TORONTO – With news that the U.K. may join the likes of Germany, Austria and Ireland in consolidating to a three player wireless market, why are Canadian regulators steadfast in their pursuit of four players?
That was the gist of research note Friday by Dvai Ghose, managing director/head of research for Canaccord Genuity, in response to confirmation that Hutchison Whampoa is in talks to buy Telefonica’s O2 unit for US$15.4 billion. Hutchison already owns and operates the Three Mobile network in Britain, and buying O2, the second largest mobile operator in the U.K., with about 22 million subscribers, would make it the largest mobile operator in the country.
“If the deal is approved by regulators and the U.K. is allowed to consolidate to a 3 player market from 4 and formerly 5 players (T Mobile and Orange merged to form EE), Canadian regulators would be increasingly isolated in their focus on a 4 player wireless market”, Ghose wrote.
Acknowledging that the U.S. remains a four player market, Ghose questioned whether that is sustainable, noting that despite aggressive pricing by T Mobile US and Sprint, neither has ever generated consistent earnings or free cash flow. “In our view, a Republican President would perhaps allow even the U.S. to consolidate to three players”, he continued.
Reiterating that any threat from a potential Videotron/Wind/Mobilicity joint venture would be “limited for the Canadian incumbents”, Ghose added the he does not see any foreign strategic interest in Canadian new entrants and do not expect that to change.
“This is because 1) Canada lacks scale; 2) a foreign new entrant would not have a spectrum/facilities based strategy in Quebec as Videotron is the exclusive new entrant in Quebec and has made it clear that it does not want equity partners in Quebec; 3) Quebec accounts for over 20% of the population of Canada, already a subscale market, and Montreal remains the headquarters for many large corporates; 4) the Canadian incumbents are incredibly strong; and, 5) the wireless sector in Canada is maturing”, he concluded.
– Lesley Hunter
