Cable company alliance in the making

All the stars appear to be aligned for a pan-Canadian cable company new entrant alliance after Industry Canada's upcoming spectrum auction is complete. EastLink and Quebecor Inc. joined Shaw Communications Inc. as confirmed participants in the department's spectrum auction set to begin on May 27. Now that all three companies have submitted separate bids, they cannot move forward with the formation of an alliance until the close of the auction. But as was recently suggested to Report on Wireless, this might make more sense than bidding as a single group. Shaw, which will participate under 1380057 Alberta Ltd., deposited more than $400 million. Quebecor, owner of Quebec cable giant Vidéotron ltée, will bid under a numbered company 9193-2962 Québec Inc., which deposited $317 million. EastLink's owner Bragg Communications Inc., and the smallest of the three cable companies, put down a deposit of almost $20 million. Quebecor's bid is enough for the entire 40 MHz of set aside spectrum as well as an additional 10 MHz of spectrum covering of all of Quebec. While it's unclear at this point whether the company would need additional capacity in the major Quebec centres, the extra deposit money will give the flexibility it needs to mask its strategy in the auction's early rounds. After the pretenders stop to drop out because of price exhaustion, Quebecor's true intentions will be revealed. Videotron, which already resells Rogers Wireless under its own brand, has previously indicated that it wants to build its own wireless network. A wireless component, particularly in Quebec would give it complete control over a quadruple play service portfolio. However, winning spectrum outside of its traditional cable footprint would force the company to divert corporate resources to build a network covering markets where it would only be able to offer a single service. Given the fact that residential consumers take bundles, it makes more sense for the company to partner with cable companies outside of its region for a wireless offering. This would focus the majority of financial resources in its home territory, while decreasing the costs of a national network build for each partner. EastLink's $20 million deposit pales in comparison to Quebecor and Shaw's and demonstrates with some certainty that the company is only interested in spectrum in smaller areas. It's likely the company will bid on tier-three spectrum - generally city-wide licences - covering its cable footprint in both Ontario and Atlantic Canada. Winning bandwidth in these areas will give EastLink the fourth leg in a quadruple play offering of telephony, mobile telephony, Internet and TV. As well, the spectrum could be pooled with Quebecor and Shaw to form a national cable company wireless alliance. Or, if the terms of such as alliance aren't acceptable to EastLink, then the company will have at least secured the rights to wireless bandwidth to be used in a quad-play portfolio. Shaw's $400 million deposit, the third largest overall, is enough for all of the 40 MHz of new entrant spectrum in addition to 20 MHz of non-reserved in all licences, and still the company would have money left over to bid on 10 MHz of spectrum covering nearly all of the country's major urban areas. It's unclear at this point whether Jim Shaw is really interested in turning his cable company into a national wireless service provider. A statement issued last week was quick to note that the value of the $400-million deposit "is intended to provide maximum flexibility in the auction process." This level of deposit also allows the company to mask its true intentions in the early rounds of the auction, waiting for the wannabes to drop out and then revealing its real strategy. Despite the company's warning to not speculate on its plan, it seems likely that Shaw would want to partner with a company, or companies, outside of its traditional cable footprint to offer a mobile service. Industry Canada received applications from 30 companies. In addition to the Big Three - Bell Mobility, Rogers Communications Inc. and Telus Corp. - firms such as SaskTel, Yak Communications Inc. (under the Globalive Wireless LP name), Jaguar Wireless Holdings, Niagara Networks, which submitted a whopping $881-million deposit, YourLink and many more submitted applications. A list of qualified bidders - those companies that meet the initial review of eligibility requirements to participate in the auction - will be released on March 31.

Cable company alliance in the making

News | March 17, 2008

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