What the AT&T-Leap deal means for Canada

Howard Solomon

11 years ago

People who have more money than me like to throw it around. Take AT&T’s offer to buy pre-paid carrier Leap Wireless for US$1.19 billion.

That’s a lot of dough for an operator with $2.8 billion in debt. It makes one wonder what Verizon Communications is evaluating Wind Mobile at. On the other hand, Leap — better known for its Cricket brand — has 5 million subscribers, which is about 4.4 million more than Wind.

As Canaccord Genuity financial analyst Dvai Ghose pointed out in a brief to investors late Sunday, AT&T’s share offer of $15 is a mere 88 per cent premium over Lea[‘s closing share prices of $7.98 and would value Leap at close to $4 billion.

We won’t speculate on whether AT&T is going a bit overboard. It’s true wireless is a growth area in telecom, and AT&T, which owns a declining wireline network, needs all the wireless it can get. Still, 88 per cent?

Ghose makes two points about this deal: First, it means for certain that AT&T isn’t coming north. It’s spent its acquisition money on Leap.

Second, the regulatory environment is allowing U.S. carriers to go in a different direction than carriers here. On the other side of the border consolidation is the word — the AT&T deal comes after T-Mobile USA bought MetroPCS, and Japan’s Softbank bought Sprint.

True, U.S. regulators turned down AT&T’s bid to buy T-Mobile. But Ghose argues that the U.S. is on its way to becoming a four-carrier market.

In Canada, where three carriers dominate, the Harper government is intent on ensuring there are at least four carriers in every region. That strategy, born from the decision to protect new entrants buying spectrum in 2008, has led to the emergence of Wind Mobile and Mobilicity in Ontario, Alberta and B.C., Public Mobile in Toronto and Montreal, cabelco Videotron adding wireless in Quebec and cableco Eastlink wireless in Nova Scotia.

But Mobilicity is struggling financially and Wind’s main financial backer, Vimplecom, wants out. Verizon has reportedly offered about $700 million for Wind.

Interestingly, as Ghose points out, under Industry Canada’s current rules for the upcoming 700 MHz spectrum auction here, Verizon could bid for two of the four blocks of spectrum that will be offered in each region, while Bell, Rogers and Telus will be fighting for the remaining two.

One wonders, if Verizon — larger than Bell, Rogers and Telus put together — is successful in buying Wind if that rule will last. As Ghose points out, there could be a political backlash.