Ottawa’s failure to entice a large foreign wireless company to bid in an upcoming spectrum auction is threatening the government’s effort to create a stable fourth player in Ontario, Alberta and B.C.
No foreign carriers were included on a list of applicants, released Monday, for the auction of 700 megahertz frequency, despite a major push by Ottawa to relax foreign investment restrictions for small telecoms and provide incentives for new players to acquire wireless licences.
Industry players have been anxious to know if any foreign telecom carriers applied after Verizon Communications Inc. nixed its plans for a Canadian expansion. Until now, the participation of a foreign carrier was seen as Ottawa’s best hope of ensuring its goal of having at least four competitors in every regional market.
Now the government’s chances of success appear to ride on two local private-equity firms, Birch Hill Equity Partners Management Inc. and The Catalyst Capital Group Inc., which were among the auction’s 15 applicants. The stakes are high because the 700 MHz frequency is the most desirable spectrum that has ever come up for bidding, and the auction’s outcome could shape competition for decades. Even so, Industry Minister James Moore appeared unfazed by the lack of foreign interest, suggesting that Ottawa may have other plans to fuel more competition.
“In addition to this auction, our government will continue to aggressively pursue policies that ensure consumer interests are at the core of all government decisions,” Mr. Moore said in a statement.
There has been speculation that Ottawa could decide to regulate roaming rates or set the prices that carriers pay to share cell towers – moves that could buttress private-equity’s interest in acquiring new-entrant carriers. Out of the independents, only Wind Mobile’s parent, Globalive Wireless Management Corp., appeared on the auction’s applicant list.
“Does a stronger fourth carrier emerge from the ashes?” Greg MacDonald, a telecom analyst with Macquarie Capital Markets Canada Ltd., wrote in a note to clients. He added: “In our view, a private equity backed bid for Globalive remains a likely scenario post-auction. Investors should not underestimate the potential for Catalyst and/or Birch Hill to put together a bidding consortium for Globalive post auction and form a more sustainable fourth carrier, particularly if the government is prepared to take further action on roaming to help this scenario.”
Birch Hill, which explored acquisitions of Wind and Mobilicity in recent months, signed up to bid as BH Wave Acquisition Corp. Sources have previously said that Birch Hill’s interest in purchasing new-entrant spectrum assets largely hinges on its ability to sign a network-sharing deal with Rogers. Both Birch Hill and Rogers declined comment on Monday.
Catalyst Capital Group, meanwhile, is also an applicant for the auction. It is one of Mobilicity’s largest bond holders and has presented the small carrier with a debtor-in-possession financing proposal, sources say.
Noticeably absent was Data & Audio-Visual Enterprises Wireless Inc., which is the legal name for Mobilicity. However, another company, called Feenix Wireless Inc., that listed John Bitove as its CEO, did sign up to participate. Mr. Bitove is also executive chairman of Mobilicity. His plans for Feenix remain unclear.
Public Mobile, meanwhile, also did not appear on the list of applicants despite coming under a new ownership structure in June that included Thomvest Seed Capital Inc., an investment firm founded by Peter Thomson, and New York private equity firm Cartesian Capital Group LLC.
Although the futures Mobilicity and Public Mobile now appear in doubt, their respective decisions to sit out the auction keeps them clear to pursue any merger-and-acquisition opportunities over the coming months. Under the auction’s rules, only registered bidders are required to cease merger talks until final payments for spectrum are made next year.
As expected, the Big Three incumbents, which include Rogers Communications Inc., BCE Inc. and Telus Corp., signed up to bid. Among the regional carriers, Eastlink, MTS, Sasktel and Quebecor Inc.’s Videotron unit also submitted applications. Lesser known applicants included Calgary-based 1770129 Alberta Inc., Victoria-based Vecima Networks Inc., TBayTel and Novus Wireless Inc.
“Included in our 2014 forecasts have been assumptions that Rogers, TELUS, and Bell will spend approximately $700 million each to acquire 700 MHz spectrum, that Quebecor would spend $300 million, and MTS would pay $50 million. While it remains to be seen what bidding tension will actually ensue, the absence of large foreign players suggests that our spectrum acquisition estimates could prove overly-conservative and offer some upside to our current targets,” wrote Adam Shine of National Bank Financial.
The inclusion of Novus raised some eyebrows. The company, which is controlled by real-estate mogul Terence C.Y. Hui of Concord Pacific Developments fame, participated in the 2008 auction. But it later sold its G band licences to Telus earlier this year for an undisclosed amount.
Applicants had faced a Sept. 17 deadline to file application papers and submit a 5-per-cent initial deposit. That down payment is fully refundable if an applicant opts not to participate in the auction when bidding begins on Jan. 14, 2014.
The 15 applicants are:
- Verizon’s interest in Canadian market deeper than admitted
- Ottawa warns wireless carriers on discussing spectrum strategies
- ‘Fair for Canada’ was fear of Verizon: Industry Minister
Companies & investments Mentioned In This Article (4)
RCI.B-T 46.92 -0.572 % 179,396 Verizon Communications
VZ-N 48.91 -0.932 % 6,878,683 BCE Inc.
BCE-T 46.62 -0.107 % 289,918 TELUS Corp.
T-T 36.99 -0.937 % 488,343