy fellow Toronto-based wireless startup Mobilicity, according to a report Tuesday by Bloomberg News

Report: Wind, Mobilicity in purchase talks
The Canadian telecom industry is abuzz with rumours.
 
First came a report Tuesday afternoon that Wind Mobile is in talks to buy fellow Toronto-based wireless startup Mobilicity, according to a report Tuesday by Bloomberg News. However, the report doesn’t detail how serious the talks are.
 
On Wednesday morning Lacavera emailed Network World Canada that he won’t comment on “merger speculation.” However, he did say that any consolidation depends on whether the Harper government relaxes the telecom foreign ownership rules and if it sets aside spectrum for new wireless entrants in upcoming spectrum auctions.
 
If Wind and Mobilicity come together, they would be better placed to slow costly promotions and better compete against the big three cellular companies, BCE Inc.’s Bell Mobility, Rogers Communications and Telus Communications Co., who combined have about 90 per cent of the wireless market.

They would also be in a better position to bid for spectrum in upcoming spectrum auctions.

While the two startups have different strategies – Wind has always said it wants to be a national carrier, while Mobilicity wants to concentrate in cities – they have a number of things in common.

Both offer service in Toronto, Vancouver, Calgary, Edmonton and Ottawa, so coming together would mean the ability to increase subscribers in each city.

Both use spectrum in the AWS band, so their frequencies could easily be combined, which is vital when subscribers are using bandwidth-hogging data.

On the other hand, their networks use different equipment. Wind’s providers are Alcatel-Lucent and Nokia Siemens Networks, while Mobilcity’s was built and is operated by LM Ericsson. That poses more operational problems than technical. It is also inefficient. At some point management will have to decide which equipment provider will be the company’s future.

Some industry analysts urged the new entrants to work together and build a shared network to avoid such duplication.
Any coming together of rivals also obviously raises the question of valuation. Wind, with an estimated 400,000 subscribers, spent $442 million buying spectrum in the 2008 auction, and has spent hundreds of millions more on its network.

Mobilicity, with about 250,000 subscribers, spent $243 million on spectrum. Because Ericsson is managing its network Mobilicity may be paying less than Wind in network costs.

Both startups have shareholders who would want to see some value for the money they’ve put in
Wind’s parent company Globalive Holdings, is partly owned by Amsterdam-based VimpelCom Ltd, which has provided virtually all of the financing for the Canadian company. For a take-over Wind would have to rely on VimpelCom again.

Mobilicity is a partnership between Toronto entrepreneur John Bitove through his holding company Obelysk, and Quadrangle Capital Partners, a U.S.-based equity company.

 
Wind was created by the dream of Lacavera, a Toronto telecom entrepreneur, to get into the wireless business when the Harper government created rules for the 2008 spectrum auction that encouraged new entrants to bid. Lacavera’s companies, held under the Globalive banner, included dial around service Yak Communications, long-distance and a small independent Internet provider.

After fruitlessly hunting for Canadian financing, he met Egyptian telecom entrepreneur Naguib Sawiris, whose Orascom Telecom Holdings and Weather Investments owned or invested in a number of wireless companies in Europe, Asia, Africa and the Middle East. One is Wind Italy.

Orascom agreed to invest in Globalive Wireless Management Corp., with Lacavera as its chairman. Eventually, due to the level of its investment the Canadian Radio-television and Telecommunications Commission (CRTC) ruled that Globalive Wireless Management wasn’t Canadian-controlled. That decision was overturned by the Harper government, and in December, 2009 Wind Mobile opened its doors.
Wind still has trouble finding Canadian investors, so a deal with Mobilicity that would see VimpelCom’s shareholdings reduced could be a solution.

By comparison Mobilicity – originally called Data and Audio-Visual Enterprises Wireless – had a relatively straightforward launch in May, 2010.

However, since their launches neither company have hit their subscriber targets. The first hint that all wasn’t well came in June when Lacavera replaced Ken Campbell as Wind CEO. Then last month Bitove replaced Mobilicity CEO Dave Dobbin with COO Stewart Lyons.

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