The decision of main partner to write off its investment is serious, says observer. But Wind CEO says its only an accounting move

Wind Mobile’s financial backer has written off its $768 million investment in the startup, leading one financial analyst to declare the carrier “all but dead.”

Dvai Ghose, head of research at Canaccord Genuity said in a note to investors this morning that Amsterdam-based international telcom operator VimpelCom  disclosed today when revealing its fourth quarter results that it has written off its money in Wind.

“This does not come as a surprise given 1) Industry Canada has refused to allow VimpelCom to control Wind, despite relaxation of foreign ownership restrictions; and 2) VimpelCom’s decision not to finance 700 MHz spectrum purchases for Wind,” Ghose wrote.

“With VimpelCom’s announcement we wonder if it is prepared to finance significant incremental losses at Wind,” he added.

Wind chairman and CEO Anthony Lacavera replied in an email that “It is business as usual at Wind and this accounting decision by Vimpelcom has no impact on our operations.

“With an ever-improving network and an established market presence now in our 5th year of operations, I am more confident than ever that Canadians will enjoy the benefits of our market-leading value proposition and the true competition that Wind brings to the market long-term.  Wind is here to stay.

“The government has made significant moves over the past 12 months to advance the competition policy, and we look forward to the implementation of the recent roaming decision which will ensure Canadians will finally have roaming choices and prices that are globally competitive.

Wind had some 676,000 subscribers at the end of 2013 after four years of business. But Ghose pointed out it’s average revenue per user (ARPU), a metric used across the wireless industry, was $29.80 — significantly less than major competitors who average close to $60 a subscriber.

The news won’t increase the value of Wind, which has been looking for years for more funds to expand its existing network in Ontario, Alberta and British Columbia, and to open new networks in other provinces where it bought frequencies in the 2008 spectrum auction.

It also comes as another blow to the federal government’s plan to increase cellular competition in Canada in the face of domination from BCE Inc.’s Bell Mobility, Rogers Communications and Telus Corp. Those three — and their discount brands Solo, Virgin Canada, Koodo and Chatr — have just over 90 per cent of the market.

On the other hand it may not be a surprise to Ottawa. As Ghose notes, in some ways VimpelCom was painted into a corner. It wanted to take complete control of the company so it could more easily dispose of it. VimpelCom has the majority equity stake in Wind, but Canadian chair and CEO Anthony Lacavera has control.

When Ottawa refused to allow VimpelCom to buy Lacavera out — news reports alleged it was partly because VimpelCom’s main shareholder was based in Russia — VimpelCom seem to show its displeasure by refusing to put millions into Wind so it could bid for spectrum in this year’s 700 MHz auction.

Wind has always been at the mercy of one source of funding.  Lacavera, who owned several companies including dial around service Yak Communications, got into the 2008 auction only with the backing of Egyptian-based Orascom Telecom Holdings after fruitlessly canvasing Canadian organizations for funds in 2007 and 2008.

At the time foreign companies were forbidden from owning more than 49 per cent of Canadian companies indirectly or directly. That didn’t encourage some investors, who want a free hand to sell their shares if things don’t go right. On the other hand Public Mobile and Mobilicity were able to initially get some U.S. venture funding, but not as much as Orascom was willing to put in.

Thanks to Orascom, Wind’s parent company Globalive Wireless Management was able to spend $442 million on spectrum.

Orascom was folded into VimpelCom in 2011, leading to hopes that it would at least continue pouring money into Wind.  Wind also hoped that a change in federal legislation allowing foreign companies to buy all of a Canadian carrier with less than 10 per cent market share would make it easier for it to find more investors.

It didn’t.

Wind was apparently hoping for another rescuer in former Orascom head Naguib Sawiris, who was angling to buy Manitoba Telecom Services’ Allstream division, which has a national fibre optic network. Lacavera had said that he wanted to get back with Sawiris, and that Allstream’s fibre network would complement Wind’s wireless network.

However Ottawa nixed that deal.

 

 

 

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