Wind gains edge following Catalyst auction withdrawal: experts

Wind Mobile is the “big winner” of Catalyst Capital Groups Inc.’s decision to drop out of the 700 MHz auction in the absence of other potential bidders for the much-coveted airwaves in Alberta, Ontario, and British Columbia, industry experts said. “Wind should be opening bottles of Ontario wine this morning,” Iain Grant, a Montreal-based telecom industry analyst with the Seaboard Group, said in a telephone interview Thursday. “I think it’s very good news for Wind.” In an updated list of auction participants posted on the department's website Wednesday night, Industry Canada said Catalyst, a Toronto-based private equity firm, has withdrawn from the auction, which is scheduled to begin on Jan. 14. Catalyst’s withdrawal leaves 11 qualified bidders for the upcoming auction, including incumbent wireless providers BCE Inc., Rogers Communications Inc., and Telus Corp., as well as regional providers Manitoba Telecom Services Inc., SaskTel, Eastlink (a Bragg Communications Inc. subsidiary) Videotron (a Quebecor Media Inc. subsidiary) and TBayTel. Feenix Wireless Inc., a startup owned by John Bitove, the founder and executive chairman of struggling new entrant carrier Mobilicity, is also registered to take part in the auction. So is Novus Entertainment Inc., which offers TV and residential and business Internet telephone services in the Vancouver area, according to its website. Grant said Catalyst’s withdrawal means Wind will likely face little, if any, competition in its bid to acquire one of the four most coveted blocks of 700 MHz in each of Alberta, Ontario and British Columbia, the three provinces in which the company currently operates. A lack of competition, he said, could allow Wind to acquire that spectrum at a lower price, freeing up more capital to expand its network coverage, and to build a new next-generation LTE wireless network. “A single bidder in any auction is always better than multiple bidders, at least for the person who is bidding,” Grant said. Under Industry Canada’s auction rules, released in March 2012, each of the incumbent carriers is limited to acquiring a single block of the prime spectrum in each of 14 licence areas. The prime blocks are considered the most useful to wireless carriers because they are interoperable with the networks and mobile devices used by large U.S. carriers Verizon Communications Inc. and AT&T Inc. Those rules, which were designed to support the government’s objective of having a fourth wireless competitor to compete against the incumbents in each region, ensure that someone other than the incumbents can secure one of the four prime blocks in each market. Since none of the regional providers currently offer wireless services in any of the three licence areas that Wind currently operates in, Catalyst was previously seen as the most likely competitor for the fourth block of prime spectrum in those areas, largely due to its position as Mobilicity’s biggest debtholder. Troy Crandall, a media and telecom analyst with MacDougall, MacDougall & MacTier, said in an interview that a well-financed Catalyst could have bid on prime spectrum in an effort to protect its $60 million debt investment in Mobilicity, which also operates in the Alberta, British Columbia and Southern Ontario regions. Catalyst, which says on its website that it specializes in turning around distressed Canadian companies, could have purchased spectrum to increase Mobilicity’s value, with the hopes of later flipping the company to make a profit, Crandall said. “We thought Catalyst was going to go in there trying to bid for some spectrum,” he said, adding that Wind is now the “best capitalized” bidder with an inherent interest in acquiring spectrum in the three markets. “So yeah, this is good news for Wind.” Crandall said Bitove’s Feenix Wireless is the only remaining “wild card” heading into the auction, which could still get into a bidding war with Wind for prime spectrum in the country’s three-most populous English-speaking provinces, though he added that no one is yet sure of Bitove’s financing or intentions. Bitove, he added, gained valuable experience in Industry Canada’s 2008 AWS spectrum auction, through which he secured the licenses to launch Mobilicity, and may be able to convince potential investors that he could run a new wireless provider more effectively. “Maybe he has a rabbit up his sleeve and a lot of investors somewhere or a lot of cash somewhere,” Crandall said. The other potential hurdle Wind may have to overcome to win spectrum in the auction could be convincing its own financiers to put up the cash to make a bid. In a research note released Thursday, Canaccord Genuity analyst Dvai Ghose said it is still uncertain whether Amsterdam-based VimpelCom Ltd. — which has a 65-per cent non-controlling stake in Wind — will be willing to pour more money into the Canadian new entrant carrier. “VimpelCom has made it clear that it wants to exit Canada,” Ghose said in reference to a summer comment by VimpelCom CEO Jo Lunder that the international telecom provider wants a “clean exit” from the Canadian market. “WIND’s operating results have consistently disappointed and are well below its initial targets,” Ghose added. Grant said industry observers could get their first clue to VimpelCom’s intentions for the upcoming auction next week, at the deadline for companies to bid for Mobilicity’s assets in a court-supervised sale process that’s part of Mobilicity’s ongoing bankruptcy proceedings. Tony Lacavera, Wind’s CEO, told The Wire Report this week that Wind is interested in acquiring Mobilicity’s spectrum in order to roll out an LTE network. If Vimpelcom is willing to spend money to acquire Mobilicity’s spectrum licences, Grant said, there is a good chance it will be willing to spend money on the more valuable 700 MHz spectrum. A spokeswoman for Wind did not respond to a request for comment for this story by publication and a spokesman for Vimpelcom declined to comment. Gregory Taylor, a post-doctoral fellow with the spectrum policy research group at Ryerson University, said in an interview that Wind will have a good chance to secure spectrum at or near the opening bid price, which would total $95.6 billion for licences in all three of Ontario, Alberta and British Columbia, according to Industry Canada’s auction rules. “I think it certainly opens the door for Wind to have some real possibilities in the auction,” he said of Catalyst’s withdrawal. Taylor noted that government coffers could end up being the “big loser” of Catalyst’s withdrawal if auction competition is limited and companies are able to secure licences at or near the opening bid prices. “I don’t think we’re going to see a lot of fierce bidding coming up,” he added. Jake Enwright, a spokesman for Industry Minister James Moore, said in an emailed statement that the auction is designed to achieve results that benefit consumers. “High-quality spectrum will soon be made available across the country, providing Canadians with dependable, high-speed wireless services on the latest technologies,” Enwright said. “Our government created the 700 MHz spectrum auction rules with the best interests of Canadian consumers up front. Regardless of the outcome, Canadian consumers will benefit." — With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Wind gains edge following Catalyst auction withdrawal: experts

News | December 5, 2013

Unlock all the Canadian telecom, broadcasting and digital media news you need.

FREE TRIAL

SUBSCRIBE

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us

Wind gains edge following Catalyst auction withdrawal: experts

News | December 5, 2013

Unlock all the Canadian telecom, broadcasting and digital media news you need.

FREE TRIAL

SUBSCRIBE

Related Stories

Freedom plans could drive big three back to subsidies: analysts

Freedom answers to ‘unlimited’, offers $0 phones on select plans

Shaw says patience, not regulation, required to see organic MVNO market

Analysts surprised by Bell’s lack of 600 MHz, incumbent spend

Reuse & Permissions

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us