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Mexican telecom giant America Movil eyeing Canada: analyst Add to ...

America Movil, the giant Mexican carrier owned by the billionaire Carlos Slim Helu, may be investigating an entry into the Canadian telecommunications market by partnering with an established player here, a Bay Street analyst suggested on Thursday.

And as debate rages about the Conservatives using their new majority government to loosen foreign ownership restrictions in the sector, it is precisely the type of thing that Canadians should learn to expect, others say.

Phillip Huang, an analyst with UBS Securities Canada, wrote in a research note to clients that America Movil - which has more than 225 million wireless subscribers in 18 countries in the Americas - has been interested in entering the Canadian market by offering a cheap, no frills wireless service over the network of an incumbent provider, such as BCE Inc.

Mr. Huang wrote that he thinks America Movil "may have approached the incumbent(s)" with a network sharing proposal at some point over the past year, but "has yet to come to an agreement."

At first glance, it would make little sense for an incumbent provider to allow a rival to offer a cheap, prepaid top-up service over its network as it would only further depress prices.

But such agreements are not unheard of in Canada, a country with challenging geography and companies with regional strengths. In Quebec, Quebecor Inc.'s Vidéotron Télécom Ltée was offering wireless service over Rogers Communications Inc.'s network for years until it launched its own wireless network, as was the Bragg family's Eastlink Communications in the Maritimes.

The arrangement allows the network owner to gain revenue from the services being used, while the service provider gains sheer subscriber numbers or, in the case of a company like Vidéotron, is able to offer one more additional service to keep more valuable customers happy and in the fold.

America Movil wouldn't own a network or any regulated wireless spectrum licences if it came to Canada by partnering in a so-called MVNO (mobile virtual network operator) arrangement. Mr. Huang says that Canada's current foreign ownership restrictions would not prevent a foreign player from entering Canada in such a deal. Indeed, Virgin Mobile Canada started as an MVNO with Bell Canada back in 2004.

But even if foreign ownership rules don't need to be tweaked to allow deals like this to occur, the public nature of discussions around lifting foreign ownership restrictions, and the Conservatives' stated stance on accomplishing just that, is likely resulting in more interest from operators outside the country, said Brahm Eiley of Toronto-based Convergence Consulting Group Ltd.

"Seeing a guy like this, who's been an absolutely brilliant business man, look at the Canadian market and want to get in - that should be expected at this stage," said Mr. Eiley, who stressed he had no first-hand knowledge of any possible deal. "It makes total sense for him to look at this."

Globalive Wireless Management Corp., which operates the Wind Mobile cellular brand, is currently grappling with questions over its foreign financing in the Federal Court of Appeal after a long and rocky regulatory road. But anyone who expects foreign players to be kept out of Canada in the future is likely kidding himself, Mr. Eiley said.

"I think it's to be expected that we're going to see some radical transformation of Canadian regulatory policy over the next couple of years, and that should be boiled into people's analysis," he added. "We just need to get through this Globalive period, and then we'll see a lot more deregulation."

For Mr. Slim, who is considered the world's richest man by many, it would add another jigsaw puzzle piece to his domination of the Americas, with service already offered in countries from Argentina, through the Caribbean and the United States. He has been under pressure recently in Mexico, where his company is headquartered and has long battled with regulators, and has recently been the unwelcome recipient of a $1-billion (U.S.) anti-trust fine.

There is a small possibility that Mr. Slim could choose to partner with one of Canada's new wireless competitors, such as Wind Mobile or Mobilicity, but Mr. Huang seems to believe that America Movil is more likely to partner with a more established wireless business, such as BCE's Bell Mobility unit.

"[America Movil's]entry may initially dampen investor sentiments on the incumbents. However, we believe the incumbent that supports [America Movil]would be the biggest beneficiary, while the new entrants would be the biggest victims," he wrote.

 

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