Rogers-Mobilicity deal sign of ‘benign’ regulatory environment: analyst

Industry Canada’s approval of Rogers Communications Inc.’s bid to buy Mobilicity, as well a deal for Rogers to acquire spectrum from Shaw Communications Inc., signals an improvement in the regulatory environment for large wireless providers, analysts said Wednesday. Industry Minister James Moore confirmed Wednesday afternoon the government has approved Rogers’ purchase of Mobilicity, which has been in bankruptcy protection since September 2013, as well as Rogers’ acquisition of AWS spectrum Shaw bought in 2008 and did not use. As part of the arrangement, spectrum in several regions will be transferred to Wind Mobile. “The approval of these spectrum licence transfers is a win for Canadian consumers," Moore said in an emailed statement. "A new wireless competitor has secured valuable spectrum it needs, and high-quality spectrum that went unused for almost a decade will now be deployed for the betterment of all Canadians." Phillip Huang, a telecommunications analyst for Barclays Capital, said in a research note that the deal is a sign that the regulatory environment is improving for large wireless companies. He said the acquisition “signals the return to a more benign regulatory environment for the Big 3. Allowing the Big 3 to help consolidate the market represents a dramatic shift in the government's policy direction, and is positive for the wireless industry, in our view,” since it allows more efficient spectrum use, making the Canadian market less attractive to a “more threatening foreign strategic player,” he said. Huang added he does not “see another catalyst for the government to introduce new pro-competition policies,” with the CRTC having issued its decision on wholesale roaming, and no significant spectrum auctions scheduled for the next few years. RBC Dominion Securities analyst Drew McReynolds also said that, with government approval of Rogers’ deals Wednesday taking place after the CRTC’s recent wholesale wireless decision, and the 700 MHz, AWS-3 and 2500 MHz auctions, regulatory uncertainty is now lessening for wireless providers. “We believe regulatory risk in the wireless sector for the incumbents is waning due largely to the emergence of WIND as a perceived sustainable fourth national wireless player,” he said, adding that while “the competitive impact of a stronger WIND remains to be seen, we continue to believe the impact should be manageable for incumbents.” The government has vetoed past attempts by Telus Corp. to purchase Mobilicity, arguing such a deal would concentrate too much spectrum into the hands of the largest wireless carriers. Recent reports had indicated that Telus also made a recent offer to purchase Mobilicity. The company declined to comment Wednesday. On Wednesday, Moore said numerous spectrum auctions have resulted in the proportion of spectrum held by incumbents declining from 98 per cent in 2006 to about 75 per cent now. Rogers said the deal means it will acquire 100 per cent ownership of Mobilicity, while “divesting, post transaction, certain AWS-1 spectrum to Wind Mobile that is contiguous to their spectrum holdings.” “The transactions mean Rogers gains significant, previously unused spectrum capacity that works with all LTE devices today,” Rogers said. That spectrum deal with Shaw was announced in January 2013, and involves the transfer of Shaw's spectrum in Western Canada and northern Ontario to Rogers in a multi-pronged deal worth about $700 million, under which Rogers also took over Mountain Cablevision in Ontario and Shaw assumed full control of the TVtropolis specialty channel. “As per the previously announced terms to complete the Shaw spectrum acquisition, Rogers will pay $100 million in addition to the down payments made when the agreement was originally announced in January 2013,” the press release said. Shaw said in a press release Wednesday that a total of $350 million was paid by Rogers for this spectrum. Shaw spokesman Chethan Lakshman said in an email this was all the spectrum Shaw had, which it paid about $190 million for in the 2008 auction. Rogers said the Mobilicity acquisition is still subject to approval by the Competition Bureau. Mobilicity spokesman Joel Shaffer confirmed by email Wednesday morning that the Ontario Superior Court had given its OK to the transaction. In Wednesday’s press release, Rogers said that following the acquisitions, “Rogers and Wind will undertake an AWS-1 spectrum swap in southern Ontario to create contiguous spectrum for Rogers. Rogers will also divest certain non-contiguous AWS-1 spectrum to Wind Mobile in B.C., Alberta, Saskatchewan, Manitoba, and northern Ontario and eastern Ontario.” Wind said the new spectrum would “at least double” its network capacity in B.C., Alberta, Saskatchewan, Manitoba, and northern and eastern Ontario. "This new spectrum acquisition means Wind Mobile now has a 20 MHz AWS-1 corridor from Victoria to Ottawa," CEO Alek Krstajic said in a press release. He added this would "significantly improve our network performance from Ontario to the Pacific, enabling us to deploy new technology and accelerate the development of our LTE network and other services." Wind has expressed interest in acquiring Mobilicity in the past, with Krstajik stating as recently as last week that Wind continued to be interested in striking some type of deal with the company. Huang said that Wind is “the big winner” Wednesday, since it will receive 45 per cent of the spectrum involved in the deal. McReynolds said that Wind’s increase in spectrum “is consistent with our working assumption that a stronger recapitalized fourth national wireless player is likely to emerge … in some shape or form” in 2015 or 2016. The next step in that process is to determine “how and when Quebecor's 700 MHz and 2500 MHz spectrum outside of Quebec is ultimately rolled into WIND,” McReynolds added. Huang also mentioned Quebecor Media Inc.’s Videotron, writing that the Rogers-Mobilicity deal was positive for Quebecor and could set a precedent “for future deals between incumbents and new entrants,” paving the way for Quebecor topotentially sell its spectrum” outside of Quebec to one of the big three wireless providers. “We believe any such deal would also need to involve Wind in order to receive the government's blessing,” Huang added. Rogers said the purchase price of the Mobilicity deal was $440 million, while Mobilicity said in a press release the price is $465 million. In response to a question about this discrepancy, Rogers spokesman Aaron Lazarus said in an email that the difference is due to the transaction being “subject to working capital adjustment upon closing.” An affidavit filed by chief restructuring officer William Aziz said Mobilicity has debt of more than $600 million. In the press release, Rogers said the $440 million purchase price would be “offset by tax losses valued at approximately $175 million which Rogers will acquire.” McReyonolds said in his research note the deals aren’t “financially material” for Rogers, though they do “bolster” its spectrum position. Huang wrote the Mobilicity deal is a “good transaction” for Rogers because the “valuation is fair,” the spectrum swap with Wind will give Rogers access to “more contiguous immediately usable spectrum,” it doesn’t involve a deal for sharing spectrum or with a mobile virtual network operator, and Rogers is “getting Mobilicity's network, cites and distribution assets for free.” While Rogers is also getting Mobilicity’s more than 150,000 subscribers for free, “we see little value given their low ARPU (~$31) and the eventual need to invest in subsidized handsets if they want to retain these subs.” Mobilicity’s court filing said that after “numerous discussions with potential counterparties and a robust and rigorous process, the board of directors of Holdings has concluded that the Rogers Sale is fair, reasonable and in the best interests of the Mobilicity Group and its stakeholders.” Under the terms of the deal, service to subscribers would go uninterrupted and its obligations to creditors, employees and dealers would be assumed by Rogers, Mobilicity said. — With reporting by Anja Karadeglija at akarad@thewirereport.ca, reporting and editing by Derek Abma at dabma@thewirereport.ca, and editing by Shruti Shekar at sshekar@thewirereport.ca

Rogers-Mobilicity deal sign of ‘benign’ regulatory environment: analyst

News | June 24, 2015

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