Mobilicity is pleading with the federal government to provide financial help to cash-strapped wireless upstarts, arguing that capitalization has become a “life and death matter” for small carriers.
The Vaughan, Ont.-based company, which is legally known as Data & Audio-Visual Enterprises Wireless Inc., is in the throes of a restructuring that could culminate in a sale or recapitalization plan.
But with the outcome far from certain, the carrier is doubling down on its appeal to Ottawa for “direct or indirect assistance” in raising capital.
Its request comes just over a month before carriers have to put down initial deposits to secure their spots as bidders in an upcoming auction of wireless licences that could make or break sustainable competition in the sector.
The stakes are high because two other new-entrant carriers are also in play. Among them, Wind Mobile has yet to commit to participating in the 700 megahertz auction, while Public Mobile is asking for a later deadline to put down money. Taken together with Mobilicity’s entreaty, those are the latest signals that the trio of upstarts lacks the money to bid, which threatens Ottawa’s goal of ensuring at least four carriers in every regional market.
“The new entrants have barely managed to wrest 6 per cent of the market from the incumbents and the street is rife with apprehension and ‘for sale’ signs,” Mobilicity said in a submission to Industry Canada late Friday. “Bold action is again called for, if the Department is truly committed to supporting competition.”
Facing a June 11 deadline for its first deposit for the next auction, Mobilicity is asking for help on two fronts when it comes to capital. First, it wants Ottawa to allow new entrants to pay for any new spectrum licences in instalments that would stretch over an entire licence term. In the case of the 700 MHz frequency, which will be auctioned off in November, licence terms have been set at 20 years.
Second, Mobilicity is asking that Ottawa return “the entire auction proceeds to new entrants” for the advanced wireless services (AWS) spectrum that they acquired in 2008.
“This would be repaid back to the Department subject to a nominal rate of interest, over the remaining length of the licence term,” the carrier added.
In making its request, Mobilicity said that Ottawa had assisted larger carriers during the industry’s early days by assigning spectrum in less transparent processes including comparative reviews, which are otherwise known as “beauty contests,” or on a first-come, first-served basis. Although incumbents pay licence fees (which their industry association says are among the highest in the world), the licences were given out for “free,” giving those carriers a key head start.
Mobilicity spent more than $243-million for its AWS licences, while Wind Mobile shelled out $442-million. Public Mobile paid $52.38-million, but its spectrum was not part of the licences reserved for new entrants during the 2008 auction.
For its part, Mobilicity said its requests for help, if approved, would “immediately alleviate the pressure currently felt by the new entrants” while ensuring sustainable competition.
The company made its requests as part of Industry Canada’s review of spectrum licence transfers. The outcome of that consultation could result in new rules that could make it tougher for the big three wireless carriers to acquire new-entrant spectrum when a standstill agreement expires next year.
Telus Corp. has been in talks to acquire Mobilicity. Although Telus has previously declined comment on the matter, its representatives have participated in meetings with government officials in recent weeks, according to a source.
Mobilicity is also emphasizing the importance of “transferability freedom of auctioned spectrum” in its submission to Industry Canada.
But the company’s future remains up in the air, especially since it is also fighting a legal battle with one of its bond holders, Catalyst Capital Group Inc., over a recent financing agreement.
That private equity firm, which is headed by Newton Glassman, is also interested in gaining control of Mobilicity and staging a potential merger with Wind Mobile. Catalyst recently hired four consultants to lobby Ottawa on spectrum issues, according to the lobbyist registry.
For its part, Public Mobile is urging Ottawa to give carriers until Sept. 10 to put down a full deposit for the 700 MHz auction.
“It is a simpler process for everybody to manage,” said Bruce Kirby, vice-president of strategy and business development, in an interview on Friday. “And there is a lot of uncertainty going on these days. You know, sort of trying to allow some of that to work itself out before you actually engage in the auction process has value, I think, ultimately for the government and for anybody that’s in the industry.”
Bell and Rogers, meanwhile, argue that a competitive secondary market for spectrum that would allow carriers to beef up capacity on their networks is in the broader public interest. They note that that the big three may hold 85 per cent of available spectrum in Canada, but also serve 90 per cent of customers.
“The proposed new policy appears to be aimed at limiting incumbent carriers like Rogers from gaining access to additional spectrum,” said their submission. “This is not in the best interests of Canadians since it will reduce the ability of carriers to respond in an efficient and timely manner to growing demand from consumers and business users.”