U.S. carrier Verizon Communications is apparently serious about expanding north.
According to the Globe and Mail this morning, unnamed sources say the company has made an offer to buy startup Wind Mobile and has talked to Mobilicity about a possible takeover or stake in the company.
A spokesman for Wind couldn’t be reached for comment.
Verizon could buy one or both Canadian carriers under a new regulation allowing foreign companies to buy operators who have less than 10 per cent of the market. Until that rule was passed, foreign companies couldn’t control a Canadian carrier.
That’s why Wind Mobile’s main investor, Egyptian-based Orascom Telecom Holdings (now a branch of VimpelCom Ltd., had a huge equity stake in the company but not voting control. That’s in the hands of chairman and CEO Anthony Lacavera, a Toronto telecom entrepreneur.
VimpelCom had been trying until recently to buy out Lacavera’s stake and take complete control of Wind. However, last week it announced it was abandoning that effort.
Mobilicity has U.S. venture capital investment but is controlled by Toronto entrepreneur John Bitove.
According to the Globe and the Financial Post, Verizon’s offer for Wind is between $600 million and $700 million, but depends on a detailed examination of its books.
There are skeptics that Verizon is serious about entering the Canadian market. It would be pitted against BCE Inc.’s Bell Mobility, Rogers Communications Inc. and Telus Corp., who combined have about 92 per cent of the Canadian market of 23 million subscribers.
Despite optimism by some industry analysts in 2008 when Wind, Mobilicity and Public Mobile bought spectrum that there was lots of room for new competitors – they often said that with about 68 per cent penetration, some 30 per cent of Canadians still didn’t have cellphones – it has been slow going.
Wind has just over 600,000 subscribers, Mobilicity has about 250,000 and Public Mobile is estimated to have about the same.
That has led at least one financial analyst, Dvai Ghose of Canaccord Genuity, to wonder in an earlier interview with IT World Canada who would come into Canada to take on Bell, Rogers and Telus. He notes that not only would a buyer have to pay for Wind or Mobilicity, but within months also put up hundreds of millions of dollars in downpayment to bid in January’s 700 MHz spectrum auction and millions more to strengthen their existing cellular network. Ghose argues those challenges would keep most potential buyers out of this country.
On the other hand, Verizon has a big brand — which could attract the enterprise customers who won’t go to a startup — and the ability to spend big not only on networks but on marketing.
Those points were made by Ghose in a research note to investors today after the Globe story was published. Other advantages include the ability to leverage its U.S. call centres and billing systems and smart phone buying power.
Assuming Verizon finds a way in, he added, Rogers and Quebec cableco Videotron, which has its own new network, might be impacted the most: If Verizon initially concentrates on the Toronto area, Canada’s biggest market, that is Rogers home base, Ghose points out. As for Videotron, it might lose in the 700 MHz auction — there are only four blocks up for sale, and Bell, Rogers, Telus and Verizon may buy them all.
On the other hand, Ghose adds, Verizon doesn’t have backhaul or distribution here. Also it would initially be able to offer only wireless to customers, who increasingly are buying bundles with wireless/cable or wireless/DSL/fibre optic Internet.
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