Ottawa nixes Telus-Mobilicity deal

The Harper government has refused to allow incumbent carriers to get hold of the wireless spectrum of new entrant carriers before a five year ban runs out next year, refusing to approve Telus Corp.’s purchase of struggling startup Mobilicity.

Industry Minister Christian Paradis made the announcement this morning, also saying that because of the state of the wireless industry, the expected 700 MHz spectrum auction set for November is being delayed until Jan. 14, 2014.
“Our government has been clear that spectrum set aside for new entrants was not intended to be transferecd to incumbents,” said Paradis in a statement released today. “We will not waive this condition of license and will not approve this, or any other, transfer of set-aside spectrum, to an incumbent ahead of the five-year limit.”
But his statement also suggests the Harper government may never allow incumbent carriers like Telus, Rogers Communications and Bell Mobility — who together hold just over 90 per cent of the market — to buy spectrum from new entrants.
“Going forward, proposed spectrum transfers that result in undue spectrum concentration — and therefore diminish competition — will not be permited,” Paradis said. “The policy will appy to all mobile spectrum licences.”

That statement would appear to limit the options for Wind Mobile, Public Mobile, Videotron, Shaw Communications and Mobilicity from selling to who they want. On the other hand, that could push Wind, Mobilicity and Public Mobile to merge–if they can agree on how they are valued.

“We’re in the process of reviewing what Industry Canada announced,” according to Stewart Lyon, president of Mobility. “We’ll be speaking with Telus and other stakeholders and will have more to say in due course.”
By saying the concentration policy applies to all mobile licences, the statement covers Public Mobile, which until now thought it was free to sell its PCS spectrum to any carrier. Public Mobile bought its spectrum in the 2008 auction, like Wind, Mobilicity, Shaw and Videotron. However, those four carriers bought more valuable AWS spectrum, which carried a condition: It couldn’t be transfered to an incumbent carrier for five years after they recieved their licences. PCS spectrum sold in 2008 didn’t have that limit. 
Wind Mobile chairman and CEO, Tony Lacavera, quickly commended the government. “They were clear on spectrum transfer policy, clear in ensuring competition in Canada and clear there will be four (wireless) carriers in every market and the government will ensure there will be sufficient LTE spectrum for four carriers.”

Lacavera also said Wind is interested in talking again to Mobilicity about a merger. They have talked before but got nowhere.

“I think this re-opens the opportunities of a conversation with Mobilicity stakeholders. We’ve long maintained that the combination, or co-operation or partnership, with that fellow new entrant makes a lot of sense in order for us to go up against the big guys so I think this does set the stage for that.”

There have been a variety of reasons it hasn’t worked, he said, including differences in shareholders and investors, and both carriers wanted to run for a while separately. But “some sort of partnership with Mobilicity makes sense.”

Asked if Wind has the $350 million Telus says it’s willing to pay for Mobilicity, Lacavera said he isn’t familiar with the terms of the deal.

In an interview at the Canadian Telecom Summit in Toronto, Ted Woodhead, Telus’ senior vice-president of regulatory affairs, said it isn’t clear from Paradis statement that it will be impossible for his company to buy Mobiliciity.

As for the government statement refusing to allow spectrum transfers where it will result in undue concentration of spectrum, Woodhead interprets that it doesn’t automatically mean Telus, or any incumbent, can’t buy the spectrum of a smaller carrier. He believes the government will look to see if there is competition region by region.

The key word, he suggested, is “undue.” In some areas of the country there are six or seven cellular carriers now, he noted, suggesting in those areas there’s lots of competition.
Mobilicity had two options, he said: One was the Telus deal, which is now dead, and the other is going into bankruptcy protection. However Woodhead said Telus could give Mobilicity temporary funding.

As for the auction delay, it’s only three months, Woodhead said. “That’s not going to kill us.”  But, he added, a delay hurts deploying wireless in rural areas.


