Vecima’s long-term spectrum holdings paying off

Victoria-headquartered company Vecima Networks Inc. initiated a spectrum divestiture strategy last year, realizing significant profits from selling previously fallow spectrum. The broadband equipment maker announced earlier this month that it had sold 6 per cent of its entire spectrum holdings for $2.3 million, a massive profit over the $32,500 it paid for the spectrum in a 2004 auction. While a Vecima news release didn’t identify the licences it sold, or the buyer, Industry Canada documents indicate that, in December, Barrett Xplore Inc. bought three Ontario 50 MHz 3.5 GHz licences from Vecima. Barrett confirmed that it paid $2.3 million for the licences, which cover Alliston, Kincardine and Barrie, Ont. Surinder Kumar, president and CEO of Vecima, said in an interview that the company originally bought the spectrum with a plan to leverage it for more equipment sales, but also to sell it at the right price. “With the growth that is happening and the whole macroeconomic conditions, we thought translating non-core assets into cash would be a good choice,” Kumar told Report on Wireless. “We do think that spectrum is a very valuable asset and the capital gain is very, very active.” One analyst acknowledged that Vecima has embarked on a strategy that is paying off. “Not bad, winning the lottery like that,” said Robert Yates, co-president of Lemay-Yates Associates Inc. Barrett Xplore has been buying spectrum predominantly in the 3.5 GHz band to complement its national satellite coverage. The company made a splash in the wireless market about two and a half years ago when, in August 2007, it purchased 37 spectrum licences in the 3.5 GHz band, as well as a network and subscribers from Pathcom Wireless. The licences covered two million households in rural markets across British Columbia, Alberta, Saskatchewan, the Northwest Territories, the Yukon and Nunavut. Since then, Barrett has acquired spectrum in New Brunswick, Quebec, northern Ontario, and now in southern Ontario. Barrett Xplore CEO John Maduri said that the company’s strategy is to deploy wireless broadband services in rural parts of the country where it makes economic sense given population density, topology and terrain. To determine where to buy spectrum, Barrett Xplore has analyzed broadband nationally, mapping out where DSL and cable technologies don’t exist and won’t likely to be deployed in the future. As a result, Barrett has acquired a vast swath of spectrum covering a majority of rural Canada. “We have spectrum in pretty much every province in the country, surgically focused on acquiring either whole licences that are rural or those portions of licences where there is a significant rural population,” Maduri said. “There are a few places that we need to fill in, but I think we’ve addressed the bulk of what we believe to be the market where wireless broadband will make economic sense.” While the return on investment was a win for Vecima, questions remain about the price tag, and whether Barrett Xplore paid too much based on population density and potential market growth. Combined, the Alliston, Kincardine and Barrie licences cover a population of slightly more than 500,000. Yates said it’s difficult to determine whether Barrett paid an appropriate price for the spectrum. Since Vecima bought the spectrum in 2005, “there has been a lot of recognition around the world of how valuable this wireless spectrum is,” he said. “In the 3.5 GHz band, in particular in Europe, it was designated as a mobile band even though there isn’t mobile technology for it yet. But people do see that as a longer term play.” Barret paid $2.3 million this month, while in 2005 the licences covering the Alliston, Kincardine and Barrie markets were purchased for a combined price of $1.3 million. The value of spectrum may be different from one provider to another. As Yates pointed out, Barrett needed the spectrum, which raised the value. “It adds to what they have already and gives them some internal synergy which they would factor into the price,” he said. Perry Hoffman is an Ottawa-based freelance writer. He can be reached at perry@messagingmechanics.com.

Vecima’s long-term spectrum holdings paying off

News | January 20, 2010

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