TORONTO – While analysts view today’s announcement that Telus has agreed to purchase floundering wireless newcomer Mobilicity for $380 million as a win for both companies, the bigger, as-yet unanswered question is whether or not Industry Canada and the Competition Bureau will allow the incumbent telco to buy a new entrant, a move that flies in the face of Industry Canada’s plan to have four wireless players in each region of the country.
“The situation is getting messier for the government,” says Scotia Capital analyst Jeff Fan. “The bottom line is this makes it less likely that a strategic investor will step up to consolidate the new entrants and participate in the auction to create a stronger fourth operator.”
Whether or not the government approves the transaction is a moot issue, says Fan. “If the government denies this transaction, Mobilicity will likely either fail or receive a lower offer from a strategic investor. In either scenario, we think Mobilicity could take legal action against the government, prolonging uncertainty and reducing the likelihood of a strategic investor emerging.”
Dvai Ghose of Canaccord Genuity says it’s possible the government may block the deal in the hopes that Mobilicity might still be able to find an independent third party to buy it, but that would mean Mobilicity would have to seek bankruptcy protection and risk distrupting services to its 250,000 customers. “If the government blocks the sale, we will be left asking who will finance these independent new entrants, especially if they can never be sold to the incumbents who are the only obvious buyers,” says Ghose.
Ghose also added that Telus is paying virtually nothing for Mobilicity's subscribers in the $380 million purchase price, noting the Mobilicity spectrum was purchased for $243 million and the young company's tax losses are valued at about $100 million.
He continues, “Perhaps the free market focused Conservative Government will eventually come to the conclusion that the market could not support a fourth player in every region and so it should concentrate on managing the incumbents rather than artificially forcing competition.”
