US incumbent Verizon Communications has held exploratory talks with investors in Wind Mobile ahead of a potential entry into the Canadian wireless market, the Globe and Mail reported citing two industry sources familiar with the situation.
Should it…
US incumbent Verizon Communications has held exploratory talks with investors in Wind Mobile ahead of a potential entry into the Canadian wireless market, the Globe and Mail reported citing two industry sources familiar with the situation.
Should it choose to enter the market Verizon would buy a small operator – likely Wind, which has 600,000 subscribers and is on the market for C$500m – and then purchase spectrum in Canada’s 700MHz auction scheduled for January 2014, the report said.
Mobilicity, even smaller than Wind, is said to be another option. Verizon declined to comment on the report.
Due to a change in the law last summer foreign investor such as Verizon are now permitted to fully-own Canadian telcos, provided the target has 10% market share or less. If the target achieves 10%+ market share in future the non-Canadian owner would still be allowed to own the operator.
Canada’s government liberalised that rule as part of its attempts to create a fourth national player to rival the dominance of Bell, Rogers and Telus. According to the report Ottawa views Verizon as the most likely foreign investor. Sources said that the names of AT&T, Telenor and Vodafone were floating around as other possible investors.
Canadian private equity firm Catalyst Capital has also suggested it create a fourth player, as has Wind’s outgoing CEO Anthony Lacavera. Meanwhile a partner at Cartesian Capital, a private equity firm which has recently bought into Public Mobile, has said the operator could pursue consolidation.
Earlier this month the government blocked Telus acquiring Mobilicity’s spectrum licences thus stopping a planned C$380m takeover. Industry minister Christian Paradis said he did not want any more frequencies ending up in the hands of the big three and was committed to the idea of a fourth nationwide player. His words are reportedly said to have “heartened” Verizon.
Synergies would be created if the US telco purchased an operator such as Wind: As majority owner of the largest US wireless operator it has huge buying power for smartphones.
RBC Capital Markets analyst Drew McReynolds described the potential entry of Verizon as a “game changer”, but wondered whether the numbers would add up for the US incumbent.
“While the roughly C$2B in incremental capital that would likely be required to create a viable fourth player is a drop in the bucket for a large strategic player like Verizon, the key question is whether the capital and time commitment is worth the prize.”
“At this juncture, we are not convinced the prize is big enough due to a number of headwinds and risks associated with trying to compete with the three well-entrenched incumbents.”
McReynolds concluded by saying he thought it unlikely that a foreign strategic investor would enter the market.
