It took four years but Shaw Communications finally realized it had to be able to offer cellular service to keep up with Telus.
Calgary-based Shaw, said late Wednesday it has put in an offer to buy the parent company of startup Wind Mobile for $1.6 billion if the government agrees.
The deal comes just days after Wind’s sixth birthday. One benefit of the deal is that it will make it easier — and possibly faster– for Wind to pay to upgrade its network to LTE speeds so it can match Bell, Rogers and Telus.
Shaw, a Western cable company, had plans in 2008 to be a cellular carrier, spending $189 million in a spectrum auction that year AWS frequencies largely in British Columbia and Alberta. But three years later, looking at the millions Wind and Quebecor/Videotron were spending to build networks from scratch decided to invest in Wi-Fi hotspots in major Western cities instead as a lure for its cable customers.
The strategy apparently failed to stop Telus from making inroads into Shaw’s territory. So buying Wind — assuming approval from the Trudeau government — gets Shaw an instant network with about 940,000 subscribers.
“The global telecom landscape is quickly evolving towards ‘mobile-first’ product offerings as consumers demand ubiquitous connectivity from their service providers,” CEO Brad Shaw said in a statement. “The acquisition of Wind provides Shaw with a unique platform in the wireless sector which will allow us to offer a converged network solution to our customers that leverages our full portfolio of best-in-class telecom services, including fibre, cable, WiFi, and now wireless. This transaction represents a transformational step in the history of Shaw and we are excited about our future growth prospects in mobile. This growth will be accelerated by combining Shaw’s existing customer relationships, trusted brand and wireline and WiFi infrastructure with Wind’s impressive asset base, including its existing spectrum position and mobile network.”
With backing from Shaw, Wind may be able to attract more business customers. Wind CEO Alek Krstajic will stay with the company. The deal is expected to close in the third quarter of next year.
In a note to investors Canaccord Genuity notes the deal could help Shaw’s bottom line because wireless is a growth sector — 63 per cent of Shaw’s revenue base (legacy cable/satellite TV, home phone, and media) are in decline. “Moreover,” the report adds, “we believe that wireless opens up synergistic opportunities for bundling and cross-selling” — although the report adds that bundled sales aren’t large at other carriers.
As for where Shaw could offer bundles, Wind is already in its home territories of B.C. and Alberta. Shaw has a few small cable networks in northern Ontario, the province where Wind has three-quarters of its subscribers. Shaw has some cable networks in Saskatchewan and Manitoba, so it can be expected that Wind will be available there. If so, residents in those two provinces would have a choice of five carriers.
In a way, said telecom analyst Mark Goldberg, the deal would bring to fruition former Industry Minister Christian Paradis’ hope for four carriers fighting for market share in every province.
“As a result of this deal all Canadians will have access to four major players, plus the off-brands and resellers. Of those four, two will be fully integrated able to offer TV, Internet, home phone and wireless. And two will be more ‘spoilers’, offering just wireless — which helps discipline prices. What becomes very interesting is the four players change roles as you move across the country.”
For example, in Ontario Bell and Rogers can offer four bundled services to consumers. Telus only sells wireless in Ontario. On the other hand in Alberta and British Columbia, Telus and Shaw will offer bundled services, while Bell and Rogers will only have wireless.
“It makes for more competitive marketplace with much more established companies offering services, which means a greater ability to go to capital markets” for network expansion, Goldberg says.
The proposed deal also explains why Wind announced this week that it’s spending money first in Vancouver to improve and expand its network, Goldberg said, where — unlike Ontario — Shaw will be able to offer customers bundles of service.
Ironically, Shaw [TSX: SJR.B]could have had Wind and the spectrum it bought in 2008, which would help expand capacity. However, to cash in on an asset this summer it sold that spectrum to Rogers Communications as part of a complex deal that allowed Rogers to buy financially-troubled Mobilicity. At the very least that cash could go towards the Wind purchase. On the other hand, as a condition of the deal the government made Rogers give some of Mobilicity’s spectrum to Wind.
The deal makes the investment by Wind’s new backers — which include Toronto-based hedge fund West Face Capital, California-based private equity firm Tennenbaum Capital Partners, LG Capital Investors, Novus Wireless Communications of Vancouver and Serruya Private Equity — look good.
It also closes a chapter in the country’s wireless history where a startup led by Toronto telecom entrepreneur Anthony Lacavera with money from Egyptian telecom mogul Naguib Sawiris and his Orascom Telecom Holdings had a controversial birth. It started with a vigorous fight before the Canadian Radio-television and Telecommunications Commission (CRTC), which — despite the approval of Industry Canada for Wind’s licence — held a hearing into whether Orascom’s investment put the company offside Canadian ownership and control rules in the Telecommunications Act.
Rogers, Telus and Bell Canada lost no opportunity during the lengthy hearing to pillory Wind, ultimately convincing the CRTC that because Orascom held 65 per cent of Globalive’s equity, almost all of its debt, a $100 million services contract and control of the Wind Mobile brand that the Egyptian company in effect ran Globalive.
It took a cabinet order by the Harper government over-ruling the commission to get Wind launched. So on a blustery December day in 2009 — very quickly after that ruling — Lacavera stood before a noisy crowd on Toronto’s lakefront and declared the carrier open for business.
Within six months two other startups who bought spectrum in that 2008 auction — Mobilicity and Public Mobile — had started service. Quebec cableco Videotron would start cellular service in 2010, while Maritime cableco Eastlink wouldn’t launch its service until 2013.
But Rogers, Telus and Bell — who between them controlled over 95 per cent of the entire Canadian cellular market — didn’t give up easily. By launching budget services — Chatr (Rogers), Fido (Telus) and Virgin (Bell), they managed to keep new entrants penetration low.
In 2008 the Harper government must have been smiling (and not only because of the unexpected $4 billion in revenue from the auction). It wanted more competition, and things looked rosy with three well-funded cable companies (Shaw, Quebecor and Eastline) presumably able to stand up to the Big Three, plus Mobilicity (backed in part by Toronto entrepreneur John Bitove and an experienced U.S. telecommunications venture capital firm. And there was little Public Mobile, which bought PCS spectrum nobody wanted and helmed by Krstajic, who is now Wind’s CEO.
But the startups found it tough going and often appealed to Ottawa for help in the way of changes to roaming and cell tower sharing rules. Shaw gave up on building a new network, Mobilicity tumbled into financial trouble — as did Wind.
In 2011 Orascom was bought by VimpelCom, an Amsterdam-based global carrier control by a Russian mogul. VimpelCom looked at how hard it was to expand here, and that it was seemingly impossible to have full control over Wind and decided to stop putting in money. That meant Wind had to withdraw from the 2014 auction for 700MHz spectrum. With new owners it was able to get spectrum in this year’s auction.
Ultimately VimpelCom was able to sell it shares to Lacavera, who then found new investors. Now it looks like Wind is about to enter an era when it is one of the big boys.