U.S. carrier may put off buying a Canadian startup until after January’s spectrum auction. Is it a negotiating tactic or is Verizon getting cold feet?

 

No one likes to be squeezed in business, and apparently that includes telecom giant Verizon Wireless.

According to a report in the Globe and Mail, the U.S. carrier has decided to put off its decision on buying startups Wind Mobile and Mobilicity until after January’s auction for spectrum in the 700 MHz band.

It faces two problems: Negotiating with the owners of the two startups over price, and a Sept. 17 deadline for bidders to file a five per cent deposit on the spectrum they’re willing to bid on.

Instead of buying one or both of the startups — which may cost hundreds of millions — and paying hundreds of millions in the auction, it may participate in the auction on its own, says the Globe.

Then when the auction is over it would decide on buying a carrier here.

The move could be a strategy to pressure the shareholders of Wind and Mobilicity, the Globe notes.

In a research note sent to investors last night, Dvai Ghose, head of research at Canaccord Genuity wonders if the move is tactical, or it signals Verizon is getting cold feet about coming north.

Buying a Canadian carrier before the auction could hold Verizon hostage to the expensive auction, particularly if it erupted into a bidding war and the U.S. carrier didn’t get as much spectrum as it wants. As a result, Ghose reasoned, Verizon would have to get into that bidding war seriously.

Verizon could also be hoping waiting to decide whether to expand up here lessens any risk Ottawa will at the last minute bend to pressure from incumbent carriers here to change the auction rules they say favours large foreign carriers.

On the other hand, Ghose says, that pressure also comes from two other Canadian carriers: Quebec’s Videotron and Eastlink.

Verizon may also be considering challenges it would face here if it bought Wind (and Mobilicity), including integrating and upgrading their networks, paying significant roaming fees to Canadian incumbent carriers.

Delaying a purchase after the auction also carries risks, though. There’s a five year ban on Wind and Mobilicity selling their spectrum to a Canadian incumbent carrier. That means until the second half of next year Bell, Rogers and Telus can’t make an offer. But what will happen when that ban expires for Wind and Mobilicity, which will happen after the auction?

Ottawa hasn’t been clear, Ghose notes, so it may end up in a bidding war with Bell, Rogers and Telus.

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