Orascom finalizing Wind’s ‘strategic position’ as sale is still on the table

Wind Mobile’s Canadian subscriber base rose by 18,732 customers during the second quarter as its owners worked to establish the company’s strategic position in advance of a possible sale, Wind majority investor Orascom Telecom Holding S.A.E. said. In a financial statement released Wednesday, Orascom, owned by parent company VimpelCom Ltd., said Wind had 620,451 customers across Canada at the end of the three-month period that ended June 30, an increase of three per cent from the end of March. In comparison, it added 11,281 subscribers in the first quarter and 41,522 in the second quarter of last year. Orascom said Wind had an average revenue per user of $28.30 per month during the second quarter, up 2.5 per cent from $27.60 in the first quarter. Canaccord Geniuty analyst Dvai Ghose said in a research note Wednesday that incumbent carriers BCE Inc., Rogers Communications Inc. and Telus Corp. collect nearly twice as much average monthly revenue from their users. He noted that Wind grabbed approximately nine per cent of “national net subscriber additions” among publicly traded wireless carriers in the second quarter. Ghose said Wind’s “modest” second quarter results are unlikely to derail an acquisition by U.S. telecom Verizon Communications Inc., which has said it is mulling a purchase of the company as a route into the Canadian wireless market. “While WIND’s modest results may leave some to wonder why Verizon would want to acquire the asset, we assume that Verizon would really only buy WIND for its AWS spectrum, at a valuation well below invested capital, and without competition from the incumbents,” he wrote. Incumbents Bell, Rogers and Telus are prohibited from acquiring Wind or its wireless spectrum until at least March 2014, when Industry Canada’s five-year moratorium expires on the incumbents acquiring the new entrant carrier's spectrum licences. Ghose noted that Wind reduced its retail footprint in Canada during the quarter and recorded “no significant growth” in wireless cell sites used to support its network. “Looks like WIND is in a holding pattern ahead of a sale,” he said. The analyst said he expects Verizon “may have a lot of work to do to fix WIND” if it buys the Canadian carrier, and said that acquisition would likely not have any “real impact” on the incumbents’ market share until 2015. Orascom owns a 65 per cent indirect equity stake in Wind’s Canadian owner, Globalive Wireless Management Corp., with Anthony Lacavera as Globalive’s controlling shareholder. Orascom chief executive Ahmed Abou Doma said on a conference call with analysts Wednesday that the company continues to consider potential opportunities to sell Wind. “The process of establishing the final strategic position for the Canadian operation is ongoing and that is including the possibility of disposing of the business,” he said. Khalid Ellaicy, Orascom’s chief financial officer, said on the call that proceeds of a sale of Wind Mobile in Canada would go towards its debt, though he did not say whether there would be money remaining for shareholders. “If we go through a disposal process, of course we have investment in Canada which is in equity and we have investment in Canada which is debt,” Ellaicy said. “Any proceeds that we would get from there would have to be taken to debt. There's a priority on debt for Wind Canada itself, and then if there's money remaining, it would go to the shareholders.” In a research report released in June, BMO Capital Markets estimated that Wind's debt is about $770 million. Macquarie Capital estimated in July that the purchase price for new entrants Wind, Mobilicity (owned by Dave Wireless Inc.) and Public Mobile Inc. would be about $1 billion combined, with an assumption that the minimum price for Wind would be $700 million. Former industry minister Christian Paradis said in June that the government wants to see a fourth wireless carrier to compete with the three incumbents in each region of the country, and will use “any and all tools available to achieve competition objectives.” Current Industry Minister James Moore, who replaced Paradis as part of a larger cabinet shuffle last month, has said he is committed to the government’s wireless policies. "We want all regions of Canada to benefit from competitive market forces, which is why more progress must be made. We will continue to stay the course by ensuring Canadians benefit from a competitive telecommunications industry," Moore said in a statement on his website on July 31. Scotia Capital analyst Jeff Fan said in a research note Monday that Verizon’s U.S. wireless prices are “on par to 10% more expensive” than the most recent plans offered by the Canadian incumbents, adding that he would be “surprised” if the company lowered prices to compete in the Canadian market. Fan said it was also a “myth” that new wireless industry regulations the CRTC introduced in June would help lower consumer prices. “By introducing the Wireless Code, the CRTC has caused carriers to raise monthly smartphone prices by 9%-19% over the past few weeks,” he said in reference to the commission’s June policy decision that effectively reduces three-year wireless service contracts to two years and regulates other aspects of carriers’ relationships with their subscribers. Credit Suisse analyst Colin Moore said in a note Wednesday that approximately one-third of Organisation for Economic Co-operation and Development (OECD) countries currently have four national wireless carriers, and that “very few fourth carriers that have launched over the past decade have more than a 10-15% share of subscribers, nor are they yet significantly profitable.” Verizon could cause “significant financial disruption” to Canada’s incumbents, he said, if it entered the market with “the financial power and patience to invest in a stronger network.” He added that incumbent carriers in other markets have responded to successful new entrants through “pricing responses,” cost-cutting, a focus on selling bundles of telecom services, and “incumbent partnerships.” —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca, files from Simon Doyle at sdoyle@thewirereport.ca, and editing by Anja Karadeglija at akarad@thewirereport.ca

Orascom finalizing Wind’s ‘strategic position’ as sale is still on the table

News | August 7, 2013

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