It seems like it was only yesterday that we were discussing how the previous spectrum auction would impact investors. Now the announcement has been made for the next federal spectrum auction to come in April 2015, just in time for the next federal election.
Only with this upcoming auction there will be a few limitations in place, which could benefit smaller players. Perhaps this will finally spurn the creation of a fourth coast-to-coast player, something the government has been trying to ‘will’ into existence.
In the coming AWS-3 spectrum auction, 60% of the available licences will be offered to smaller players, with special consideration for companies reinvesting in currently held territories. The government will also be attaching clauses to the reserved spectrum that Telus, Rogers Communications and BCE will be unable to purchase later from the winning companies.
Crippled competition
With a lack of foreign interest in the Canadian market, that leaves only the smaller incumbent players to scoop up this discounted spectrum. Even with a smaller pool of auction competitors, options look slim when it comes to who can actually afford to play in this auction.
Mobilicity is under bankruptcy protection with no buyer/saviour in sight to bring it back into the black. Wind Mobile is a completely different story.
Wind Mobile is operated by Globalive Wireless Management Corporation which in turn is owned by Dutch-based Vimpelcom Ltd, which is owned by Altimo the telecom investment branch of Russia’s Alfa Group Consortium, owned by Mikhail Fridman. Got all that?
Wind Mobile is eager to expand and enter the next auction, but the financial taps have been turned off by its corporate overlords. Wind Mobile had to withdraw from the previous auction due to lack of available capital. All of this doesn’t even take into account that Vimpelcom announced in May that it was looking to sell the company. This follows $1.5 billion in write-offs and the drastic measure it took in March when it wrote down the value of Wind Mobile to zero.
Not to be forgotten are SaskTel and Manitoba Telecom Services, which should be expected to load up on home-turf spectrum. That could create a gap in the desired fourth coast-to-coast carrier’s network.
The Quebec quandary
Considering all of this disarray, the only potential suitor that remains is Quebecor (TSX: QBR.B). The company only has about half a million subscribers in its home province of Quebec, but through its media empire it could be the only one that could afford to expand. Some analysts believe this could even come in the form of a minority partnership, which could evolve into a full controlling interest.
In the last auction Quebecor picked up a handful of spectrum licences in Ontario, Alberta, and B.C. for $233 million, which it has yet to utilize.
The roaming rate run-around
There appears to be one major sticking point in the possibility of a national Quebecor expansion: roaming rates. The higher rates would discourage subscribers from switching to Quebecor as it would take some time to compete with the big three’s national infrastructure. For Quebecor, this is a make or break issue. Without its desired government intervention concerning roaming rates, Quebecor may be more than content to remain in Quebec.
