The Canadian wireless spectrum auctions took a surprising twist yesterday as the mysterious Niagara Networks Inc. withdrew its application and another player revealed tech legend Paul Allen is backing its bid.
Niagara Networks had attracted ample speculation since it submitted the top financial deposit in the auction, $881-million in an undisclosed form, earlier this month. Douglas Evashkow, president of the unknown company, had declined to discuss the bid and didn't return a call seeking comment yesterday.
The news of Niagara Network's departure came as Industry Canada, the government department responsible for the coming auction on May 27, published its list of approved bidders and their partners.
While many were already known, Mr. Allen, Microsoft Corp.'s co-founder, stepped out of the shadows and emerged as the backer behind John Bitove's Data & Audio-Visual Enterprises Wireless Inc.
Mr. Allen is a formidable competitor, but the elimination of Niagara Networks will likely take pressure off would-be entrants bidding for the wireless spectrum, one analyst said. Considering Niagara Network's hefty deposit, many thought it had deep-pocketed investors behind it. "It looked like they may have some mega big-buck guys behind them," said Genuity Capital Markets analyst Dvai Ghose.
"The net impact of [yesterday's]events is less aggressive bidding," Mr. Ghose said.
There are now 27 companies planning to bid for the spectrum, many of whom hope to acquire the airwaves that Ottawa is setting aside just for new entrants. Canada's wireless industry is attractive because fewer people own cellphones, and monthly bills can be higher than in other countries.
Mr. Allen, 55, the Seattle billionaire who ranks as the world's 41st-richest person, is backing Mr. Bitove's bid through his investment company, Vulcan Capital. Mr. Allen is best known for founding Microsoft with Bill Gates in 1975. He still owns a significant stake in the firm, but has spent much of the past decade pursuing other investments and philanthropy. In 2007, Mr. Allen was included in Time Magazine's 100 Most Influential People in the World.
In addition to Vulcan, Mr. Bitove has also brought onboard Quadrangle Group, a New York-based private investment firm with more than $6-billion (U.S.) in assets. Quadrangle is involved in the wireless industry through a company that leases spectrum to other users, including businesses.
The bid has been structured so that about 66.6 per cent of the voting shares are under Canadian control, while Quadrangle will own 18.2 per cent and Vulcan will hold 15.2 per cent. Mr. Bitove's group will own 56 per cent of the economic interest of the company, while Quadrangle holds 24 per cent and Vulcan, through an affiliate, owns 20 per cent.
Mr. Bitove's interests include the XM Canada satellite radio business and Priszm, a firm that owns several hundred KFC, Taco Bell and Pizza Hut restaurants across Canada.
Mr. Bitove is also applying to the Canadian Radio-television and Telecommunications Commission for the right to launch a new national TV network in high-definition, and a ruling on the proposal is expected as early as this week.
"We are excited to participate in this auction," Mr. Bitove said yesterday in a statement. "We strongly believe that Canadian consumers deserve the best and most innovative wireless technology."
The addition of Mr. Allen, who has a personal net worth of $16-billion (U.S.), adds considerable heft to Mr. Bitove's bid to become a large player in the auctions.
Mr. Bitove will face off against other high-profile hopefuls such as Manitoba Telecom Services Inc., which has teamed up with the Canada Pension Plan Investment Board and Blackstone Group LP; Shaw Communications Inc.; Quebecor Media Inc.; and Globalive Communications Corp. and its partners Weather Investments, a wireless firm controlled by Egyptian billionaire Naguib Sawiris, along with Iceland's Bjorgolfur Thor Bjorgolfsson of the wireless investment firm Novator.
Among other changes, Triple Five Universal Enterprises Ltd., owned by the Ghermezian family, plans to bid on less spectrum, reducing its deposit to just $11-million from $143.6-million earlier in March.
Earlier this month, those who wanted to participate in the auction had to file applications along with deposits in the form of a standby letter of credit. Industry Canada said yesterday Canadian Tele Corp. was disqualified and YourLink Inc. also dropped out.
Grant Robertson