Verizon move may change the game
Play for Wind could upend Canadian market
a move by Verizon Communications inc. into Canada’s mobile telecom market could be a “game-changer” that sends the big three mobile providers reeling, say industry insiders.
the U.s. giant is eyeing entry through an acquisition of one or more of the new-entrant carriers. sources confirmed to the National Post that the new york-based company is in talks with owners of wind mobile, offering as much as $700-million to buy the Canadian upstart, if regulatory conditions are favourable.
Verizon has also held exploratory talks with another Canadian provider, mobilicity, which sources familiar with the discussions described as “very early stages of expressions of interest.”
though Verizon is the second-biggest mobile provider in the U.s., with 98.9 million subscribers, entering the Canadian market by buying out a small Canadian entrant would mean the telecom giant would be treated as a new entrant in a Canadian cellular auction spectrum scheduled for January. that would enable it to buy two out of four blocks of spectrum in each geographical region — while rogers Communications Inc., Telus Corp. and BCE Inc. would be limited to just one block each.
Verizon would also be able to deploy its massive scale and buying power against the relatively small Canadian incumbents. Verizon earned Us$115.8billion in revenue last year, compared to BCE’s $19.9-billion, rogers with $12.5-billion and Telus with $10.9-billion. the big three control just under 90% of the Canadian mobile market.
ottawa’s rules limit foreign players to buying companies that make up a maximum of 10% of the telecommunications market.
But after that, Verizon would be free to build its customer base organically with no limits on market-share growth.
Greg Macdonald, head of research at Macquarie capital markets canada, said if Verizon acquires one of the country’s new-entrant carriers and takes part in the auction, the Big Three could stand to lose up to 1.5 million subscribers in the next five years.
The carriers could also lose out on revenue from roaming charges, while a rich player like Verizon could drive up bid-prices on spectrum, the radio airwaves used to build wireless networks.
RBC capital markets analyst drew Mcreynolds called the possible entry a “gamechanger for wireless economics and wireless valuations.”
A separate source confirmed to the National Post that Verizon sent a letter to Wind mobile this week expressing its willingness to make an offer for the Toronto-based provider. It has not tabled a formal offer for the Vaughan Ont.-based mobilicity, which is $508-million in debt and is holding a creditor meeting to consider restructuring next week.
“There hasn’t been any price put on the table,” said a source who spoke on the condition of anonymity. In fact, mobilicity is “not in the current dialogue with Verizon.”
Alek Krstajic, founder and chief executive of Public mobile, the third among canada’s new-entrant mobile providers, said his company has not spoken with Verizon.
Since recapitalizing earlier this month with a fresh commitment from a fund controlled by Peter Thomson, of canada’s wealthiest family, Public mobile has been inundated with calls from private equity firms “who wanted to talk about backing us to be the consolidator” and merge the smaller mobile players, Mr. Krstajic said in an interview Wednesday.
“But the minute Verizon steps into the party, it’s over. No one can [compete with that]. The incumbents can’t compete with that.”
Verizon’s chief financial officer confirmed last week the company is exploring opportunities in canada but a spokesman declined to com- ment on reports that it has made an initial offer for Wind.
representatives from Wind, its european owner Vimpelcom Ltd. and mobilicity also declined to comment on Verizon’s interest Wednesday.
“Verizon has been talking to everyone,” said a source who asked not to be named. “Literally, Verizon has called the phone book of everyone involved in wireless in canada to let them know they’re interested.”
Wind is seen as the linchpin of any plans for Verizon to enter the canadian market and its attractiveness hinges in part on confirmation of the government’s formal policy around the transfer of spectrum licenses, which is expected this Friday.
A number of industry players who have met with federal Industry minister christian Paradis’ staff said Ottawa will announce it intends to vet each spectrum transfer based on merit “to ensure companies are not sitting on spectrum to use it as a barrier to competition.”
Industry sources have said rogers has also held talks with Wind and would be willing to pay up to $1-billion to acquire the company. A rogers spokeswoman would not comment on that report.
But if the government holds the line on its policy it would essentially bar the Big Three from purchasing Wind, mobilicity or Public mobile. Mr. Paradis indicated as much this month when the government denied a bid by Telus to acquire spectrum from mobilicity, which the startup acquired subject to a set-aside for new entrants in the 2008 auction.
Instead, it would make it more accommodating for other foreign carriers, such as Verizon, to enter the canadian market, which would make Wind a more desirable asset given that it is the largest of the upstarts and owns the most spectrum.