Federal authorities hope a new wireless player created out of the remnants of Manitoba Telecom Services Inc. can keep competition alive and prices low in the province.
BCE Inc.'s $3.1-billion takeover of MTS, one of the last remaining regional telephone companies in Canada, finally cleared to close on Wednesday.
As part of the government approval process, BCE agreed to divest wireless airwaves and subscribers to Xplornet Communications Inc., enabling the rural Internet provider to start selling mobile services in Manitoba. It will be Xplornet's first foray into the cellular business and the company will control only a small chunk of the market in the province – with 24,700 subscribers and six retail stores – but that was enough for federal authorities to bless the deal.
Montreal-based BCE will move from fourth in the province's wireless market to first, with 470,000 subscribers after the deal closes. As the country's largest communications company gets even stronger, Ottawa hopes this latest wireless entrant in Xplornet will be enough to put a check on the power of BCE and its fellow national carriers, Telus Corp. and Rogers Communications Inc.
"I'm not going to build Xplornet up too much because they're our competitor, but at the same time, they've obviously been successful," BCE chief executive officer George Cope said in an interview, pointing to Xplornet's existing base of more than 300,000 Internet and home phone customers in rural areas across Canada.
BCE will also have to help its new competitor get started by giving it spectrum licences that cover the entire province plus access to cell towers and roaming services and helping Xplornet supply customer handsets for a period of time. Mr. Cope said those were the kind of concessions "we haven't seen before," adding: "I think that helps facilitate their entry into the market."
The Competition Bureau and the federal department of Innovation, Science and Economic Development (ISED), both approved the transaction on Wednesday, after what Mr. Cope called a "long, drawn-out negotiation" that included working out the terms of its agreement to help Xplornet launch mobile services in Manitoba.
For the better part of the last decade, the government has pursued a telecom policy aimed at bolstering competitors to the Big Three. The competition watchdog said Wednesday that because of "co-ordinated behaviour" among the three, mobile prices are cheaper in parts of the country where strong regional competitors exist and apply pressure. Currently, that's Saskatchewan, Manitoba, Thunder Bay and Quebec.
Losing MTS as a competitor would likely lead to higher prices and fewer options for Manitobans, the bureau said. Nevertheless, it concluded that those concerns were addressed by the steps BCE agreed to take to pave the way for Xplornet to enter the market as well as a separate deal for BCE to sell almost 110,000 of MTS's contract wireless subscribers and 13 stores to Telus. Financial terms for the Xplornet agreement were not disclosed, but BCE said Telus will pay it $300-million for that deal.
Mr. Cope said BCE has committed to maintaining MTS's current wireless prices for at least 12 months after the deal closes and will also upgrade residential broadband and television services in the province.
Xplornet spokesman James Maunder said he's confident the company can be an "extremely strong competitor" and pointed to more than a decade of experience in the Manitoba market. The company plans to build an LTE (fourth-generation) mobile network across the province, he said, noting that is the same technology it is now using for its fixed wireless Internet service (which delivers broadband coverage to customers' homes in hard-to-reach areas using spectrum and towers).
Founded in New Brunswick and now headquartered in Markham, Ont., Xplornet is growing fast and recently committed about $500-million to new satellite technology. But the privately held company isn't Shaw Communications Inc., the legacy cable provider that many analysts expected to play the role of fourth player as part of the deal's approval.
Shaw is busy working on its own new wireless business in Alberta, British Columbia and Ontario and it seems the Calgary-based company didn't aggressively pursue the potentially distracting opportunity in Manitoba.
"The party who was most interested in entering that market, from our perspective, was Xplornet," Mr. Cope said, although he would not comment on Shaw.
"Xplornet … is a considerably smaller player [than Shaw] with far less financial clout to be a threat to the incumbents in the province of Manitoba or influence prices," said Canaccord Genuity analyst Aravinda Galappatthige.
"Although the government theoretically upheld the four-player policy, the impact on the market is modest in our view," he said.
BCE and MTS announced the friendly takeover deal, which they valued at $3.9-billion in total including BCE's assumption of MTS's debt, on May 2 last year. Now that they have received all necessary approvals, they expect it to close March 17.