Globalive Capital is bolstering its bid for Freedom Mobile by striking a network and spectrum sharing deal with telecom giant Telus Corp. T-T that would allow Freedom, now Canada’s fourth-largest wireless carrier, to expand nationally.
The agreement spans a minimum of 20 years and is conditional upon Toronto-based Globalive acquiring Freedom, which has roughly two million customers in Ontario, Alberta and British Columbia, from Shaw Communications Inc. SJR-B-T
Rogers RCI-B-T, also based in Toronto, wants to sell Freedom in order to address competitive concerns about its proposed $26-billion takeover of Shaw.
The tentative network sharing deal would give Vancouver-based Telus access to Freedom’s wireless airwaves. Freedom currently holds spectrum licences in the three provinces it operates in. (Spectrum refers to the airwaves used to transmit wireless signals.)
Globalive chairman Anthony Lacavera said the agreement “sets the stage for the Canadian market to be competitive for the very long term,” adding that Canada’s wireless market would benefit from a wireless-only competitor similar to T-Mobile in the United States.
“If we are successful in acquiring the current regional Freedom business we will begin acquiring spectrum beyond Ontario, B.C. and Alberta and build a national, pure-play [wireless] independent carrier,” Mr. Lacavera said in an interview.
Globalive has offered $3.75-billion to buy back Freedom, formerly called Wind Mobile, a business Globalive founded in 2008 before selling it to Shaw for $1.6-billion in 2016.
Globalive’s all-cash offer to acquire Freedom’s spectrum licences, customer accounts, cellphone towers and stores is backed by a group of investors led by Twin Point Capital, a U.S. principal investment firm, and Boston-based investment manager Baupost Group. Twin Point Capital was founded by former T-Mobile director Lawrence Guffey and Jonathan Friesel.
Globalive has alleged that Rogers has excluded it from the sale process, The Globe and Mail previously reported. Those negotiations have included Stonepeak Infrastructure Partners, the New York-based private equity firm that owns rural internet provider Xplornet Communications Inc., as well as a group that includes Musqueam Capital Corp., the $10-billion LiUNA Pension Fund of Central and Eastern Canada and the Aquilini family, who own the Vancouver Canucks.
The Competition Tribunal has set a hearing for late June on the bureau’s application for an injunction that would prevent Rogers and Shaw from closing the deal.
Rogers’s takeover of Calgary-based Shaw requires approval from the Competition Bureau, as well as the Department of Innovation, Science and Economic Development. Shaw has said a negotiated settlement with the competition watchdog that would see Freedom sold to maintain a fourth wireless competitor is the “best and most logical outcome.”
Mr. Lacavera said he believes the network and spectrum sharing deal represents a “substantial strengthening” of Globalive’s proposal, and if Rogers were to accept the offer, it would allow Rogers to close its takeover of Shaw.
“I am hopeful that Rogers will now see us as the preferred [buyer],” Mr. Lacavera said. “I think we’re on better footing than Quebecor because we are a pure-play independent, and Canada is in need of a pure-play independent.”
He said a wireless-only player could compete more aggressively than a communications conglomerate that would have to protect legacy businesses, such as internet and cable TV, from retaliatory attacks by larger rivals.
Mr. Lacavera added that the Canadian government’s telecom policy emphasizes spectrum sharing as a way of maximizing the usage of the scarce, finite resource.
Scotiabank analyst Jeff Fan said unless regulators force Rogers to sell Freedom to Globalive, “we think it is unlikely that [Rogers] will entertain Globalive’s proposal.”
Rogers is already in a disadvantaged position relative to Bell and Telus, which share parts of their cellular networks and spectrum. “It would be three versus one on network investment and spectrum position,” Mr. Fan wrote in a research note.
Regulators would likely find the network sharing arrangement acceptable, as long as Freedom still has an incentive to compete, Mr. Fan said.
“We think this announcement will encourage Rogers to deal with Quebecor if they want to have this resolved before July 31,” he added, referring to the new, extended deadline for the cable merger.
In documents filed with the Competition Tribunal, Matthew Boswell, the Commissioner of Competition, argued that separating Freedom from Shaw’s network infrastructure would weaken the carrier by removing its ability to offer bundled services.
However, Mr. Lacavera argued that “Canadians need their legacy cable and home phone connections about as much as I need my VCR, CD player and a paper ticket from Air Canada.”
“Those days are over; we’re in a wireless-first world,” he added.
National Bank analyst Adam Shine has also disputed the bureau’s bundling argument, noting in a recent research note that Freedom’s market share gains were “disproportionately occurring in Ontario, where Shaw wasn’t doing any bundling.”
A spokesperson for Telus said the telecom has been providing access to its network infrastructure for over 20 years.
“The network sharing agreement announced today will allow Globalive to expand its network reach and coverage if they are the successful [buyer of] Freedom Mobile as part of the proposed merger between Rogers and Shaw,” Richard Gilhooley said in a statement.
Laurie Bouchard, a spokesperson for Innovation, Science and Industry Minister François-Philippe Champagne, said the government is “strongly committed” to promoting competition and affordability in cellphone markets.
“As the regulator responsible for approving the transfer of licensed spectrum, he will review any applications on their merit and what is in the best interest of Canadians,” Ms. Bouchard said in a statement.
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