Verizon Communications Inc. looked at opportunities in Canada but “never seriously considered” a move into this country’s $19-billion wireless market, says its top executive.
Chief executive officer Lowell McAdam said Tuesday that Verizon would continue to assess “selective” international expansion opportunities following its $130-billion (U.S.) deal to take full control of Verizon Wireless, but that a Canadian expansion is no longer in the cards at this time.
In June, Verizon tabled a preliminary $700-million (Canadian) offer for Wind and signed a non-disclosure agreement with Mobilicity as part of early-stage takeover talks with the struggling start-up carriers, according to sources familiar with the discussions. Those moves followed a pivotal meeting between Verizon and Industry Canada in late May about potential wireless opportunities.
Verizon’s decision to forgo a Canadian entry, which was first reported on a holiday Monday, fuelled a rally in the stocks of the big three incumbents when financial markets opened on Tuesday. At the same time, it raised fresh questions about the viability of the federal government’s wireless strategy now that a coming spectrum auction appears to have lost a deep-pocketed foreign bidder.
“Look, I just have to say that the press made a lot more of our interest in Canada than there was on the fourth floor of Basking Ridge,” Mr. McAdam said on a conference call with analysts, making reference to Verizon Wireless’s headquarters in New Jersey.
“You know, it is something that we look at. We look at a lot of different countries around the world. We’ll continue to do that but it was always on the fringe for us. And as [chief financial officer] Fran [Shammo] and I have looked at opportunities to push the one Verizon that I talked about before, those are much better returns for our shareholders than going into Canada. So, we never really seriously looked at this – I mean, we looked at it but we never seriously considered the move. And it’s off the table at this point.”
During morning trading on the Toronto Stock Exchange, shares of Rogers Communications Inc. were up more than 7.5 per cent, while those of Telus Corp. and BCE Inc. rose by 7.15 per cent and 4.26 per cent, respectively. Incumbents’ stocks had taken a beating after The Globe and Mail first reported in June that Verizon had submitted an initial bid for Wind, recovering slightly in August after sources said Verizon was starting to cool on Canada.
When pressed on Tuesday by an analyst on whether Verizon would continue to look at international opportunities such as in Europe or elsewhere, Mr. McAdam said: “We’ll look for selective things that make sense. The big key for us is going to be does it enhance shareholder value?”
In that regard, he noted that Verizon already provides service in 150 countries, adding that 70 per cent of the world’s internet traffic touches its IP network each day.
Mr. Shammo, Verizon’s CFO, first publicly confirmed in June that the U.S. telecom giant was exploring a Canadian expansion following a report in The Globe and Mail. The following month, he told investors that Verizon was continuing to have “discussions” about Canada, noting that Ottawa had the delayed a key spectrum auction until January.
“If you look at the population of Canada, about 70 per cent of that population is between Toronto and Quebec. That’s adjacent to the Verizon Wireless properties. Again if you look at the spectrum auction, it mirrors up exactly what we launched here in the United States on the 700 megahertz contiguous footprint,” Mr. Shammo said on the company’s July 18 earnings call.
At the time, however, he also cautioned that the regulatory environment and federal policies regarding foreign investment could prove to be obstacles.
"Lowell McAdam's comments last night that Verizon is not coming to Canada were very surprising to us (obviously, for those who follow our research). We continue to base our opinions on the facts more than the comments and a $700-million offer for Wind was always the swing factor for us proving interest," wrote Greg MacDonald, a telecom analyst with Macquarie Capital Markets Canada Ltd., in a research note to clients on Tuesday.
“That said, we see no reason for McAdam to make these comments if not true since there is no bluff benefit to the company at this point. Therefore, we will be clear in our change of heart on this issue – the probability of Verizon entering Canada is now very low in our view.”
Still, he cautioned that the federal government “will not roll over” on its wireless strategy which has a stated goal of ensuring at least four viable competitors in every regional market.
“Private equity is now the most likely consolidator of new entrants. Recent private equity investments have been made in Public Mobile and Mobilicity, and Accelero remains an interested bidder for the Wind assets. We have also heard that larger telco-focused private equity firms have remained interested in the event that Verizon does not invest,” added Mr. MacDonald. “In our view, the market should not ignore this potential risk particularly if further roaming regulation ensues.”
Adam Shine, an analyst with National Bank Financial, questioned whether there are any other possible new entrants that might participate in the coming 700 MHz auction. Although bidding is scheduled to begin on Jan. 14, 2014, prospective participants are required to file applications and initial deposits by noon on Sept. 17 of this year.
“At this time, we’re not aware of any, with Verizon having been deemed the only formidable foreign company to acknowledge that it was exploring a Canadian entry,” he wrote.
“Second, will the government contemplate another postponement or further regulation? If new regulation was to be explored for the wireless sector, logic and fairness would dictate that it should be done before rather than after material spectrum acquisitions in early 2014. As such, it will be interesting to hear what the government has to say now that Verizon has passed.”
A spokeswoman for Industry Minister James Moore issued a statement late Monday saying the 700 MHz auction would be a win for Canadian consumers “regardless” of the outcome.
For their part, the big three incumbents have already stated they have no plans to back down on their fight to get the government to change its wireless policies.
“The spectrum auction rules are still strongly biased toward large foreign entities – Verizon or anyone else,” said Telus’s chief corporate officer, Josh Blair, said in an interview on Monday evening.
He said his company’s participation in the Fair For Canada campaign, a media blitz launched by the big three, was never about Verizon specifically and that the campaign “has to” continue in order to make the case against “preferential terms” for future foreign entrants.
Telecom consultant Mark Goldberg suggested that it was time for Ottawa to reassess its competition policy for the sector.
“Over the past year and a half, it has liberalized foreign ownership regulations, implemented a stringent code of conduct for wireless providers, added new mandatory roaming and tower sharing rules and changed the conditions for transfer of spectrum licenses. The government needs to take stock of the impact of all of these changes and reflect on whether these are the most appropriate measures to encourage investment and provide consumers with a vigorous competitive marketplace,” he wrote.
With files from reporter Kathryn Blaze CarlsonReport Typo/Error
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