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The federal government’s changes to foreign ownership restrictions in Canada’s telecommunications sector means Manitoba Telecom Services Inc. now has a global market in which to seek additional investment, telecommunications partners or a buyer for its MTS Allstream division. (Joe Bryksa/Joe Bryksa/The Canadian Press)
The federal government’s changes to foreign ownership restrictions in Canada’s telecommunications sector means Manitoba Telecom Services Inc. now has a global market in which to seek additional investment, telecommunications partners or a buyer for its MTS Allstream division. (Joe Bryksa/Joe Bryksa/The Canadian Press)

MTS the winner of Ottawa's telecom policy change Add to ...

Ottawa’s shakeup of the telecommunications sector seemed to cut right down the middle.

The federal government opened up the sector to more foreign ownership, a gift to smaller wireless players who need to raise money. But it also declined to set aside spectrum for those upstarts in the next auction – a decision that was seen as favouring the Big Three incumbents. There were no major winners in the tumult, except perhaps one: Manitoba Telecom Services Inc.

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With a stock that has crept up in lockstep with rumours about the government loosening foreign ownership, the Winnipeg-based telecom provider now has a global market in which to seek additional investment, telecommunications partners or a buyer for its MTS Allstream division.

Though it is unclear what interest there actually is in the unit from companies such as AT&T Inc. and Verizon Communications Inc., it’s obvious to all that it’s a very real possibility. MTS shares, which were trading below $33 when the news of the federal announcement leaked out Wednesday, climbed as high as $35.10 on Thursday before tailing off and closing at $34.26.

“It opens up opportunity for us in terms of different options for investment in our Allstream business,” MTS’s chief corporate officer, Chris Peirce, said in an interview. Asked whether that specifically meant pursuing a foreign buyer, he replied: “It opens up strategic opportunities.”

MTS Allstream, which offers telecom services to Canadian businesses, has a vast fibre-optic network that would be redundant to the country’s large telecom players, and has struggled in recent years.

Scotia Capital Inc. analyst Jeff Fan said MTS was the “clear winner,” a phrase also used by Macquarie Capital Markets analyst Greg MacDonald. Canaccord Genuity analyst Dvai Ghose said the only stock that may move materially on these announcements was MTS, though he called speculation of a sale speculation “overly aggressive.”

Mr. MacDonald published a note in late February that suggested the Allstream unit may be worth as much as $800-million, and noted that if Allstream were to be sold, sale speculation would quickly migrate to MTS itself.

“In our view, any disposition of the Allstream division would result in immediate conjecture on the strategic attractiveness of the remaining MTS business,” he wrote.

The federal government, after years of study, moved on Wednesday to remove foreign ownership restrictions in Canada’s tightly regulated telecom market for any company with less than 10 per cent market share. The move will allow new wireless entrants that bought licences in 2008 the ability to tap foreign investors, or get bought up by a foreign operator, as they continue to struggle against the established providers.

At the same time, the decision to allow such investment only for small players allows the government to avoid the controversy that would accompany a foreign buyout of a major Canadian corporation such as BCE Inc. or Rogers Communications Inc., both of which also own significant broadcasting assets.

The Conservatives also structured a coming government auction of wireless licences so that incumbent providers were “capped” in terms of how much they could buy – a move that angered new entrant Wind Mobile for falling far short of the more generous “set-aside” of licences that newcomers got in a 2008 auction. In short, the rules tilt slightly toward established providers, and analysts and executives expect consolidation.

The market had largely expected these results, analysts say, and incumbent telecom stocks are unlikely to see near-term volatility as a result of the changes. Rogers may see some long-term disadvantage against Bell and Telus, which share their new wireless network, since the two can still share wireless spectrum in the future against Rogers, which has no major partner. But there was a clear consensus that MTS had a fresh advantage.

BCE and Rogers were down slightly in markets yesterday, to $40.06 and $39.19, respectively, while Telus saw a small gain to $57.66.

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