Bitove, Birch Hill and Catalyst register for 700 MHz auction

Companies owned by Mobilicity executive chairman John Bitove, as well as two private equity firms, registered for Industry Canada’s auction of coveted 700 MHz wireless spectrum, along with most of Canada’s mobile providers and three smaller telecom companies, Industry Canada said. No foreign-owned companies registered. In a list of auction applicants posted on the department's website Monday, Industry Canada said 15 companies applied to bid during the January 2014 auction, including Feenix Wireless Inc., owned by Bitove, BH Wave Acquisition Corp., owned by Birch Hill Equity Partners Management Inc., and Catalyst Capital Group Inc., another Toronto private equity firm. New entrant carriers Public Mobile Inc. and Mobilicity, which Bitove launched in 2010 following Industry Canada’s 2008 spectrum auction, were not on the list. Other registrants include wireless providers BCE Inc., Rogers Communications Inc., Bragg Communications Inc. (operating as Eastlink), Globalive Wireless Management Corp. (operating as Wind Mobile), MTS Inc., Saskatchewan Telecommunications Holding Corp., TBayTel, and Videotron Ltd. (owned by Quebecor Media Inc.). Rural Alberta broadband provider Corridor Communications Inc. is also registered, as well as Vancouver-based Internet supplier Novus Wireless Inc. and Victoria-based broadband equipment manufacturer Vecima Communications Inc. Deposits to bid the auction are refundable, so companies that registered could back out and decide not to participate in the auction starting Jan. 14. Canaccord Genuity analyst Dvai Ghose said last week that the deposit for two national, prime blocks of 700 MHz spectrum is about $16 million. The wireless spectrum licences are considered the most valuable ever auctioned in Canada due to the their propagation qualities that allow them to carry signals further than other bands and through buildings and other obstructions. After a summer in which incumbent carriers Bell, Telus and Rogers fought large-scale public campaigns that aimed to change some of the auction rules that they said would unfairly benefit large foreign competitors, no foreign telecoms applied to bid in the auction, a development that Ghose, in a note to clients Monday, said was a victory for the incumbents. Bell, Telus, and Rogers had argued the rules that cap them each at a single block of “prime” spectrum in each market, while allowing other players to collect up to two blocks, put them at a disadvantage. Industry Canada said the rules were designed to promote competition and meeting its goal of a fourth player to compete against the incumbents. Ghose wrote that Bell, Telus and Rogers now appear ready to win one block of prime spectrum each covering all of Canada's regions. “There is no new strategic player on the list, private equity interest seems muted, Bell, TELUS and Rogers all seem set to win one prime block of 700 MHz spectrum per market, and the cost per prime block may now be well below the $500 million that we had assumed (we assumed $1 billion per prime block if there were real foreign carrier interest from big corporations like Verizon ),” Ghose said. Ghose said the lack of foreign competitors interested in entering the auction suggests the Canadian market cannot support a fourth competitor and that the government “must rethink its failed wireless policy.” He said he expected regional players MTS, SaskTel, Videotron and Eastlink to each “win one cheap prime block in their regional markets” and that he does not expect the industry’s “competitive dynamics” to change significantly as a result of the auction. The government may now “have no choice” but to allow incumbent carriers to buy up new entrant carriers Wind Mobile and Mobilicity, which have both struggled to add subscribers as quickly as they had anticipated after they emerged from the 2008 spectrum auction, Ghose said. The incumbents are prohibited from acquiring the new entrants and their spectrum until next year, after an Industry Canada moratorium expires next February for Mobilicity and next March for Wind. The government has indicated it could also block acquisitions after those moratoriums expire. Wind, which is on the list of auction applicants, could emerge from the auction with enough spectrum to continue competing in its coverage areas in Ontario, Alberta and British Columbia. The three incumbents will be limited to acquiring a total of three prime blocks and none of the regional carriers operates in those provinces. Wind's auction participation could be funded by Amsterdam-based VimpelCom Ltd., which has a 65-per cent non-controlling stake in the Canadian carrier. “Everyone forgets that