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Showgoers visit the Verizon booth on the first day of the Consumer Electronics Show (CES) in Las Vegas, Jan. 8, 2013. Sources tell The Globe and Mail that the U.S. telecom giant’s interest in expanding into Canada ran deeper than previously revealed – and involved not one, but two proposed deals for smaller wireless carriers. (Rick Wilking/REUTERS)
Showgoers visit the Verizon booth on the first day of the Consumer Electronics Show (CES) in Las Vegas, Jan. 8, 2013. Sources tell The Globe and Mail that the U.S. telecom giant’s interest in expanding into Canada ran deeper than previously revealed – and involved not one, but two proposed deals for smaller wireless carriers. (Rick Wilking/REUTERS)

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Verizon’s interest in Canadian market deeper than admitted Add to ...

As the federal government prepares to reveal which companies plan to join the coming auction of wireless licences, new details have emerged about Verizon Communications Inc.’s flirtation with entering the Canadian market.

Chief executive officer Lowell McAdam declared earlier this month that Verizon had lost interest in Canada and “never seriously considered” a move into this country’s $19-billion wireless market. But sources tell The Globe and Mail that the U.S. telecom giant’s interests here ran deeper than previously revealed – and involved not one, but two proposed deals for smaller wireless carriers.

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Before pulling the plug on its Canadian expansion, Verizon tabled a $350-million preliminary offer for struggling start-up Mobilicity over the summer. That was in addition to its $700-million initial offer for another small carrier, Wind Mobile. Verizon also looked at another way of entering the market that would not require a spectrum purchase, but would involve leasing space on an existing wireless network.

Verizon’s offer for Mobilicity, which is legally know as Data & Audio-Visual Enterprises Wireless Inc., largely reflected the value of the small carrier’s spectrum and did not include any assumption of debt. Mobilicity paid $243.1 million for its spectrum licences during the 2008 auction. It launched service in 2010 and has roughly 250,000 customers.

Verizon spent months studying the merits of both the Mobilicity and Wind deals, with a large contingent of its staff spending long stretches in Canada as local law firms and accountants conducted due diligence on its behalf.

The fact that the company made offers for two Canadian carriers, which together have 900,000 subscribers, highlights the serious competitive threat that Rogers Communications Inc., BCE Inc. and Telus Corp. narrowly avoided after the U.S. carrier backed away from Canada to focus on a much larger deal to take 100-per-cent ownership of its U.S. wireless unit. It also underscores the struggle that Mobilicity now faces in the absence of a willing buyer.

Earlier this year, the federal government rejected Telus Corp.’s $380-million acquisition offer for Mobilicity. The Vaughan, Ont.-based carrier is now assessing a number of options, including potential debtor-in-possession financing proposals. One of those offers is from private-equity firm Catalyst Capital Group Inc., one of Mobilicity's largest bond holders.

At the end of 2012, Mobilicity’s long-term debt stood at $364.1-million, according to court filings. The company declined comment on its future plans. It is unclear whether it will participate in the 700 megahertz auction.

Aside from potential acquisitions of Mobilicity and Wind, Verizon also looked at launching a “mobile virtual network operator,” or MVNO, program in Canada. MVNOs do not own their own spectrum or cellular towers. Instead, they lease space on an existing carrier’s network to offer a wireless service. (PC Mobile, for instance, offers wireless services under a MVNO deal with Telus.)

By mid-August, Verizon had begun to cool to the prospects of a Canadian expansion, signalling that it was putting off any acquisitions until after the federal government’s 700 MHz auction early next year. Weeks later, it nixed its Canadian plans completely after announcing its $130-billion (U.S.) deal to take full control of Verizon Wireless by buying out its joint-venture partner Vodafone Group PLC.

Verizon spokesman Bob Varettoni declined comment Thursday on the company’s previous offers for Mobilicity and Wind, along with its assessment of MVNO opportunities in Canada. He confirmed that the company did not file application papers this week to bid in the 700 MHz auction, which begins Jan. 14, 2014.

Carriers had faced a Sept. 17 deadline to file the necessary paperwork and put down an initial refundable deposit. Industry Canada is scheduled to publish a list of applicants on Sept. 23.

“We have received confirmation from Verizon, AT&T, Sprint, and T-Mobile USA that they did not submit applications for the Canadian 700 MHz auction,” wrote Jeff Fan, a telecom analyst with Scotia Capital Inc. in a note to clients late Wednesday. “We believe the absence of a large U.S. operator removes a threat for the Canadian wireless carriers ... Although there is still speculation about other large global operators being involved, we do not believe they would have the same impact on Canada as the U.S. carriers.”

Earlier this week, Industry Minister James Moore said the only reason the Big Three launched their multimillion-dollar “Fair for Canada” advertising campaign this summer is because they were afraid of competing with Verizon. Executives at Rogers, BCE and Telus have since bristled at his suggestion, arguing their fight was always about creating a level playing field – one where large foreign carriers do not benefit from “special” treatment.

“Our concern was never about Verizon coming into Canada or not, but rather about fair access to spectrum, a scarce natural resource that belongs to all Canadians,” Josh Blair, Telus’s chief corporate officer, said in an e-mailed statement. “In fact, Telus has been on the record since 2001 calling on the government to remove all restrictions on foreign competition in Canada, on a fair basis. Telus was built on competition and welcomes it from any corner.”

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