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Report On Business Mobilicity deal positions Wind to compete with wireless Big Three

Mobilicity location on Queen St. East in Toronto, Ontario Tuesday, September 24, 2013.

Kevin Van Paassen/The Globe and Mail

Startup wireless carrier Wind Mobile Corp. has emerged as a key winner in a deal between Rogers Communications Inc. and Mobilicity that awards Wind the cellular airwaves it needs to expand and improve its network at no cost.

The Toronto-based carrier was pivotal in the $465-million deal no one in the Canadian wireless industry thought could get done. As part of a series of spectrum licence transfers from both fellow new entrant Mobilicity and Shaw Communications Inc., all of which Industry Canada has now approved, Wind now has more of the resources it needs to compete against the Big Three wireless players.

Wind paid a bargain-basement price for a significant chunk of licences in a spectrum auction in March, but it cannot yet deploy service with those airwaves because the necessary ecosystem of mobile devices for that frequency band does not yet exist. The airwaves it will get through the Rogers transactions – which are in the same frequency band Wind bought in 2008 and built its original network with – will allow it to start building an LTE (long-term evolution or fourth-generation) network immediately.

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"This is a remarkable transaction," Orestes Pasparakis, a lawyer for Mobilicity, told the Ontario Superior Court judge who approved the deal Wednesday morning, apparently still somewhat amazed himself as he recalled the company's frustration with government policy on the path to finally getting the deal done.

Others like it had been floated before – Rogers courted Wind Mobile at one point and Telus Corp. repeatedly offered to buy Mobilicity – but as the federal government's fourth-carrier policy for the industry hardened in the summer of 2013, it became clear that Ottawa would not bless a tie-up between one of Canada's dominant three carriers and its struggling new entrant players.

The Rogers proposal allowed the government to finally approve a deal for long-floundering Mobilicity, give Wind another spectrum boost and a quick path to LTE and, at the same time, address the sticky issue of what to do with an option agreement Rogers struck in early 2013 to buy unused spectrum from Shaw. Rogers said Wednesday it will pay a further $100-million to Shaw for the licences.

The fact that the transactions cleaned up so many outstanding issues and offered more help to Wind is believed to have been central to the federal government's willingness to approve the deal over one with Telus that did not offer as much of a benefit to Wind and left the Shaw spectrum stranded.

"Wind played a key role at the table, but Rogers brought the cheque book," said a source close to the negotiations.

Talks heated up over the past two weeks, with a flurry of offers and counteroffers, and Rogers had a team of 20 people in Ottawa and Toronto working on the transaction.

Sources said Telus offered to pay more, but Mobilicity's stakeholders were more confident they could win government approval of the Rogers deal. After more than two years of attempts to win Mobilicity's spectrum, Telus executives are said to be disappointed with the outcome and weighing a legal challenge of some sort. Telus did not reply to a request for comment Wednesday.

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Bill Aziz, chief restructuring officer for Mobilicity, which has been under creditor protection since September, 2013, said he would not discuss the bid process publicly, but added, "We went with the deal that was the highest price and the most executable."

"Everybody's a winner today except Telus, unfortunately," Alek Krstajic, chief executive officer of Wind, said.

"Mobilicity wins, Shaw wins and Rogers wins. But most importantly, the big win is for Canadian consumers due to the government policy."

"Our government has one goal: to take deliberate, concrete steps to create more choice, lower prices and better wireless service for Canadians and their families. Today's approval of these licence transfers delivers on this objective," Industry Minister James Moore said in a statement.

Rogers will continue to offer service for Mobilicity's 157,000 customers, transitioning them over to its network. Spokesman Aaron Lazarus said Rogers has not yet determined whether it will retain the brand as a discount wireless offering.

Mr. Krstajic said Wind also negotiated an option that allows it to opt to pay Rogers $25-million in exchange for half of Mobilicity's cell sites and equipment. Finally, it gains new licences for spectrum in Manitoba and Saskatchewan, which he said the company would consider selling to MTS Inc. or SaskTel, respectively.

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Although Wind walks away happy, it ironically managed to facilitate a deal that saw its one-time rival Mobilicity sell for far more than Wind itself was able to attract last fall, when a consortium of investors bought it for $300-million. Of course, in that case, a sale to one of the Big Three was not seen as an option.

Meanwhile, Rogers gains new chunks of contiguous spectrum – which means the frequencies are right next to each other, allowing it to offer more speed and capacity – and will be able to use Mobilicity's losses to reduce its tax bill by $175-million.

Scotia Capital Inc. analyst Jeff Fan called the transactions, "Probably the best strategic move Rogers CEO [Guy Laurence] has made since joining the company."

Shaw said in a statement Wednesday it made a total of $350-million selling its spectrum licences to Rogers after originally purchasing them for $190-million in 2008. Rogers paid $50-million to Shaw for the option plus a $200-million refundable deposit, which, given the government's policy on transfers to incumbents, many had assumed Shaw would eventually have to return. The fact that the option was successfully exercised after all and Rogers paid the extra $100-million gives Shaw a nice boost to its balance sheet.

Rogers said Wednesday evening that it has now received all necessary approvals for the transactions, including the green light from the Competition Bureau.

Who holds what

Drag the bar to see how AWS-1 spectrum holdings have changed with the Mobilicity deal. Drag right for before the deal and drag left for after. (Source: Industry Canada)

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