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Report On Business Quebecor sale sparks talk of bigger wireless deals to come

Quebecor headquarters in Montreal, Friday, July 30, 2010.

Robert J. Galbraith/The Globe and Mail

Quebecor Inc.'s $184-million deal with Rogers Communications Inc. to sell a chunk of wireless airwaves in Toronto could have "broad implications" for even more valuable spectrum the Montreal-based company owns and which Shaw Communications Inc. could use to help bolster its Freedom Mobile wireless network, analysts say.

Quebecor struck the deal with Rogers for the Toronto spectrum in 2013 as part of a larger agreement between the two companies to build and operate an LTE (fourth-generation) cellular network in Quebec and the Ottawa region in Ontario.

On Friday, the department of Innovation, Science and Economic Development announced it has approved the airwaves transfer, saying it "will not result in a significant change in spectrum concentration in the licence area."

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For years, Quebecor's option to sell the Toronto airwaves to Rogers seemed unlikely to win government approval because the spectrum was purchased at auction under a discount for "new entrants" to the wireless industry. Ottawa had a history of blocking the sale of new-entrant spectrum licences to one of the three national carriers, Rogers, Telus Corp. or BCE Inc.

The government has since approved the sale of both Mobilicity and Manitoba Telecom Services Inc. to incumbents (Rogers and BCE, respectively), but in both cases it imposed conditions that saw a fourth, smaller carrier receive spectrum as part of the sales.

The Quebecor-Rogers approval, says Barclays Captial analyst Phillip Huang, has "broad implications – positive for Quebecor and the incumbents," because it is the first time one of the Big Three carriers has been allowed to acquire spectrum earmarked for new entrants "outright, with no strings attached."

"We believe this transaction has important signalling value on the current government's position regarding spectrum concentration, and potential future spectrum transfers," Mr. Huang said. "While the government is clearly not ready to abandon the four-player wireless policies … we believe its policy direction may be shifting away from subsidizing the fourth player."

Quebecor toyed with the idea of expanding its wireless operations nationally but by September, 2015, it said it wasn't interested in building a network from scratch and would consider selling its spectrum assets outside of Quebec.

The company is still sitting on low-band airwaves in Ontario, British Columbia and Alberta, which it acquired in 2014, and higher-frequency licences it picked up in 2015 – all of which it bought for a total of about $300-million, a bargain compared with the billions of dollars the Big Three have spent on spectrum in recent public auctions.

Shaw's Freedom Mobile has no low-frequency spectrum – which is prized for its ability to travel long distances and better penetrate buildings – and to get some it either needs to strike a deal with Quebecor or wait for the next auction of airwaves in the 600-megahertz frequency band, which is still not expected for some time.

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Mr. Huang's advice for Shaw? It "should accelerate plans to lock up [the Quebecor] spectrum, in our view." He says Shaw still has a "window of opportunity" to bid on the airwaves before five-year bans on selling them to an incumbent expire (in 2019 and 2020 for the different types of licences.)

"Shaw may need to 'bite the bullet' and pay up in order to convince Quebecor to forego the opportunity to attract more bidders [e.g. the Big Three] in a few years," he said.

Bank of Nova Scotia's Jeff Fan notes that government approval for a sale to one of the incumbents still may not come easily for Quebecor's other licences due to considerations around concentration of spectrum holdings.

Nevertheless, Mr. Fan says, "Quebecor will likely see this approval as a signal they should be able to sell low-band [spectrum] to the incumbents." That means Shaw "may take longer to get low-band [spectrum] or have to pay more."

Quebecor's unused airwaves could be worth between $450-million to $900-million, according to Desjardins Securities Inc.'s Maher Yaghi, while Canaccord Genuity analyst Aravinda Galappatthige pegs the value of the low-band licences alone at $561-million.

Quebecor said Friday it will use the proceeds from the Rogers deal to make network improvements. Analysts think the company could also use that money and any funds from future spectrum sales to help pay for the remaining interest the Caisse de dépôt et placement du Québec holds in the company.

The Blue Jays are worth $1.3-billion (U.S.) even though they’re playing bad baseball. Business columnist Andrew Willis thinks the new CEO should sell the team and make Rogers a pure telecom play. The Globe and Mail
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