Bell-MTS deal receives final approval, includes Xplornet in ‘surprise twist’

The introduction of Xplornet Communications Inc. into Manitoba’s wireless market was a “surprise twist” to the story of BCE Inc.’s $3.9-billion acquisition of Manitoba Telecom Services Inc., analysts said Wednesday in reaction to the proposal receiving final regulatory approval from Innovation, Science and Economic Development Canada and the Competition Bureau. In a press release, the bureau said its investigation of the deal first announced in May “determined that it would result in the removal of a strong regional competitor that was effective in constraining the pricing” of Bell, Rogers Communications Inc. and Telus Corp. and that “the removal of MTS would likely result in a substantial lessening or prevention of competition for retail wireless services in Manitoba. This would likely lead to higher prices and fewer options for Manitobans.” When announced, Bell said its proposal included $1 billion in investment in the province over five years and a divestment of about one-third of MTS’ postpaid wireless subscribers and one-third of MTS’ dealer locations to Telus. But according to the bureau, further action was required and under the consent agreement filed Wednesday between Bell, Xplornet and the commissioner of competition, Bell “must sell six retail stores, 24,700 subscribers and 40 MHz of spectrum” to Xplornet. The spectrum and stores are in Winnipeg and Brandon, and under the agreement, Bell must also provide “expedited access to Bell’s towers in Manitoba pursuant to an enhanced tower access process for a period of 5 years after Closing” and “support for wireless handset procurement for Xplornet for a period of 5 years after Closing,” as well as “discounted access to advertising inventory for mobile wireless services on Bell Media’s Manitoba advertising platforms for a period of 3 years after Closing.” While analysts expected the proposal to ultimately be approved, “the surprise twist was the inclusion of Xplornet in the deal,” Canaccord Genuity’s Aravinda Galappatthige said in a research note. “While the inclusion of Xplornet supports the government's policy of maintaining a four player market, it is a considerably different result from the broad expectation that Shaw Communications would be brought in to the deal to become the fourth wireless player in Manitoba.” Xplornet has an existing customer base in Manitoba, Galappatthige noted, with satellite and fixed wireless service, “however it is a considerably smaller player with far less financial clout to be a threat to the incumbents in the province of Manitoba or influence prices.” When the acquisition is complete — it has an expected closing date of March 17 — and the necessary transfers are finished, Bell has to transfer its postpaid wireless subscribers to Xplornet between Oct. 16 and one year after the closing date, according to the consent agreement. RBC analyst Drew McReynolds said in a note that “we estimate BCE will hold a 44% share of the Manitoba wireless market followed by Rogers (36%), TELUS (18%) and Xplornet (2%).” In a press release Wednesday, Xplornet said it “intends to create a state-of-the-art telecommunications infrastructure throughout Manitoba using the latest Long-Term Evolution (LTE) technology to offer both mobile and fixed broadband services” and that “the network expansion builds on Xplornet’s history of deploying wireless broadband infrastructure that began over a decade ago.” According to a Bell release, the acquisition will add “approximately 710,000 wireless, Internet and IPTV customers in Manitoba,” and a five-per-cent increase to Bell's total broadband service subscribers. The new Bell MTS will “operate a total of 69 retail locations offering wireless and wireline services across the province; MTS products will be available for the first time in Bell, The Source, Tbooth wireless and WirelessWave locations,” the release said. In a press release, ISED Minister Navdeep Bains said the federal government “supports more competition, which means more choices at affordable prices for consumers.” He added: “Bell's deal to acquire MTS and the expansion of Xplornet into the Manitoba market will result in more competition, which means more choice and competitive prices for all Manitobans.” Advocacy group OpenMedia decried Wednesday’s announcement as being a step backward for competition. “For decades Manitobans have enjoyed some of the lowest wireless prices in the country due to the presence of a fourth carrier that brings additional choice and competition. All that is about to end,” spokesman David Christopher said in a press release. “It’s now clearer than ever that we need action from the government and the CRTC to open up our market to smaller competitors.” In a press release, Public Interest Advocacy Centre (PIAC) executive director John Lawford said Manitoba consumers “are the guinea pigs in this cellphone market experiment” and that “there are no guarantees that wireless prices will not rise in Manitoba due to this deal’s approval despite the artificial creation of a tiny new competitor in Xplornet.” A PIAC-commissioned poll last summer suggested 54 per cent of the province’s residents expected their wireless bills to rise as a result of the acquisition. Paul Beaudry, an associate researcher with the Montreal Economic Institute (MEI) said in a phone interview he was happy to see the deal’s approval. Last year, Beaudry co-authored an MEI report that said the acquisition would be a competition booster. “So essentially what you will have right now is a dynamic market where you have Bell as a strong competitor, Telus, which