There is a growing probability that Quebecor Inc. will decide to go ahead with the expansion of wireless service across Canada amidst signs of encouraging talks with Ottawa, says a telecom analyst.
“We believe conversations between [Quebecor] and the government have been friendly. While the support that [Quebecor] is seeking is certainly not immaterial, we believe the government may be more receptive than expected,” Barclays Capital analyst Phillip Huang said in his weekly telecom report, published Monday.
The federal government is actively engaged in encouraging a viable fourth national wireless carrier to compete with the Big 3, Rogers Communications Inc., BCE Inc. and Telus Corp.
Quebecor’s Vidéotron division recently clinched licences for cellular airwaves in Ontario, British Columbia and Alberta, and it has been assessing an expansion outside Quebec but only if the right conditions are in place.
Those conditions include concessions from Ottawa on roaming rates and a “generous build-out timeline,” said Mr. Huang.
Former Prime Minister Brian Mulroney is set to assume increased responsibility at Quebecor on Thursday at the annual meeting, with his appointment as the company’s new chairman.
The appointment of Mr. Mulroney – a committed federalist – is viewed as a move to further distance Quebecor from its controlling shareholder, Pierre Karl Péladeau, and to smooth relations with Ottawa, which regulates the cellphone industry.
Mr. Péladeau, who was elected to Quebec’s National Assembly in April, is considered a top candidate to take over the leadership of the Parti Québécois, which lost power in the election. His political career is seen as hobbling Quebecor’s efforts to expand its wireless business beyond the limited Quebec market.
Mr. Huang said on Monday that the Conservative government likely faces “some serious questions” if it supports a Quebecor wireless expansion, including “the appearance of backing a ‘separatist-controlled company’ ” accusations of smothering investments; and risks of job losses in the sector.
But with a federal election scheduled for October of next year, “a significant concern appears to be the failure of [the government’s] four-player policy to sustainably drive wireless competition.”
The Big 3 are raising prices and struggling small player Wind is facing growing cash-flow issues as its parent VIP pulls away from committing more capital to Canada, said Mr. Huang.
“As it stands, the government’s four-player wireless policy – one of its most important files – may well increasingly appear to be a failure just ahead of the election.
“As such, we wonder whether the government will become more receptive to [Quebecor’s] proposed conditions.”
Under new chief executive Pierre Dion, Quebecor is “actively engaging the government to discuss key conditions it deems necessary to be successful,” he said.
Quebecor wants to be able to offer a network as good as those of the Big 3, operating initially without full network ownership and then building its own network gradually over time, he said.
The initial investment might not be as high as current assumptions of more than $1-billion, said Mr. Huang.
He estimates a more modest investment of $600-million-to-$700-million, spread over several years, in key cities in Ontario, B.C. and Alberta.
Another option is for Quebecor to team up with Wind, VIP and Mobilicity to pool their spectrum and other assets in a new wireless company, he said.
“While we believe it’s too early to assume that [Quebecor] will become the fourth wireless across Canada, we estimate the probability is closer to 50 per cent, which is higher than our previous expectation.”