OTTAWA – The lack of bids from foreign wireless players means the federal government should rethink its goal of having four wireless providers in every market in Canada, say telecom industry analysts.
Reacting to the list of bidders for the 700 MHz wireless spectrum released early Monday, Dvai Ghose, Managing Director/Head of Research for Canaccord Genuity told clients that the list proves that the “outcome of the summer war between the (wireless) incumbents and the Government has resulted in a victory for the incumbent carriers”.
“In summary, we view the list as a key positive for the incumbents and a key disappointment for the Government, which wants four carriers in every market..”, he wrote in a note to clients. “No foreign carrier has put in a deposit despite the fact that the initial deposit required for two prime 700 MHz blocks is only $16 million and fully refundable and despite the fact that the Government bent over backwards to find foreign carriers to act as new entrants.”
Ghose added that he did not anticipate that “the competitive dynamics in Canadian wireless to change much as a result of the auction”, and speculated that the government could reverse its policy on allowing new wireless entrants such as Mobilicity and Wind to be sold to the incumbents “given lack of strategic interest in new entrants”.
BMO Capital Markets telecom analyst Tim Casey described the list of bidders as “a notional positive for all wireless operators in Canada”. While expressing some surprise at the inclusion of private equity investors Birch Hill Equity Partners (rumoured to be in talks with Wind over a potential acquisition), Feenix Wireless (owned by Mobilicity chairman John Bitove), and Mobilicity bondholder Catalyst Capital Group, he noted that “none are game-changing threats like the large U.S. carriers (particularly Verizon and AT&T)”.
Scotia Capital analyst Jeff Fan said he suspects that the private equity companies will focus on the fourth prime block that the incumbent telcos cannot acquire due to the one prime block cap limit listed in the auction rules.
“We believe they may attempt to acquire spectrum to operate as a wholesaler or lease spectrum capacity to other carriers”, he wrote in a client note. “We doubt the PEs have the financial capacity and patience to operate a fourth operator long-term or extract an attractive ROI even with mandated roaming rates without certainty on the ultimate exit (i.e., limited visibility on the terminal value).”
But Industry Minister James Moore did not allude to any change in the government’s direction in comments issued Monday morning.
"In addition to this auction, our Government will continue to aggressively pursue policies that ensure consumer interests are at the core of all Government decisions", he said in a written statement.
“Well before this summer's public debate on wireless policy, our Government introduced a number of measures to create more choice in Canada's wireless market and to defend consumers. As a result, prices have come down, the number of jobs in the wireless sector has increased and consumers have more choices. This trend will continue as a result of January's auction.”
