Ottawa’s wireless strategy is on shaky ground with news that Verizon Communications is not going to bail out two of the country’s startup carriers.
Verizon said Monday it has finally clinched to buy out its British partner, Vodafone Group, for US$130 billion, giving the U.S. carrier full control over the business.
At the same time Verizon CEO Lowell McAdam told Bloomberg News that his company will not expand here. Discussion of the company’s interest in Canada, he added was “way overblown.”
With that it seems all the complaining and lobbying done by BCE Inc.’s Bell Canada, Rogers Communications Inc. and Telus Corp. alleging government policies favoured Verizon were a tempest in a teapot.
More seriously, there are questions about whether new carriers Wind Mobile and Mobilicity will have the financial backing to participate in January’s 700 MHz spectrum auction. They need to have things largely arranged by Sept. 17, when five per cent deposits are due to be paid to Industry Canada. The balance is due Oc.t 29. Depending on how much spectrum they want, the deposits could cost tens of millions of dollars.
Wind’s main financial backer, Amsterdam-based VimpelCom Ltd., has signaled it isn’t interested in Canada any more by entertaining offers for the branch. According to news reports, Verizon made a tentative $700 million offer.
However, there are others interested in Wind: Chairman and CEO Anthony Lacavera is trying to mount an offer with Naguib Sawiris, Wind’s original backer who has made an offer to buy the Allstream national data network division from Manitoba Telecom Services (MTS). And there are reports that Birch Hill Equity Partners Management has assembled an offer, although some of the money behind it is reportedly from Rogers. If the deal goes through Rogers would lease some of Wind’s spectrum. It isn’t clear, though, if Ottawa would allow that.
Meanwhile Mobilicity is in a fight with some of its debt holders. According to document filed with an Ontario court in the spring, at the end of last year it had a loss of $105 million after 31 months of operating – not unexpected for a wireless startup – and a total debt of $359 million.
Public Mobile may have found the funding it needs to carry it though the auction when in June it was bought by Toronto-based Thomvfest Seed Capital and New York-based Cartesian Capital.
If neither Wind nor Mobilicity can take part of the auction it will be a blow to Ottawa’s plan to have at least four competitors in each region of the country. Wind and Mobilicity won’t be out of businesss – they still have spectrum they bought in the 2008 auction – and can take time to right their finances and extend their networks. The government has also promised there will be an auction in the 2.5 GHz band next year. But the 700 MHz frequencies have certain propogation advantages that carriers want. And to some degree those who participate in the auction will have some bragging rights over those who don’t.
In addition, in the wireless industry a carrier can never have too much spectrum.
Bell, Rogers and Telus already face feisty competition in Quebec against cableco Videotron, which is expected to be a vigorous bidder in the 700 MHz auction. In the Martimes, Bragg Communications’ Eastlink cable only just launched service in Nova Scotia and PEI with the spectrum it bought in 2008. It hasn’t yet deployed spectrum it bought in New Brunswick. A company spokesperson said this morning that Eastlink isn’t ready yet to reveal its auction plans.
In Saskatchewan SaskTel is the big incumbent against Bell, Rogers and Telus, while in Manitoba MTS is the incumbent. Both are expected to be 700 MHz spectrum bidders.
Iain Grant, managing director of the Montreal-based telecom consultancy SeaBoard Group, noted that if Wind and Mobilicity can’t participate in the 700 MHz auction that could open the way for entrepreneurs to try to buy some in the hopes of flipping it later.
Meanwhile, he said, Bell, Rogers and Telus are likely celebrating the non-appearance of Verizon. Perhaps, he said their vocal campaign made the U.S. carrier re-think its plans.
Indeed, their stock jumped when the Toronto Stock Exchange opened this morning (Telus [TSX;T] up 7.8 per cent, BCE was up 4.8 per cent and Rogers [TSX: RCI.B] up 7.65 per cent).
In a blog this morning Canadian telecom consultant Mark Goldberg repeated his call for Ottawa to take a breath and reconsider whether its spectrum auction rules are appropriate for attracting investment. “With a number of market participants seeking and needing investment to stay afloat, let alone grow, that breath may need to be taken quickly.”
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