Craig Wireless gets one-year reprieve in scramble to finance MDS system in B.C.

Craig Wireless International Inc has been given a one-year extension by the CRTC to raise up to $10 million in financing and to roll out its wireless cable TV service in British Columbia. Craig’s SkyCable Pacific subsidiary was to have launched services in seven B.C. communities by July (RoW, July 24/00). The company is blaming a downturn in the capital markets for its failure to meet the July deadline. "At this time and for the foreseeable future, it is virtually impossible to finance the start-up of an MDS video network either with debt or private equity," writes Jennifer Strain, VP of corporate and regulatory affairs at affiliate company Craig Broadcast Systems Inc in a July 12 application to the CRTC. "This sudden and severe downturn has had a negative effect on the entire Canadian MDS industry. While difficult to predict, we are hopeful that there will be a turn around in the financial markets for MDS video service within the next 12-month period." Darcy Kindred, CFO at Craig Wireless, says the extension will give the company a chance to regroup and partner before moving ahead. "The market conditions were a factor in terms of raising substantial amounts of capital. But I think the other thing the market conditions do is force you to really take a little extra time. "We’re looking at not necessarily going all proprietary starting out. …The key thing we’ve tried to do strategically is not necessarily go ahead and try to build every component of that network ourselves. There’s some people that we believe we can partner with for mutual benefit." Kindred says two partnership possibilities for SkyCable are with the wireless operators and tower companies. Landing additional financing may seem optimistic given the current state of the markets and the fate of Canada’s largest MDS operator, Look Communications Inc, which is teetering on the edge of bankruptcy. The days are counting down for Look, which has until Aug. 25 to come up with $98 million. This week, Look laid off another 125 people in a bid to reduce costs further. The $98 million was initially due on Aug. 2, but Look’s main shareholders, Charles Sirois’ Telesystem Ltd and BCE Inc, agreed to cover the payment and in the process became Look’s lenders with the same rights as the bankers. The two companies gave the struggling MDS operator a few more weeks to find the cash. Under the agreement, neither BCE, Telesystem nor their affiliates will put any more money into Look for two years. Additionally, BCE and Telesystem board members have resigned. Eamon Hoey, senior partner at Hoey Associates and Telecommunications Consulting Services Inc, isn’t optimistic that either Look or Craig will succeed in securing the necessary financing. He points out that investors are staying away from companies that are entering established markets. "The whole industry has suffered from a lack of strong financial capabilities out there, so there is a lack of financial resources to fund these enterprises," says Hoey. "There’s a lack of funding in Canada for projects of a nature where (companies) are not going into what I would call a virgin market. So there is currently not a significant appetite for those companies going after cable operators’ services." Hoey says that the only way there would be a case for SkyCable is if its technology resulted in a cable TV service that cost less, or is significantly different or better. But after having crunched the numbers, he doubts consumers would go through the trouble of converting to a new broadcast distributor, unless the savings were significant. He adds that CRTC regulations make it difficult for distributors to offer cable packages or services that are radically different, thus eliminating another potential distinction that may sway customers away from cable or direct-to-home satellite distribution. While Kindred admits that raising money in current markets may prove to be difficult, he says there is no similarity between Look’s situation and that of SkyCable. "Despite what’s happening, on the big level, if you’re Look and you have to raise $90 million, I think you’re in trouble. If you’re Craig and you need to raise $5 to $10 million to do exactly what you’d like, I don’t think you are in the same situation," he says. Kindred also insists that Craig "is absolutely not giving up" on wireless cable. He says proof of its commitment to the technology is its June 14 agreement to purchase a 10,000-customer wireless cable system in Hawaii from Verizon Communications. The deal is subject to the approval of the Federal Communications Commission. Kindred says SkyCable’s plan is still viable, but won’t reveal specifics. "I think we want to keep our corporate strategy and direction still close to our chest. But I think the message we want to send out is that we certainly haven’t given up on the MDS business…or the capital markets."

Craig Wireless gets one-year reprieve in scramble to finance MDS system in B.C.

News | August 21, 2001

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