Paradis delays auction, says no set aside spectrum transfers to incumbents

OTTAWA, TORONTO—Industry Canada will block Telus Corp.'s proposed deal for Dave Wireless Inc.’s mobile spectrum, as well as any other proposal from an incumbent to acquire wireless frequencies set aside for new entrants, and will delay the department’s 700 MHz spectrum auction until early next year, Industry Minister Christian Paradis said. In an early morning announcement Tuesday at Industry Canada’s offices, Paradis said the deadline to apply for the upcoming 700 MHz auction will be pushed from June 11 to Sept. 17. The auction bidding, scheduled to start Nov. 19, will now begin on Jan. 14, 2014, Paradis said. He said the department will maintain the rules it outlined in the 2008 AWS spectrum auction, which set aside specific blocks of spectrum for new players, and prohibited established, incumbent telecom carriers from acquiring it for five years from the time of licensing. “Spectrum set aside for new entrants was not intended to be transferred to incumbents. That is why we had put in place restrictions on the transfers of the set-aside spectrum,” Paradis said. “That is why I will not be approving this or any other transfer of set-aside spectrum to incumbents ahead of the five-year limit,” Paradis said, referring to Telus' proposed $380-million deal for Dave Wireless, operating as Mobilicity, announced last month. Ted Woodhead, senior vice-president of government and regulatory affairs at Telus, said the company is disappointed with Industry Canada’s decision and that there is now uncertainty for Mobilicity’s roughly 250,000 customers and its creditors as the new entrant plans to head into court-approved refinancing. “The Telus transaction, as of today, is denied. We’ll look at our options and Mobilicity will look at their options,” Woodhead said, adding that Telus could provide financing to Mobilicity. “That could be an option,” he said. Telus will not challenge the decision, Woodhead said. Stewart Lyons, Mobilicity’s president and chief operating officer, said in an emailed statement Tuesday that the company is reviewing Paradis’ decision and will be speaking with Telus and “other stakeholders” before saying more on the matter. Paradis said the government will take a close look at future spectrum transfers in any band that could impact competition in the wireless industry. "Going forward, proposed spectrum transfers, including AWS spectrum transfers, that will result in undue concentration and therefore reduce competition, will not be permitted,” Paradis said. Industry Canada said in a release Tuesday that all applications for licence transfers will “be reviewed on a case-by-case basis and decisions will be issued publicly to increase transparency.” The department did not release its new spectrum transfer rules following a consultation on the issue earlier this year. Paradis said those rules will be released in mid-June. Woodhead said Paradis is not ruling out that incumbents could purchase new entrants, and their spectrum holdings, after the moratoriums expire. “I don’t think the minister is foreclosing the possibility of some consolidation at some point, but you know, he’s trying to balance several policy objectives at the same time,” he said. Rogers Communications Inc. has also reached deals to purchase Shaw Communications Inc.’s set aside AWS spectrum for between $325 million and $350 million and Quebecor Media Inc. subsidiary Videotron Ltd.'s set aside spectrum licence in Toronto for $180 million. According to the agreements, both of those transfers would happen in 2014, after the five-year moratorium on transferring them to incumbents expire. Paradis said Tuesday that he will not rule on either of the Rogers deals until the companies submit formal applications to transfer the licences. “I have to render a decision when I am submitted a formal proposal,” he said. “I think what you have to keep in mind are the key parameters of the policy framework I just mentioned.” Macquarie Capital analyst Greg MacDonald said in a research note Tuesday that Paradis’ denial of the Telus-Mobilicity deal could lead Mobilicity bondholders, which includes private equity firm Catalyst Capital Group Inc., to take control of the company and force a merger with Wind Mobile. “Higher potential for new entrant consolidation points to a likely increase in competition and the delayed spectrum auction provides more time for consolidation to take place and help ensure that new entrants can participate in the 700 MHz auction,” said MacDonald, who predicted last month the Telus deal would be blocked. Catalyst Capital, a major bondholder with Mobilicity through a $75-million financing agreement, said in a release that it supports the government’s denial of the Telus deal and the CRTC’s new code of conduct for the industry, released Monday, that encourages wireless carriers to offer two-year instead of three-year contracts. The investment firm, which has expressed an interest in getting into the wireless market, said it will continue to explore its options. “Catalyst is very supportive of the government's policy and actions in promoting at