VimpelCom is a global company with more than 200 million subscribers. Everyone lumps Wind Mobile in the same basket with Mobilicity and Public Mobile, and that's just categorically absurd. You're dealing with a global operation that's 10 times the size of Bell, Telus and Rogers combined," Wind CEO Anthony Lacavera told The Wire Report last week. “They obviously have a vested interest in achieving the best outcome for all of their operating assets.” VimpelCom has sought a possible sale of its investment in Wind, and that could still proceed after the auction. Ronald Gruia, a telecom analyst in Toronto with consulting firm Frost & Sullivan, said in a note that Wind could win a “chunk” of 700 MHz spectrum for about $200 million to help it build out a fourth-generation LTE wireless network. “This is very much akin to someone selling a house willing to upgrade its roof or air conditioning system in order to fetch a higher valuation,” Gruia said in the research note. Based on the list of applicants, Macquarie Capital analyst Greg MacDonald said he believes Globalive is most likely to emerge from the auction with prime 700 MHz spectrum in Ontario, Alberta and British Columbia. He estimated the company could spend between $300 million and $500 million in the auction and could use the spectrum to solidify itself as a strong fourth competitor. “In our view, a private equity backed bid for Globalive remains a likely scenario post auction,” MacDonald said in a note to clients Monday. “Investors should not underestimate the potential for Catalyst and/or Birch Hill to put together a bidding consortium for Globalive post auction and form a more sustainable fourth carrier," he said. Scotiabank analyst Jeff Fan said he believes Catalyst and Birch Hill will focus on acquiring the fourth prime block of spectrum in the auction in order to lease that spectrum to other carriers, or to operate as a wholesale provider. “We doubt the have the financial capacity and patience to operate a fourth operator long-term,” he said in a note. BMO analyst Tim Casey said in a note to clients Monday that discount mobile provider Public Mobile may have decided to skip this auction for Industry Canada’s sale of 2.5 GHz spectrum, which is expected to take place in 2015. That spectrum, Casey said, would better position Public Mobile to use devices in the same lineup as that of U.S. carrier Sprint (owned by Japanese company SoftBank Corp.). RBC analyst Drew McReynolds said in a note that the list of auction applicants leads him to believe a single, recapitalized or consolidated new entrant could gain spectrum and continue competing in Ontario, Alberta, and British Columbia. “In our view, a recapitalized but relatively marginal 4th player in these provinces would prove to be one of the best outcomes at the moment for stakeholders in the Canadian wireless industry,” he said, noting that the presence of a stable fourth carrier in those markets could ease industry concerns that the government will attempt to promote further wireless competition through regulation. McReynolds speculated that if a consolidated fourth carrier emerged after the auction, the government would “ensure this player has access to spectrum,” which could jeopardize Rogers’ deals to acquire unused spectrum from Shaw Communications Inc.in parts of Ontario, Alberta, and B.C., and from Videotron in the Toronto area. Both Shaw and Videotron purchased their spectrum holdings as new entrant players during the 2008 auction, and the holdings are subject to Industry Canada moratoriums that prevent the incumbents from acquiring them until next September, in Shaw’s case, and this December, in Videotron’s. Industry Minister James Moore said in a statement Monday that the government will “continue to aggressively pursue policies” that benefit consumers. “Today, Industry Canada published the list of applicants for the 700 MHz spectrum auction scheduled for January 14, 2014. This high-quality spectrum will soon be deployed across Canada, providing Canadians with dependable, high-speed wireless services on the latest technologies,” he said. “Well before this summer's public debate on wireless policy, our Government introduced a number of measures to create more choice in Canada's wireless market and to defend consumers. As a result, prices have come down, the number of jobs in the wireless sector has increased and consumers have more choices. This trend will continue as a result of January's auction.” —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Simon Doyle at sdoyle@thewirereport.ca

Bitove, Birch Hill and Catalyst register for 700 MHz auction

News | 09/23/2013 1:58 pm EDT

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