The minister said that the government will continue to allow wireless providers access to the spectrum they need to compete and improve their services but made it clear that the decision was based preserving consumer choice and market competition.
“We are seing Canadian consumers benefit from our policies and we will not allow the sector to move backwards,” he said. “I will not hesitate to use any and every tool at my disposal to support the greater competition in the market.”
The Public Interest Advocacy Centre (PIAC) welcomed the Paradis’ announcement.
“The Minister called the industry’s bluff,” said John Lawford, executive director of PIAC. “This government stood up for wireless consumers today by telling the incumbent carriers that it wants consumers to be able to choose from four or more wireless carriers.”

PIAC and the Consumers’ Association of Canada had previously called on Paradis to block the Telus-Mobilicity deal as well as a similar proposed spectrum transfer from Shaw Communications to Rogers Communications, another incumbent. They content that such transfers violated the letter and spirit of the government’s spectrum rules and policy, which had been clearly laid out in the 2009 AWS spectrum auction. The policy was meant to increase competition and lower wireless prices for consumers by carving out a new space for competitors to the established players, Telus, Rogers and Bell Canada.

This latest setback for Telus follows a favourable decision by the Ontario Supreme Court last week approving the company’s offer to purchase Mobilicity for $380 million. The supreme court’s approvable came a week after debtholders of Mobilicity gave a nod to the deal.

In addition, the Government also outlined improvements to the policy on spectrum licence transfers that will be released in the coming weeks, which followed consultations launched in March 2013. Going forward, proposed spectrum transfers that result in undue spectrum concentration—and therefore diminish competition—will not be permitted. This policy will apply to all commercial mobile spectrum licences, including the 2008 AWS licences.

All applications for licence transfers will be reviewed on a case-by-case basis and decisions will be issued publicly to increase transparency. 

The announcement doesn’t directly mention Rogers Communications deals with Videotron and Shaw Communications, who, like Mobilicity bought spectrum in 2008 with conditions that it not be transferred to an incumbent carrier for five years after they got their operating licences– meaning 2014. Unlike Telus, Rogers didn’t strike a deal to buy Videotron and Shaw spectrum, only an option to buy their frequencies when the five year ban ends.

The deals and the financial uncertainties of Mobilicity, Wind and Public Mobile have had another effect: Paradis has delayed the scheduled auction of spectrum in the 700 MHz band from November to Jan. 14, 2014.

In turning down the Telus-Mobilicity deal Paradis was firm. “The Government has been clear. Spectrum set aside for new entrants was not intended to be transferred to incumbents.That is why we had put in place restrictions on the transfers of the set-aside spectrum. That is why I will not be approving this—or any other—transfer of set-aside spectrum to incumbents ahead of the five-year limit.”

Delaying the auction has several repercussions. It gives Wind Mobile, Mobilicity and Public Mobile, who are searching for infusions of cash and/or new owners to find investors. It also means they escape having to put down millions of dollars next week when a deadline was set for carriers to put in deposits for the 700 MHz auction.

In light of these decisions, the timing of the 700 MHz auction has been updated. The application deadline will now be September 17, 2013, and the auction will commence on January 14, 2014. These new dates will provide companies with additional time to consider today’s decisions and finalize their approaches to the auction process.

But it also carries some uncertainty for Mobilicity, whose debt holders approved the deal with Telus.
Dvai Ghose, a telecom financial analyst at Canaccord Genuity, doubts that today’s announcement by Paradis has helped Wind, Mobilicity or Public Mobile find investors.
Quite the opposite, he said — by suggesting that they can’t sell to an incumbent that makes an organization less likely to invest in them.
Ottawa is in a bind, he said — if it allowed the Telus-Mobilicity deal, Wind and Public Mobile would likely be sold to an incumbent, too. Limiting who they can sell spectrum to doesn’t help much.
It might push the trio to merge, he agreed, but they still need millions to buy more spectrum and overlay their networks with the faster LTE technology.

(With notes from Nestor E. Arellano)

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Howard Solomon
Howard Solomon
Currently a freelance writer, I'm the former editor of and Computing Canada. An IT journalist since 1997, I've written for several of ITWC's sister publications including and Computer Dealer News. Before that I was a staff reporter at the Calgary Herald and the Brampton (Ont.) Daily Times. I can be reached at hsolomon [@]

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