Verizon has followed through on its plans to expand into Canada, making an initial offer for Wind Mobile but also initiating talks with the country’s other small cellco, Mobilicity.
Both companies ‘ and a third start-up, Public Wireless – entered the market when the regulator set auction rules, during 2008’s AWS sale, which set aside spectrum for new entrants, but they have struggled to survive against the three incumbents ‘ Bell Canada, Telus and Rogers ‘ and have all failed to turn a profit.
There has been much talk of Wind and Mobilicity merging, something that could happen under Verizon’s auspices, although AT&T, Vodafone and Telenor have also been rumored to be interested in Wind.
Verizon’s initial offer values Wind Mobile at about C$700m, according to Bloomberg sources, though this might be just a small part of the overall budget required to make an impact on the C$19bn-a-year Canadian wireless space ‘ analysts estimate that the US firm would need to invest between C$1bn and C$2bn in acquisitions and new spectrum. When VimpelCom put its Canadian unit up for sale, it was expected to get a price between C$500m and C$1bn, while Mobilicity would be cheaper. Telus had offered to pay C$380m for the start-up, though this was blocked by the antitrust regulator.
The Canadian government has been keen to encourage foreign investment that could preserve its strategy of having at least four viable wireless operators in each region – though the sale of Wind by its controlling stakeholder, VimpelCom, has been held up by regulatory and national security processes. In June, Public Wireless was acquired by Thomvest Seed Capital, an investment vehicle of the Thomson media family, and is now expected to bid for 700MHz spectrum in Canada’s postponed auction, now scheduled for early next year.
The regulator believes that, if a large foreign entity like Verizon acquired either of the small players, they could then participate in the upcoming auction, creating greater competition and potentially driving up prices for incumbents (and the Canadian treasury). The government has relaxed its foreign investment rules for telcos with market share below 10%, giving Verizon its opportunity to expand north of the border.
It would certainly bring scale and experience to the party, with a market capitalization that is almost double that of Canada’s big three combined; a wireless base of 100m ‘ nearly three times the population of Canada; and the world’s biggest LTE network. That would give it significant buying power and roaming potential.
“We think Verizon remains very interested in the Canadian market as a potential growth opportunity. Benefits to the company include the opportunity to acquire an asset at a steep discount to book value, to acquire 700MHz spectrum contiguous to its US spectrum, to leverage existing Verizon products in the Canadian market and to achieve net roaming savings,” Greg MacDonald, an analyst at Macquarie Capital Markets, told TotalTelecom.