Yet another month is passing with no sign of any investor willing to step up and try to create the fourth national wireless carrier the Harper government so desperately wants.
By my count, we're well past 12 months. Yes, there are rumours. But there is no cheque. And there very likely won't be until the government finds a way out of the box it has created for itself.
There is a way. It will take some political courage to make what some would characterize as a climbdown, but in reality, it's just common sense.
First, though, it helps to understand the box. The government picked a fight with Telus Corp., BCE Inc., and Rogers Communications Inc., hoping to win votes by saying they charge too much, and that the answer is introducing fresh competition. It hasn't worked so far – after five years of trying. Wind Mobile, Mobilicity and Public Mobile, the three main independents, are either gone or in financial trouble. Public has been sold, Mobilicity is in creditor protection and Wind's owner would desperately love to part with the unprofitable company.
The government has decided that to further its push for competition, the precious spectrum that Wind and Mobilicity own must be kept out of the hands of BCE, Telus and Rogers. (BCE owns 15 per cent of The Globe and Mail.)
To do this, it basically reneged on a promise to allow Wind and Mobilicity to sell their spectrum on the free market after five years. Of course, they can still sell, just not to the people who would pay the most – namely, the incumbents.
You need spectrum to start a new wireless player, but you also need funds, and a lot of them. You need loans.
Without a free market for your most valuable asset – the spectrum – it's not much good as collateral for loans.
So almost nobody is going to be able to raise money to buy the spectrum and take a punt at giving the government its fourth carrier.
In a perfect world, some bank or bond buyer could talk themselves into advancing money to even the most faint-hope wireless competitor with the knowledge that even if the company failed, the spectrum is rare and valuable and could be repossessed and sold. Except, apparently, that last part is not true.
The incumbents are out, and as recent history shows, so are foreign companies. The government availed itself of its national security hammer to stop the sale of Wind Mobile last year. And the simple lack of clarity spooked Verizon Communications Inc. when it considering entering the Canadian market.
The upshot is that without salable collateral, a new wireless investor won't get loans at anything but outrageous interest rates.
Building a business with little or no debt is murder on returns. If there's no leverage, or loans are too costly, the potential returns for equity investors are much weaker.
The policy of no sale has had another effect. Besides making the potential returns meagre, it has also made them nearly binary. Your choices are a) either make enough money to stay in business or b) lose all your money because the government won't let you sell before you run out of cash. (See, once again, Mobilicity.)
Small wonder that tire-kickers ranging from Verizon to Blackstone Group LP have had a look and backed off.
So what could bring them back, and – more important for Mr. Harper – what could do it before next year's election?
Clarity and trust.
The first is doable. The government could simply restart the clock on spectrum sales by Mobilicity, Wind and anyone who joins them in time for the next auction of spectrum reserved for independents. Ottawa doesn't have to allow sales now to incumbents, but it has to offer the possibility in the future. For example, the Harper government could say that anyone willing to take a crack at buying Wind or Mobilicity would have to try for five years to make it work. The government and the buyer could mutually agree on a series of targets for investment by the acquirer. There would also have to be minimum returns.
If, after five years, the investor has done the build out and the returns are not there, the government will have to allow an unfettered sale of the spectrum.
If it works, the government gets its wish. If not, the Harper government can then credibly claim that it tried its damndest to create competition and it just didn't work. Canadians will understand. (It might not even matter, because it's not certain that the Conservatives will even be in power in 2015.)
The trust part is harder. The government has already reneged on a promise to allow spectrum transfers once. Convincing a buyer that this time will be different is the toughest part of getting out of this box. But if the government wants any progress on a fourth carrier as the campaign heats up, it will have to get started on that now.