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Regional cable firms tapped as suitors in wireless consolidation

Speculation is rife that wireless newcomers are poised for consolidation ahead of the federal government's auction of the 700-megahertz frequency next year.


Regional cable companies such as Vidéotron Ltée and Shaw Communications Inc. are best positioned to drive consolidation in the wireless sector by acquiring new entrants, a strategy that would enable them to better compete as "quad" plays.

Speculation is rife that wireless newcomers are poised for consolidation ahead of the federal government's auction of the 700-megahertz frequency next year. Wind Mobile, for one, has mused that the auction will be a catalyst for mergers and acquisitions and has made no secret that it is in talks with other new entrants.

Even so, a new report by Moody's Investors Service argues that there is little potential for the three wireless-only players (Wind, Mobilicity and Public Mobile) to merge on their own. It contends that a consolidated entity would continue to grapple with financing challenges for costly capital expenditures, while facing an uphill battle to attract subscribers with a wireless-only offering.

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For those reasons, Bill Wolfe, a Moody's vice-president, said regional cable companies such as Vidéotron, a unit of Quebecor Inc. , Shaw or even Bragg Communications Inc. are better suited to be potential acquirers of those small wireless players.

"Most of them have pretty reasonable financial profiles, and they can bring some money to the table that an amalgamation amongst any combination of those three small players might not solve," Mr. Wolfe said in an interview on Wednesday.

Additionally, the report notes that regional cable companies could offer wireless upstarts badly needed scale, access to fixed-line infrastructure and the necessary funding for expensive network investments and spectrum purchases.

Vidéotron is already a wireless player in Quebec, while Halifax-based Bragg plans to launch its wireless service later this year. Shaw, meanwhile, has put its wireless plans on hold indefinitely, opting instead to pursue a WiFi-based strategy in Western Canada. Even so, it is too soon to count Shaw out completely, said Mr. Wolfe, noting that it might be "an attractive option" for the company to acquire a wireless asset in the future rather than trying to build out a network itself.

Although it remains unclear whether any of those regional cable providers are harbouring larger-scale wireless aspirations, it is widely expected they will all participate in the 700-MHz spectrum auction. "Since the cable companies also would qualify as new entrants to the telecom market, they can acquire another new entrant at any time (subject to ministerial approval)," the report said.

While Mr. Wolfe declined to hazard a guess on when wireless industry consolidation might take place, if at all, he noted that acquisitions of new wireless entrants by regional cable providers would also give those companies the opportunity to bundle cellular products with their existing television, Internet and residential home phone offerings.

That type of "quad play" bundling strategy is becoming increasingly crucial to retaining clients in a maturing telecommunications market because consumers are given the incentive to stay loyal through multiproduct discounts.

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Even though it is challenging for regional companies to offer bundles outside their home markets, some are finding innovative ways to do it. Earlier this month, for instance, Shaw announced that it is partnering with Xplornet Communications Inc. to offer a discounted bundle that combines Shaw Direct satellite TV with Xplornet's high-speed Internet service.

Ottawa, meanwhile, has also signalled its intention to relax the foreign investment rules for small telecom companies. But Moody's is skeptical that any foreign player would acquire a wireless-only upstart given that the big three incumbents (Rogers Communications Inc., BCE Inc. and Telus Corp.) collectively control 91.5 per cent of the market and benefit from major cost advantages.

"We think that the return equation is too speculative given the number of facilities-based quad-play competitors," the report said.

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