Bitove’s new spectrum plan catches Mobilicity off guard

The Globe and Mail

Mobilicity has 250,000 customers. (Kevin Van Paassen/The Globe and Mail)

John Bitove has a new wireless plan. He just won’t say what it is.

The entrepreneur behind wireless carrier Mobilicity put down a deposit last month to purchase wireless spectrum from the federal government in January. But he did so under a new corporate name, Feenix Wireless Inc., that has no connection to Mobilicity, which on Monday filed for creditor protection.

Story continues below ad

It turns out that even Mobilicity executives were caught off guard by the actions of Mr. Bitove, its executive chairman.

Chief restructuring officer William Aziz said in a court affidavit that Mobilicity first learned of the development from the federal government, which published a list of spectrum applicants last week.

That roster of names also included one of Mobilicity’s major bondholders, Catalyst Capital Group Inc.

The surprise disclosures temporarily halted takeover discussions with Mobilicity’s potential buyer, which sources say is Telus Corp.

The applications of Mr. Bitove’s Feenix and Catalyst raised concerns in Ottawa about potential conflicts with rules for the 700-megahertz auction. That was among the revelations contained in legal filings related to Mobilicity’s successful bid to win court protection from creditors this week.

Although the company declined to identify its probable acquirer, the redacted documents provide clues that suggest Mobilicity is trying to transfer its spectrum to an established carrier.

“Last week, discussions on the sale transaction were unexpectedly interrupted upon Industry Canada’s announcement of the participants in the 2014 Spectrum Auction in which it was disclosed that, among others, Feenix and Catalyst made deposits to participate in the 2014 Spectrum Auction,” Mr. Aziz said in an affidavit sworn on Sept. 29.

“Industry Canada raised questions regarding possible restrictions on the continuations of discussions between the Mobilicity Group and the purchaser under the Proposed Transaction in view of the participation of Feenix and Catalyst in the 2014 Spectrum Auction. The Mobilicity Group diligently responded to these inquiries.”

The government’s concern centred on whether Mobilicity, which did not register for the auction, could still be considered an affiliate or an associated entity of either Feenix or Catalyst.

It is a violation of the auction’s anti-collusion rules for a registered bidder to have ongoing discussions about a potential sale or merger with another bidder.

Among the 15 spectrum applicants was Feenix, which lists Mr. Bitove as its chief executive officer. He has declined comment on his plans.

Catalyst, meanwhile, controls about 30 per cent of Mobilicity’s senior secured notes. Telus Corp., like other incumbents, also applied.

“Industry Canada has over this past weekend advised that its questions are resolved and that discussions on the Proposed Transaction are permitted to continue,” added Mr. Aziz’s affidavit. “They have confirmed that neither Feenix nor Catalyst are affiliated or associated with the Mobilicity Group in the context of the [auction].”

Industry Canada will publish a list of provisionally qualified bidders, along with information about their ownership, affiliates and associated entities on Oct. 22.

For its part, Mobilicity had developed the proposed “transaction structure” in the two weeks prior to filing and receiving protection under the Companies’ Creditors Arrangement Act, according to court filings. Mr. Aziz then met with government officials on Sept. 18 and Sept. 20. “I have not yet received a response as to whether the applicable Government representatives will approve a sale of the Mobilicity Group as proposed in the Proposed Transaction,” his affidavit adds.

“From time to time Industry Canada provides informal comment, in confidence, to parties who submit transactions for consideration. We do not comment on such reviews for reasons of commercial confidentiality,” a departmental spokeswoman said in an e-mail.

Sources say the small carrier rekindled talks with Telus after U.S. carrier Verizon Communications Inc. changed its mind about entering the Canadian market. In court filings, Mobilicity discloses that it engaged in “detailed discussions with a significant U.S.-based wireless service provider” but those talks failed to produce a binding offer “due to uncertainty surrounding the Government’s upcoming spectrum auction.”

Those documents also state that Telus’s original $380-million takeover offer, while rejected by Ottawa, would have been an “optimal outcome” for all stakeholders. Telus declined comment on whether it has renewed talks with Mobilicity.

Those various court documents, meanwhile, also paint a dismal picture of Mobilicity’s finances. For the seven months ended July 31, 2013, it had an operating loss of $27.4-million and a net loss of $71.9-million.

The company’s subscriber count, meanwhile, has fallen to 194,000 from 250,000 earlier this year. Those customers generate gross revenues of roughly $6.3-million per month. That puts its average monthly gross revenue per user at $32 versus an average of about $60 for incumbents, the filings said.

Topics: