Verizon bid for Wind followed meeting with federal government

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Verizon Communications Inc. decided to take a hard look at investing in Canada's $19-billion wireless market following a key meeting with the federal government in late May.

The New York-based telecom sent a contingent of staff to meet with officials from Industry Canada on May 21, according to a document obtained by The Globe and Mail. Although that document is short on specifics, two people familiar with the situation separately confirmed that Verizon employees and government officials conducted "exploratory talks" in Ottawa about wireless opportunities on that spring day.

Among those present for the meeting were members of Verizon's mergers-and-acquisition team. Sources say that following the trip to Ottawa, Verizon decided to undertake a more detailed assessment of potential "market opportunities" north of the border. Weeks later, it tabled a preliminary $700-million offer for Wind Mobile and signed a non-disclosure agreement with Mobilicity as part of early-stage talks with the struggling startup.

The revelations about the government's dealings with Verizon come at a time of heightened tension between Ottawa and the Big Three wireless carriers. Rogers Communications Inc., BCE Inc. and Telus Corp. have launched a high-profile lobby campaign, accusing the government of providing Verizon with unfair advantages to enter the market at the expense of Canadian incumbents. They continue with those efforts despite comments from Prime Minister Stephen Harper on Friday, who said his government won't back down on its efforts to promote more competition in the wireless sector.

"As part of departmental business, officials meet regularly with representatives from telecommunication companies as well as stakeholders on a variety of subjects," Industry Canada said in an e-mailed statement.

A spokesman for Verizon, meanwhile, declined comment on the company's meetings with government officials. Verizon has not yet decided whether it plans to acquire new entrant carriers or participate in the auction of the 700-megahertz frequency in January. A third source, however, said a senior Verizon executive made a separate trip to Toronto in early May to meet with potential investors but expressed no interest in the Canadian market at that time.

Phil Lind, vice-chairman of Rogers, told the Toronto Star's editorial board last month that government officials travelled to New York to offer "favours" to Verizon but provided no details about when that trip took place.

In late February, former industry minister Christian Paradis travelled to Barcelona to encourage foreign telecoms to invest in Canada's wireless sector. In addition to Verizon, foreign telecoms including AT&T Corp. and T-Mobile, Vodafone Group PLC of Britain, Telenor Group of Norway and Japan's NTT Docomo have all taken a cursory look at the Canadian market, sources say.

"It's very clear that Verizon does not need government handouts. It is four times the size of Bell, Telus and Rogers combined," BCE chief executive officer George Cope said on a conference call last week.

The Consumers Association of Canada, meanwhile, applauded Ottawa's wireless policy. "Consumers are telling us they welcome the new choices Verizon's entry will bring," president Bruce Cran said. "We are hearing also that consumers are offended by the extravagance of the major telecom's massive advertising program attacking the Harper government's decision."

If Verizon decides against entering the Canadian market, it could negotiate a roaming deal with a Canadian carrier. Such a sweetheart agreement would allow Verizon's U.S. subscribers to roam within Canada on preferential rates, one source said.

Industry Canada, meanwhile, is having quiet discussions with Birch Hill Equity Partners Management Inc. on its proposed acquisition of Wind Mobile. The Toronto-based private equity firm is partnering with Rogers on that deal for Wind, and potentially another for Mobilicity. The plan would see Birch Hill take a controlling ownership stake in Wind, while Rogers would chip in capital in exchange for a network-sharing agreement.

Although the government does not provide pre-approvals for deals, Birch Hill is in the process of trying to convince Industry Canada that it would remain in control of the Wind's spectrum assets and that it is not an affiliate of Rogers. VimpelCom Ltd., Wind's foreign backers, are said to be concerned that the deal would not pass muster with regulators.