Montreal-based Quebecor Inc. may have got a bargain when it clinched wireless spectrum in Quebec, Ontario, Alberta and British Columbia for $233-million.
But it also faces major challenges should it decide to go truly national, such as potentially hefty capital investments, a lack of brand awareness outside Quebec and the need to capitalize on regulatory changes in the telecom sector.
On the other hand, the company has the luxury of biding its time as the ongoing wireless saga unfolds further before making any significant moves.
Quebecor may want to wait for certain issues to play out, such as the fate of Mobilicity and the shape of a revised regulatory environment.
So far, Quebecor's model with its Vidéotron-branded wireless subsidiary has been to build on its existing cable and landline telephone subscriber base. That would not be the case with a marketing effort outside the province.
"Many of the clients that Vidéotron has been able to attract thus far are from its own cable subscriber base. Furthermore, the company has strongly relied on its strengthened brand among consumers, an advantage that is less relevant outside Quebec's borders," Desjardins Securities analyst Maher Yaghi said in a research note Wednesday.
"By going national, Quebecor would not be able to use those advantages to win clients."
The company would also not enjoy the key marketing tool of bundling it has in Quebec, RBC Dominion Securities analysts Drew McReynolds and Haran Posner said in a note.
Besides structural competitive gaps outside Quebec, the company would also have to deal with the capital requirements of a national wireless strategy, as well as the negative impact on its current strategy, BMO Capital Markets analyst Tim Casey said in a note.
Quebecor's acquisition of the new spectrum may be a good deal, but a national expansion of wireless service does not appear likely in the near term, Barclays Capital analyst Phillip Huang said in a note.
Because of spectrum incompatibility issues, don't expect Quebecor to partner up with Rogers to expand its network outside the province, he said.
National Bank Financial analyst Adam Shine said in a research bulletin that the options Quebecor Media president and chief executive officer Robert Dépatie has before him include simply sitting on the licenses for investment purposes or else exploiting them with a partner.
The fact that Quebecor is reported to have made a lowball bid of $200-million for Mobilicity – which is currently under a court-supervised sales process – could be one reason Quebecor might want to wait a while before acting, said Mr. Shine.
"It may be that Quebecor wishes to see what transpires with Mobilicity as well as the government's evolving wireless regulation before showing its cards and officially committing itself to a potential rollout of a national wireless platform …," he said.
Among regulatory changes Quebecor would be looking for are better deals on roaming rates and greater access to incumbents' towers.
Mr. Shine added he would be surprised to see Quebecor stock contract further "and we continue to believe that the pullback in the shares in recent weeks already materially discounted the costs and risks of a possible wireless expansion beyond Quebec's borders which, at this time, is not a given."
A partnership with a deep-pocketed U.S. player is another possibility if the company chooses a national roll out, says Macquarie Equities analyst Greg MacDonald.
"What is interesting about [Quebecor's wireless] block is that it is contiguous with that of Verizon in the U.S. This alone does not prove anything, but we reiterate our view that a partnership with Verizon makes considerable sense for both parties," he said.
Quebecor could also hold onto its prize in hopes an easing in spectrum transfer rules will allow for it to be sold to an incumbent, or non-incumbent, or consolidating Mobilicity and Wind Mobile to deploy the spectrum, said RBC Dominion's Drew McReynolds and Haran Posner.