Third time lucky for Telus?

Mobilicity sign
© IT World Canada

Mobilicity will be in a Toronto court this morning asking a judge to allow certain unsecured creditors to vote next week on a plan to sell the financially-struggling company to Telus for $350 million.

If approved Telus will go for the third time to Ottawa to get approval for a take-over of the startup. It’s been refused twice before on ground that a ban on incumbents buying new carriers like Mobilicity that bought AWS spectrum in the 2008 auction. That ban has expired so there is no legal barrier to the deal.

However, ever since last summer the Harper government has said all spectrum transfers will now be reviewed by Ottawa regardless of whether a ban exists or not, giving the impression it won’t allow AWS spectrum holders to be bought by an incumbent carrier.

Whether the federal government will stand tough and let Mobilicity and its 165,000 subscribers fall or allow it to be swallowed by Telus will be known soon enough.

Mobilicity and Telus will likely argue that the carrier is so small that its absorption won’t affect wireless competition, a crucial government goal.

The sale also has to be approved by debt holders and the Competition Bureau.

In a news release Mobilicity – headed by Toronto entrepreneur John Bitove – insisted it has no other options. In protection from creditors since last September, it has contacted 25 organizations for a rescue. Five bids were received; only  Telus’  bid — $50 million less than it was willing to pay last year —  was acceptable.

It also argues that the “vast majority” of Mobilicity subscribers will be able to migrate onto Telus’ HSPA network (The rest are likely using handsets that run on Telus’ older CDMA network); all contracts of Mobilicity landlords and licencors will be honoured, there will be no changes to employee staffing; and all service agreements with business partners will continue.

But in a report to investors Dvai Ghose, head of research at Canaccord Genuity, is skeptical Ottawa will bend. “Industry Canada has made it clear that new entrant set-asides will be extended indefinitely, despite independent new entrant financial challenges. If Industry Canada approves this transaction, it could set a precedent whereby Wind could also sell to an incumbent;  Shaw could sell its AWS spectrum in the West to Rogers as proposed; Videotron could sell its AWS spectrum in Toronto to Rogers as has also been proposed; and perhaps Videotron could sell its 700 MHz spectrum to an incumbent. Consequently, we expect Industry Canada to reject this proposal.”

Ghose acknowledges that Telus does have cards to play: Despite the government’s vow to preserve competition, the carriers was allowed to buy Public Mobile. Admittedly, because Public Mobile owned PCS spectrum that wasn’t subject to the five year ban the government was in a different position. On the other hand, the government and the Competition Bureau ruled the deal didn’t affect competition.

In essence, this argument boils down to “if Public Mobile is okay, why not Mobilicity?”

Ottawa might argue the difference is the AWS spectrum Mobilicity holds, which can run 4G technology. Public Mobile’s PCS spectrum can’t.

Ghose believes there’s enough competition in Canada already, and quarterly financial results of the big three carriers are about to show it. He expects that Rogers Communications, which reports results today, will be down a bit because BCE Inc.’s Bell Canada and Telus (TSX: T) continue to take market share from it.


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