Mobilicity, Wind in stare-down as AWS-3 deadline looms

Mobilicity's intent to access up to $65 million in debt to participate in the upcoming AWS-3 auction has important implications for Wind Mobile, which would otherwise face no competition for the majority of spectrum on offer in southern Ontario, Alberta and British Columbia. Court documents filed by Mobilicity late Monday indicate it has reached an agreement with existing creditors to raise the money it needs to participate in the AWS-3 spectrum auction, which starts March 3 and has a deadline of this Friday for applicants to register. Mobilicity, in bankruptcy protection since September 2013, was seeking court approval to finalize the arrangement, which came Wednesday morning. Court documents show the financing sought is more than enough to cover the $62 million Mobilicity says it needs for a refundable deposit to bid in areas where it currently operates. While most carriers reached by The Wire Report, including Wind Mobile, have declined to say whether or not they plan to participate in the upcoming spectrum auctions, a source with knowledge of the matter confirmed the company intends to participate in both the AWS-3 and 2500 MHz auctions. Mobilicity has no intention of bidding in the 2500 MHz auction, court documents indicate. The 2500 MHz auction begins April 14 and the registration deadline is also this Friday. For the AWS-3 auction, the government has set aside 60 per cent of the available spectrum for "operating new entrants." Wind would have been left uncontested for most of the spectrum in B.C., Alberta and southern Ontario had Mobilicity sat out the auction. The individual with knowledge of the matter said Wind remains confident it can win the spectrum it needs even with Mobilicity in the auction. Following a transaction late last year that saw a group led by Wind chairman Anthony Lacavera buy Wind Mobile's majority stake from Dutch company VimpelCom Ltd., the source said Wind has "deep pockets" and can "blow out of the water" in the auction. The minimum bid for the set-aside spectrum on which Mobilicity and Wind can bid is $33.3 million in southern Ontario, including Toronto; $5.6 million in eastern Ontario and western Quebec, including the Ottawa region; $9.9 million in Alberta; and $13.2 million in British Columbia, according to the licensing framework on Industry Canada's website. It's believed that Wind will communicate some concerns about Mobilicity's auction plans to Industry Canada, such as whether the financing being provided equates to a "deemed transfer" of control of the carrier and its existing spectrum, and is therefore subject to government approval. Another issue is whether the planned new subsidiary, called Mobilicity SpectrumCo, which would be the official participant in the AWS-3 auction, qualifies as an "operating new entrant" and is eligible for the spectrum set-asides. A struggle between Wind and Mobilicity for positioning in the AWS-3 auction seemed apparent to industry observers following Wind's recent offer of free service for six months to Mobilicity customers. Scotia Capital analyst Jeff Fan said in a Tuesday research note that Mobilicity’s plan to bid in the AWS-3 auction could be “a genuine effort to buy spectrum or an attempt to threaten Wind” in order to force the larger new entrant to negotiate a merger before the application deadline this week. Fan, who has in the past been positive about the potential for a deal between Mobilicity, Wind Mobile and Quebecor Inc.'s Videotron to create a fourth national carrier, said the announcement that Mobilicity had secured funding for the AWS-3 deposit doesn’t necessarily mean the company intends to purchase spectrum. “For Mobilicity backers, injecting additional capital to acquire more spectrum licenses simply delays the inevitable,” he said, adding that he questions whether a genuine effort to buy spectrum would be a “wise move” for the carrier. If raising the funding for the spectrum puts more strain on Mobilicity’s finances, he said, the company could be dissolved as soon as May, and Wind might end up with the spectrum anyway. The intended AWS-3 bidding by Mobilicity has little impact on Quebecor, Fan said, though it could end up forcing Wind to pay more for spectrum licences. If Wind ends up with less spectrum as a result of Mobilicity's auction activity, it's "ultimately positive for the Big 3,” Fan said. Canaccord Genuity analyst Dvai Ghose said in a Tuesday research note that any deal between Mobilicity and Wind is unlikely now if the two companies are still committed to competing with each other in the auction. “This suggests that neither will win spectrum at the reserve price as many predicted,” he wrote in the note. Ghose also pointed to Wind’s targeting of Mobilicity customers as evidence that the two companies are more likely to continue to compete rather than merge. The source with knowledge of the situation said the two sides were not close to reaching an agreement before Mobilicity’s filing indicated it had secured financing to participate in the AWS-3 auction. Ghose said any deal is unlikely in the near term. “While new entrants may still consolidate over time, for us a key positive for the incumbents is lack of foreign carrier interest in new entrants,” he wrote. An outside player is “unlikely” to be interested in Canada, he said, because of questions about the regulatory environment, the relatively small size of the population and the strength of incumbents, he wrote. Ghose said a fourth player backed by Quebecor is not a threat to the current system. “We cannot take Videotron with its small and highly levered balance sheet and limited wireless success in Quebec as a real threat compared with industry behemoths like ,” he wrote. Industry Canada rules forbid participants in AWS-3 and 2500 MHz spectrum auctions from publicly commenting on bidding strategies or how they intend to use bought spectrum after the process. While it does not disallow disclosure of whether a company will participate in an auction or not, most companies reached by The Wire Report have been erring on the side of caution. Officials from Wind, Quebecor, Manitoba Telecom Services Inc. and Rogers Communications Inc. declined to say whether they planned to bid in either auction. Officials from Telus Corp., BCE Inc. and Bragg Communications Inc. did not respond to emails asking about their auction intentions. Saskatchewan Telecommunications Holding Corp. spokeswoman Michelle Englot said in an email Wednesday that it will participate in the AWS-3 auction but it is not eligible for the 2500 MHz auction. — With reporting by Derek Abma at dabma@thewirereport.ca and Peter Henderson at phenderson@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Mobilicity, Wind in stare-down as AWS-3 deadline looms

News | January 27, 2015

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Mobilicity, Wind in stare-down as AWS-3 deadline looms

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