Analysis: Harper wants to say no to Telus, and may have to say yes

At first blush, Telus Corp.'s second run at trying to acquire new entrant Mobilicity sounds very familiar, even comically so. The Harper government very clearly said no the first time. If you ask twice, do you get a better answer? Or has so much changed since the first run that the question is now a different one? If you ask people involved in telecom how they expect the government to respond to Mobilicity's new application to Industry Canada for a sale to Telus—as confirmed by The Wire Report—they have a few things to say. First, Industry Canada and even Industry Minister James Moore aren't calling the shots on this. Prime Minister Stephen Harper holds the telecom file now, particularly since he posted messages on his Facebook page in July, saying the government will push for more competition, and lower consumer pricing, in the wireless industry. As recently as Sunday, while the rumour mill was churning about Telus' second crack at Mobilicity, the PM said on Twitter: “Our government’s wireless policy is clear: more choice, lower prices, better service,” and he linked to an Industry Canada webpage advocating the policy. The Prime Minister's Office's direct involvement in the wireless file means any decisions are highly political, and what matters now is optics. The last thing the Harper government wants to be seen doing is saying no to Telus the first time and then, the second time, “Oh, alright.” That's embarrassing optics. A few things have changed since the Harper government denied Telus' previous request to purchase new entrant Mobilicity (operated by Dave Wireless Inc.). At that time, in June, the government said it was denying the transfer of ownership because, according to Mobilicity's spectrum licence conditions, it cannot transfer its spectrum to an incumbent telco until after a five-year limitation period, which expires in February 2014. “I will not be approving this or any other transfer of set-aside spectrum to incumbents ahead of the five-year limit,” industry minister Christian Paradis, who was replaced this summer by Moore, said at the time. He didn't say a deal would be denied after the five-year limit expires. The terms of the new Telus-Mobilicity deal are mostly unknown because nothing is public, though people in the sector believe it would be structured so that the transaction would take place after the transfer limit is lifted in February. That same day in June, when the government denied the first Telus-Mobilicity deal, Industry Canada released new spectrum transfer rules that said, even after those transfer limitations expire, the department will block any spectrum licence transfers that result in an “undue concentration” of spectrum going into the hands of one provider in one market. In other words, it's still unclear whether Telus could get the green light to acquire Mobilicity, even after February. Under his policy, Harper's first wish is to block the deal. Taking a competitor out of the market, to be swallowed up by an incumbent, works against the Tory government's policy of increasing competition. Goodwill also matters, and the incumbents burned up whatever stock they had with Harper and Moore over the summer, through their public campaign against government wireless policies intended to spur competition. They certainly put Moore in no mood to compromise. What the government will probably do now is review Mobilicity's file, then review it some more, and then continue to review it, until after next year's spectrum auction closes, expected around March. Mobilicity, though bleeding, says it now has enough capital to survive until March. After the auction, the PMO will have a better view of the wireless landscape, and where the chips fall. New entrant Wind Mobile says it is going into the auction, probably with financing from its majority equity investor, Amsterdam-based VimpelCom Ltd. Who knows, maybe by next spring, Wind, backed by VimpelCom, could be interested in buying Mobilicity. VimpelCom is still looking at possible ways to exit the Canadian market. It could consolidate Mobilicity and Wind, then sell the combined company to a non-incumbent buyer such as Wind CEO Anthony Lacavera, who has expressed an interest in a possible partnership with former Wind backer and Egyptian billionaire Naguib Sawiris. That scenario would obviously fall more in line with the government's policy objective of ensuring a fourth wireless competitor to compete with the three national incumbents, Telus, Rogers Communications Inc., and BCE Inc. Telus, for its part, has smart people working for it, who are fully aware their goodwill may be gone and that the government said no last time. They also know that the government could get boxed in. American giant Verizon Communications Inc. said in September that it has no plans, for now, to enter the Canadian market. No other major foreign company registered for the auction in September, indicating that the government's hopes for a fourth competitor may be dwindling. If the Harper government at any point decides to deny the Mobilicity acquisition after the spectrum transfer moratorium is lifted, it could expect a court challenge, further complicating matters. Another wild card, which Telus and the PMO will be watching, is the outcome of Telus' and BCE's current court challenge of Industry Canada's new spectrum transfer rules related to “undue concentration,” specifically how they relate to the purchase of wireless companies with spectrum assets. Telus argues in the case that it's outside the authority of cabinet to deny such acquisitions after the expiration of the transfer moratoriums. A decision in that case could come before the spectrum auction is over next year, and if the court ruling falls in the government's favour, Moore can continue to review the Mobilicity file. If it goes in Telus' direction, the government may get cornered into allowing the acquisition to go through. Such a court decision could provide an out, to be explained as, “Our hands are tied.” If that was the case, the government could also be seen as making a decision that saves a small mobile provider from possible bankruptcy, and protects its mobile subscribers and roughly 130 employees from suffering those consequences. Mobilicity, now in court-approved creditor protection, is losing millions of dollars per month and its subscriber numbers have fallen to 194,000, according to court documents. Telus, through its court challenge of the transfer rules, and now with its second run at buying Mobilicity, faces as much uncertainty as the government, but if nothing else comes from its latest moves, the company will force the government's hand, and provide more clarity about the spectrum transfer rules. Telus and others in the industry, certainly the incumbents, welcome that. Maybe the government and the incumbents will both come out the other end a little scathed, a little compromised. The wireless story is, after all, now one of politics, an art where flexibility is king and even ironic decisions can be framed and presented in an acceptable way. As Groucho Marx once said: “Those are my principles, and if you don't like them, well, I have others.” —With reporting by Simon Doyle at sdoyle@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Analysis: Harper wants to say no to Telus, and may have to say yes

News | October 2, 2013

Unlock all the Canadian telecom, broadcasting and digital media news you need.

FREE TRIAL

SUBSCRIBE

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us

Analysis: Harper wants to say no to Telus, and may have to say yes

News | October 2, 2013

Unlock all the Canadian telecom, broadcasting and digital media news you need.

FREE TRIAL

SUBSCRIBE

Related Stories

Federal gov’t facing second legal battle over wireless wipeout

Shaw says timing, current market dynamics made Wind deal attractive

CRTC tells Mobilicity to move on 911 texting

Some Mobilicity creditors might lose out: court documents

Reuse & Permissions

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us