benefits immensely from this transaction through the transfer of resources and you’ll have Xplornet,” Beaudry said. “Am I sure that Xplornet’s going to make a big difference in the competitive landscape? I’m certainly not sure of that, but I think as a general matter, I would rather see this deal approved with the set of remedies that was proposed by the bureau and agreed by the parties as opposed to having the deal blocked because, from a purely literal perspective, we were going from a four to three landscape.” "While today’s consent agreement is expected to address my concerns with the merger, we will continue to keep a close watch on competition in Manitoba and across Canada in the mobile wireless services market,” John Pecman, commissioner of Competition, said in a release. “Given the findings of our review, any future potential mergers by Canada’s three largest mobile wireless providers, Bell, Rogers and TELUS, can expect to receive a close examination by the Bureau." In the Bell release, president and CEO George Cope said that “in addition to our capital investments to roll out our Fibe and mobile LTE services in Manitoba, Bell MTS is also announcing today that we will maintain current MTS wireless price plans for at least 12 months after the closing of the acquisition." But pricing can’t be looked at “in a silo,” Beaudry said. “Bell has committed to investing a lot of money to upgrade the networks of MTS … and I think it can be expected that in the medium to long term as these investments are being made, prices will tend to go up,” he added. Since announcing the merger, Bell and MTS have rolled out a series of upgrade plans, including improving wireless coverage along major highways. “This advancement in our business is an important milestone in Xplornet’s mission to connect Canadians, regardless of where they live, with fast, affordable wireless services,” Allison Lenehan, Xplornet president and CEO, said in a press release. “We believe there is an opportunity to provide more value to consumers in Manitoba. In the months ahead, we look forward to introducing Xplornet to new mobile customers while building on our long-standing heritage in Manitoba.” In an emailed statement, Diane Finley, Opposition critic for Innovation Science and Economic Development, said she was “happy to see that companies like Xplornet were considered in this decision, and that they will be expanding into the mobile wireless market as a new option for Manitobans. Canadian consumers deserve to have more competition and more choices that will keep their costs low, especially at a time when the Liberal government is raising taxes on Canadian families. They don’t need to see more money leave their pockets.” The inclusion of Xplornet could spell a challenge for Shaw Communications Inc., analysts said. “Overall, we view the deal as marginally positive for BCE and TELUS because current estimates did not include the deal, and slightly negative for SJR as investors might have anticipated it potentially becoming the fourth player in Manitoba rather than Xplornet,” Maher Yaghi, Desjardins Capital Markets analyst, said in a note. McReynolds also highlighted Wednesday’s announcement as “a modest negative” for Shaw, citing “a potential lost opportunity to gain entry into the Manitoba wireless market on the cheap.’” McReynolds also said Shaw “faces a deeper-pocketed wireline competitor that will accelerate FTTH deployment” and that “the apparent upholding of the government's four-player wireless policy, which all else being equal, lowers the likelihood of an eventual Rogers-Shaw combination.“ Galappatthige harkened back to the July 2015 sale of AWS spectrum from Wind (now Freedom) Mobile to MTS. “While a possible spectrum sale from Xplornet could bring Shaw back into the game in the province and potentially change the picture, we expect Xplornet to attempt to build out its wireless project. Hence this could take time.” Shaw has its work cut out for it, Beaudry echoed, with commitments in Alberta, Ontario and B.C., though he said the company does “make a convincing case” as a new player for Manitoba “when you compare them to Xplornet, which is a much smaller player with less financial resources.” He added: “I’m just worried that the bureau is gambling by allowing Xplornet to be the beneficiary of these investitures because Xplornet is newer to the sector and doesn’t necessarily have all the resources, nor do they have the experience at this point to run a successful mobile business.” In its release, Xplornet said it “will be finalizing its plans in the months ahead and will make additional announcements regarding its service launch in the near future.” Galappatthige also said Canaccord wasn’t ruling out “an eventual acquisition of Xplornet's wireless business in Manitoba by Shaw. Furthermore, Shaw can remain focused on multiple ongoing strategic initiatives (LTE deployment in B.C., Alberta and Ontario, X1 rollout, SMB) without overloading the plate.” Under the consent agreement, Xplornet can’t unload its newly acquired spectrum or assets to Bell, Rogers or Telus for five years without advance notice to the commissioner of competition. Analyses completed prior to Wednesday’s approval have also highlighted potential regulatory hurdles for Saskatchewan Telecommunications Holding Corp. and weakened competitive power for Rogers in the province if the Bell-MTS deal went ahead. — With reporting by Charelle Evelyn at cevelyn@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Bell-MTS deal receives final approval, includes Xplornet in ‘surprise twist’

News | 02/15/2017 3:07 pm EST

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