At some point in the next 12 months, Canada's new wireless players are going to have to start spending serious amounts of money on their networks.
When it comes time to sign those cheques, at least one analyst expects takeovers will be on the table.
Three new companies - Globealive, DAVE and Public Mobile - are planning to provide Canadians with the next generation of groovy new cell phones. The trio has already paid for spectrum as part of last year's $4.25-billion Industry Canada auction of the airwaves.
That spending, while formidable, pales beside the cost of actually build a network, then attracting and keeping customers. And the financing environment is a whole lot more hostile now than it was when Industry Canada opened up the wireless world.
In recent weeks, UBS Securities analyst Jeffrey Fan made the rounds with management of the new entrants, and looked at what incumbents and rivals such as Vidéotron, Shaw Communications and Bragg Communications are planning.
In Mr. Fan's view, there is simply no way all these companies will end up rolling out networks.
“We believe consolidation amongst the new entrants is inevitable, given their complementary skill sets. As one entity, they would pose a much stronger threat,” said Mr. Fan. So what's stopping mergers and takeovers? A combination of brinksmanship, ego, and no pressing need to raise cash. Mr. Fan said: “At present, no combinations and partnerships have resulted since each believes it has the best approach.”
So when will the new players swallow hard, and start doing deals? And who might end up partnered with whom?
“We believe the trigger for partnerships or combinations will be if and when funding issues arise. This may not be evident until mid-2010,” said Mr. Fan. However, in telecom, deals that involve large technology spending tend to be negotiated years in advance, so it is possible to pick potential partners.
Based on what he has seen to date, Mr. Fan said Public Mobile seems likely to end up being acquired by one of the incumbents: Rogers Communications, BCE or Telus. He casts DAVE - short for Data & Audio-Visual Enterprises Wireless - and Yak owner Globalive as potential merger partners.
The wild card here is an acquisition of either DAVE, controlled by entrepreneur John Bitove, or Globealive by one of the two major cable companies intent on breaking into wireless. Mr. Fan said: “We should also not leave out Shaw and Vidéotron. Shaw has stated it will be opportunistic even though it has shelved its wireless plans for now.”