least four wireless providers in every region of the country, and remains willing to act in support of those policies and the right transaction under the right conditions,” the release said. “The government's actions today and the CRTC's actions yesterday regarding the code of conduct for the industry go an extremely long way in creating those conditions.” MacDonald said Paradis’ emphasis on not permitting “undue spectrum concentration” makes it less likely that Industry Canada will approve Rogers’ proposed acquisition of Shaw’s AWS spectrum. Dvai Ghose, an analyst with Canaccord Genuity, agreed in a separate note that Rogers’ deals with Shaw and Quebecor are not likely to be approved. Ghose said it seems “inevitable that Mobilicity will go bankrupt,” and that there is a chance Public Mobile could as well. The announcement will also discourage new, potential investors, he said. Scotia Capital telecom analyst Jeff Fan said in a research note Tuesday that Paradis' decision is “not significant enough to encourage a deep-pocketed strategic investor” to enter the Canadian wireless market. “To have a viable fourth player requires approx. $1.5B of capital to combine the new entrants, acquire spectrum, upgrade the network, and cover operating losses and cash burn,” he said. None of the set aside moratoriums on the new entrants' spectrum licences expire prior to December. With the deadline for auction applications now on Sept. 17, Paradis' statement Tuesday means new entrants and incumbents cannot consolidate before the auction. The delayed auction deadlines will help new entrants organize and work out possible acquisition deals in advance of the auction period, as new entrants Mobilicity, Public Mobile Inc., and Wind Mobile (owned by Amsterdam-based VimpelCom Ltd.), are accepting offers. According to the 700 MHz auction rules, companies registered to bid after the initial application deadline cannot merge or consolidate with one another. Accelero Capital Holdings, a Paris-based investment firm owned by former Wind Mobile investor Naguib Sawiris, in a partnership with outgoing Wind CEO Anthony Lacavera, has submitted an offer to purchase Wind Mobile from VimpelCom, The Wire Report reported in April. Accelero also announced a deal this month to purchase business services division Allstream from Manitoba Telecom Services Inc., which would support a mobile network with backhaul. The Wire Report reported last month that the incumbents have also had talks with Wind Mobile and Public Mobile. Lacavera said in an interview at the conference Tuesday that he is happy with Paradis’ clarity on spectrum transfers and that Mobilicity, if it can’t go to Telus, would be a good fit for Wind to purchase. “New entrants need to find a way to cooperate, consolidate, partner with one another, share networks, share spectrum,” Lacavera said, adding that he will have a “renewed dialogue” within Wind and with its owner, VimpelCom, about acquiring Mobilicity. Lacavera said Paradis’ announcement gives companies more time to organize before the auction process starts in September. When asked whether more consolidation will happen before the deadline for applications, he said: “I think that there has to be. I think the government did the right thing by moving out that 700 deadline].” Consumer group The Public Interest Advocacy Centre (PIAC) said in a release Tuesday that Paradis’ decision to block the Telus-Mobilicity deal puts consumers “back at the centre of Canadian spectrum policy.” PIAC—which had called on the minister to block the Mobilicity acquisition as well as Rogers’ deal with Shaw—said allowing incumbents to gain control of the new entrants’ set aside spectrum would go against the spirit of the 2008 auction rules. “This government stood up for wireless consumers today by telling the incumbent carriers that it wants consumers to be able to choose from four or more wireless carriers,” John Lawford, PIAC’s executive director and general counsel, said in a statement. Telecom and spectrum policy became more political this week as Paradis rose in the House of Commons Tuesday and cited PIAC’s release as evidence that the decision was good for consumers. The federal Conservative party, on its website Tuesday, posted a message seeking consumer feedback on wireless policies. The Conservatives will “not allow the big telecommunications companies to shut down competition by buying up undue amounts of wireless spectrum,” the posting said. “We know Canadians are relying on their wireless devices now more than ever—that’s why we’re putting Canadian consumers first and making sure there is more competition in the market.” Paradis said Tuesday morning that the government is committed to ensuring four carriers in each region of the country. “I want to be very clear that we will use any and all tools available to achieve competition objectives," he said. —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and reporting and editing by Simon Doyle at sdoyle@thewirereport.ca.

Paradis delays auction, says no set aside spectrum transfers to incumbents

News | 06/04/2013 1:29 pm EDT

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