Telus-Clearnet merger bumps one bidder from PCS auction; spectrum sale pending

New entrants stand a better chance of landing PCS licences in this fall’s spectrum auction as a result of Telus Corp’s proposed purchase of Clearnet Communications Inc. With Clearnet now out of the bidding for additional PCS frequencies, and Telus now exceeding its spectrum limit in Alberta and British Columbia, smaller bidders are hopeful auction prices won’t rise beyond their financial reach. Financial and Operating Highlights Telus/ClearnetTelus CorpRevenue$6.5 billionEBITDA$2.3 billionNet income before goodwill charges$190 millionCash EPS$0.64 Number of employees26,200Combined wireless entity (Telus Mobility and Clearnet) Revenues$1.5 billionEBITDA$214 millionNumber of customers1.8 millionNumber of licenced POPS/POPS covered30.7 million/21.2 millionAverage churn rate1.74%Net customers added408,972ARPU$57.46"All the incumbents get reduced competition because there’s one less of them," says Joe Church, president/CEO of Wireless2-net.com Inc, one contender in the upcoming spectrum auction. "And the market and the spectrum available for new entrants is bigger." Iain Grant, managing director at the Yankee Group in Canada, agrees the dynamics of this fall’s spectrum have changed dramatically for all bidders. "I think that the breathlessness of the auction has certainly evaporated, such that I think people like Mike Kedar (with MobilExchange) may actually have a chance this time to get in without paying the rarified sums that were expected," he told Report on Wireless. With lower spectrum bids anticipated, incumbents will also be in a better financial position to build out their networks faster. "The position it puts Rogers (AT&T Wireless Inc) in (for example) is the additional spectrum will be cheaper. Rather than cough up another Blue Jays, it’ll have some change left over," Grant quips. Telus exceeds spectrum cap in Alberta and British Columbia Of course, Telus won’t be able to participate in this fall’s spectrum auction until it disposes of excess spectrum. After acquiring Clearnet, Telus will hold about 44 MHz across three spectrum bands (PCS, ESMR and analog) in each of the markets from Saskatchewan to the Atlantic coast. Industry Canada’s spectrum cap prohibits wireless carriers from owning more than 55 MHz (RoW, Nov. 15/99), which gives Telus just enough wiggle room to bid for a single 10 MHz PCS licence in the 10 markets in central and eastern Canada. However, it won’t be able to bid for those licences in the upcoming auction until it gets rid of excess spectrum in western Canada. Its acquisition of Clearnet brings its total spectrum holdings in BC and Alberta to nearly 80 MHz, which is about 25 MHz over the cap. Telus may also find that it has a surplus of specturm in Quebec following its acquisition of QuebecTel earlier this year. But it is still unclear how close it is to the cap with the additional 43.7 MHz gained from Clearnet. How Telus decides to lighten its spectrum load isn’t known. Church doubts the company would be able to sell it on the open market. "I don’t know that it’s that obvious what happens to that spectrum other than they (Telus) have too much of it," he says. "I suspect there’s a lot of soul searching going on about what to do about that." The company that would benefit most from this spectrum is Bell Mobility, which needs to build out its network in western Canada to become a national facilities-based wireless carrier. Grant believes Bell is the logical suitor. "Telus would now have a surfeit of spectrum and it will have to find a home for that," he told RoW. "And I think (it) will also find (itself) with a surfeit of towers and CDMA equipment and I can think of the name of one buyer right now which would pretty much tidy up (its) requirements for both spectrum and towers in the short run." He says there are several scenarios that can be played out in the Bell purchase of Telus’ excess spectrum. "One is to try to harvest as much as they possibly can from the Bell coffers for the privilege," he says. "Of course, they risk being left at the alter as well, if Bell were to say ‘alright, the hell with you. We’ll bid for spectrum, put up some new towers. Thanks very much. Stick it in your ear.’" He adds, however, that a more likely outcome would be an amicable trade off that benefits both parties. Feds should expect less money If there’s anyone coming up short in the Telus-Clearnet deal, it’s the federal government itself. A recent report by CIBC World Markets concludes that the potential windfall for the government will be significantly less than previous anticipated. While estimates weren’t given, "the cost of spectrum in the auctions will probably be significantly lower than originally anticipated as a result of this deal," it writes in the August 22 report. Despite the opportunities for new entrants, CIBC predicts Canada will have a four-player market after the auction. "As a result of the Telus/Clearnet deal, a four-player wireless environment will probably be maintained as opposed to the five-player environment we likely would have seen as a result of PCS auctions in November," the report notes.

Telus-Clearnet merger bumps one bidder from PCS auction; spectrum sale pending

News | September 5, 2000

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