Microcell receives support for reorganization, struggles with subscriber additions

Microcell Telecommunications Inc. has secured significant support for its recapitalization and restructuring plan, having signed lock-up agreements with 75% of secured creditors and 55% of unsecured creditors. The struggling wireless operator's plans are detailed in a comprehensive information circular and proxy statement, which was released last month (RoW Update, Feb. 28/03). The 280-page document outlines in great detail corporate reorganization plans, the proposed new ownership structure and financing arrangements, which Microcell hopes will allow it to battle its way back to viability.The recapitalization plan, if approved, will take effect this April. The company has scheduled meetings for secured and unsecured creditors on March 17, at which time they will vote on whether or not to approve the plan. If accepted by creditors, the Montreal-based wireless operator will shed $1.7 billion of its existing $2-billion debt.As is the case with the majority of major reorganizations, existing shareholders will be left out in the cold and will have only a very small ownership stake in the new company. According to terms of the new ownership structure, secured and unsecured creditors will own 99.9% of the wireless operator (secured 68% and unsecured 31.9%), while existing shareholders will get 0.1% of the company.In its detailed plan, Microcell has also offered up a worst-case scenario if the proposed plan isn't accepted. As the table below illustrates, Microcell and its subsidiary companies wouldn't be worth a lot of money on the open market (the full chart appears in Appendix D of Microcell's circular).The company also reiterated its new business strategy going forward, which was originally introduced earlier this year (RoW Update, Jan. 13/03). Microcell will close its wholesale business, which only had about 21,000 customers. It will also reduce its corporate account activities focusing almost exclusively on the retail market, and adopt a fast-follower approach to wireless data.Microcell revealed its precarious financial position last August when it released its second-quarter financial and subscriber results. On August 9, the company warned of financial difficulties in being able to make debt repayments and its potential inability to continue to operate as a going concern (RoW, Aug. 19/02).Company suffers setback in Q4The Fido network operator suffered a major setback in the fourth quarter of 2002 when it lost approximately 30,000 subscribers, according to figures recently released by the Canadian Wireless Telecommunications Association (CWTA). In the quarter, Microcell added 29,575 net pre-paid subscribers, while losing nearly 60,000 post-paid subscribers, according to the CWTA. For the entire year, the CWTA notes that Microcell added 45,311 subscribers.However, Microcell noted in its circular that it lost 44,689 subscribers in 2002 as a result of the discontinuation of 90,000 pre-paid subscribers in Q2. The company's overall subscriber base has dropped from 1.21 million at the beginning of last year to 1.16 million at the end. It's unclear at this point whether the company experienced significantly higher churn in Q4 or the loss in subscribers can be attributed to another round of house cleaning in removing inactive numbers. Microcell doesn't plan to release full Q4 and 2002 year-end financials until after its reorganization is approved.While Microcell is certainly taking it on the chin in terms of subscriber churn, the other national wireless operators aren't necessarily benefiting from Microcell's troubles. As the chart on page 1 demonstrates, subscriber growth was down significantly in 2002 from three years ago. According to the numbers, growth in 2002 dropped to levels almost equivalent to those recorded in 1998.

Microcell receives support for reorganization, struggles with subscriber additions

News | 03/04/2003 5:00 am EST

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