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Wind Mobile parent sees loss widen on Canadian charge

A Toronto-area Wind Mobile store.

Sarah Dea/The Globe and Mail

Orascom Telecom Holding SAE posted a wider net loss for the final quarter of 2012 after recording an impairment charge on a loan for its Canadian operations, which does business under the Wind Mobile brand name.

The Cairo-based telecom said Wednesday that its net loss for the fourth-quarter amounted to $474-million (U.S.) or 8 cents per share. That compared to a loss of $125-million, or 2cents, for the same period in 2011.

Orascom said it swung to a wider quarterly loss mostly because of an impairment charge of $339-million for a shareholder loan to Toronto-based Globalive Investment Holding Corp.

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Last fall, Orascom (which is majority-owned by Amsterdam-based VimpelCom Ltd.) announced that it would restructure a loan to Globalive and forgive roughly $450-million worth of interest. At the same time, it announced a proposal to take majority control of Globalive by converting its non-voting shares into voting shares.

Then in January, Orascom announced it was buying out Wind founder Anthony Lacavera to further solidify its control of the Canadian unit – taking advantage of new foreign investment rules that allow for 100 per cent foreign ownership of small telcos. Once the deal closes, Mr. Lacavera plans to step down as chief executive officer of Wind.

Those moves have prompted much speculation about Orascom's long-term plans for Wind Mobile. The principal balance left on its loan to Globalive, which remains due, is about $770-million, said Orascom's chief financial officer Khalid Ellaicy on a conference call.

Still, some analysts have suggested its decisions to simplify Wind's ownership structure and clean up its balance sheet could lay the ground work for an eventual merger with new entrant rival Mobilicity or for an eventual sale of Wind to a Canadian incumbent once a standstill agreement expires next year.

Chief executive officer Ahmed Abou Doma said Orascom's formal takeover of Wind, including the purchase of Mr. Lacavera's stake, remains subject to final regulatory approvals in Canada. Moreover, the company wants to secure those approvals before making any final decisions about how to "handle" its Canadian investment.

VimpelCom's chief executive officer, Jo Olav Lunder, echoed those sentiments on a separate conference call on Wednesday. "Step 1 now is to take control of the company and the reason for doing that is basically to decide our own destiny in the country without having to deal with partners and too many stakeholders. And then we will just evaluate the options available – and there are multiple options available for us in Canada."

Running through those alternatives, he said the company could ultimately choose to exit Canada; do an "in-market merger" to consolidate with another Canadian carrier; or continue to grow organically.

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"We will test the different options available," Mr. Lunder added. He also stressed that recent commentary he made at the Mobile World Congress in Barcelona about potential opportunities in Canada "was not meant to be a declaration of an acquisition strategy in Canada – even though maybe it was maybe perceived like that."

During the fourth-quarter of 2012, Wind Mobile increased its subscriber base by 47 per cent on a year-over-year basis to 590,438. It also continued its network rollout in the Ontario cities of Peterborough and Windsor.

"Wind Mobile continued to strongly deliver on its 'Value Plus' strategy adding primarily postpaid subscribers while carefully managing prepaid economics for both voice and mobile broadband customers," Orascom said in its release.

Postpaid customers pay their bills at the end of the month, rather than prepaying for service. Wind announced last year that it was shifting its business strategy to focus on acquiring more postpaid subscribers as they tend to generate fatter revenues.

"On the commercial front, Wind Mobile enjoyed a strong holiday season," Orascom added. "A new media campaign and promotional offers were launched to support the important selling season."

Wind Mobile's fourth-quarter average revenue per user, a key metric that reflects customers' monthly bills, increased to $28.10 (CAD), up from year-ago $26.40, Orascom said.

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"While Wind's results are improving and VimpelCom/Orascom is in the process of assuming control of Wind Mobile Canada, we question whether it wants to put in another estimated $1-billion of capital to fund LTE (long-term evolution) upgrades and 700 MHz spectrum," wrote Dvai Ghose, an analyst with Canaccord Genuity, in a note to clients.

"We believe that VimpelCom will continue to finance Wind Canada in the near term, but that it is also seeking strategic alternatives including a possible sale."

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