For the past five years, Gerald McGoey has unsuccessfully tried to sell or trade some 90Mhz of wireless spectrum covering much of southern Ontario and Quebec owned by Look Communications, the publicly-traded Milton, Ont.–based Internet service provider he heads.
Usually, he says, he was rebuffed by potential buyers afraid that their bids will be trumped by someone else when bids are openly brought to the board.
Now he thinks he has a solution: offer all Look’s assets under a best-bid-only court-ordered sale. That way, he argues, potential buyers know all bids are final and, in theory, will rush to his door.
“I believe that there are people that will pay a premium for some of these assets,” he said in an interview this week. If successful, the move will mark an end to what eight years ago promised to be one of the country’s major Internet providers. And if McGoey gets what he wants, Look will evolve into the partner of a major wireless provider.
McGoey is chairman and CEO of Unique Broadband Systems Inc. (UBS), a Milton, Ont., which has been Look’s controlling shareholder since 2002. Both companies are listed on the Toronto Venture Exchange.
The first step in McGoey’s strategy took place earlier this month when an Ontario Superior Court judge agreed to a Jan. 14 special shareholders meeting. There, stockholders will be asked to approve a plan of arrangement for the orderly sale of assets – including the spectrum, Look’s broadcast licences, some $300 million in tax losses, its network and its 30,000 Internet subscribers –supervised by a court appointed accountant. Bids will have to be in Feb. 16. Final approval of all offers is up to the court and regulatory approvals where necessary.
[EDITOR’S NOTE: On Jan. 14 shareholders approved the plan. Next, management has to get court approval for the sales process and the appointment of an accounting firm as monitor.]
In an interview McGoey denied the process now gives Look a hammer in any sale by freeing up what he portrayed as a logjam in selling the spectrum. Rather, he said, “what this [process] allows is people to be selective in the assets they want and selective in the amount [they’ll bid].”
“You can’t come in with a higher bid after it’s announced [Feb. 16]. The courts won’t permit it.”
Look’s spectrum is in the 2.5-2.69Ghz range. Combined with the broadcast licence, almost all of it is currently used to deliver fixed wireless TV channels via WiMAX, mostly around Toronto, Montreal and Ottawa. However, Industry Canada is willing to convert those licences to two-way mobile broadband licences, which is where McGoey believes their true value lies.
He has long believed that mobile video broadcast is the future of cellular, and that to do it carriers need his spectrum. Last month, to boost the visibility of the asset, Look started a trial using mobile WiMAX equipment from Motorola, claiming devices can receive Internet speeds of 6Mbps while in a vehicle on a highway.
To build a network by himself would cost Look some $500 million, McGoey said, tough in today’s financial markets. What he wants more than selling Look’s licences is to partner with an existing spectrum holder, just as in the Sprint and Clearwire in the U.S. are sharing spectrum in their new WiMAX-based Xohm service.
Until recently, the only carriers in Ontario and Quebec he could talk to were Bell, Rogers Communications and Telus Corp. Now, McGoey argues, the circle has widened to include new licence holders Globalive Communications, DAVE and BMV Holdings.
In addition, he argues, Industry Canada’s order that the incumbent carriers allow the newcomers to share their antennas should increase the value of his spectrum.
“Everyone wants it,” McGoey says of the spectrum.
To hear McGoey describe it, after years of frustration, all of the cards are falling his way. He might know – he used to be chief financial officer of Bell Canada Enterprises. No one else – other than the government – has this much continuous spectrum for sale covering the biggest markets, he emphasizes. And if it all sells Feb. 16, it’s gone. In his words, “everything is coming to a head today.”
Last month, for example, Industry Canada converted Craig Wireless’ broadcast spectrum in the Vancouver area to mobile spectrum. [And under its rules, when it does a conversion the government gives back only two-thirds of what the provider applied to use.]
When a reporter pointed out that process took 10 months, McGoey replied that the permission included a precedent: Craig has the right to sell all or part of its licence.
Whether the new wireless licence holders see the same value in Look’s spectrum is a question. Globalive co-chair Anthony Lacavera was initially cool when asked. In an e-mail he noted Look is offering WiMAX spectrum “so an important question is what network equipment and handset ecosystems will be available and at what costs. I personally believe it will be viable over the long term, but not in the short or medium term.”
A financial analyst for a Canadian securities company, who asked that his name not be used, agreed Look’s spectrum could be valuable. On the other hand, he said the incumbent carriers won’t need that spectrum until 4G networks are available, which is not expected until 2113. The court-overseen sale “makes sense,” he said, and will force serious buyers to emerge. The new entrants need spectrum – you never have enough – but, he added, their need now is to find financing to build their networks. “I can’t image that they’ll be at the table bidding too aggressively,” he said. “They don’t have cash and most don’t have much in the way of stock to offer.”
No manufacturers at this point make HSPA handsets that run within Look’s frequencies, he added. This last was a point made by Iain Grant, managing director of the SeaBoard Group, a Montreal-based telecommunications consultancy. “They have a whack of spectrum which is on the wrong side of town,” Grant said. Not so, countered McGoey. HTC makes a four-mode handset that can run on Look’s spectrum once Industry Canada grants a mobile licence. The handset is now being sold by Russian provider Scartel Yota, which is running a mobile WiMAX test in Moscow and St. Petersburg.
The asset sale strategy could mark the end of Look, which started as a wireless cable TV broadcaster backed by big names including the CTV network, Teleglobe Inc. and magazine publisher GTC Transcontinental Group Ltd. In 1999 it bought Internet Direct, which at the time had 150,000 Internet users across the country, and went on a buying spree. In 2000 it added B.C.’s Axion Communications, Barrie Connex, which covered parts of southern Ontario cottage country, and InterPacific Online, a suburban ISP north of Toronto.
Look also partnered with cellphone carrier Microcell Communications in an effort called Inukshuk Internet to leverage Look’s Multipoint Communications Systems (MCS) to wirelessly deliver Internet service.
But with the dot-com plunge and pressure from bigger Internet providers such as Bell, Rogers and Telus, its outlook suddenly changed. Bleeding red ink, at the beginning of 2001 it was forced to sell its share of Inukshuk for $150 million to Micr