MONTREAL – Though Quebecor’s Thursday morning conference call with financial analysts was ostensibly about its solid second quarter financial results, the biggest chunk of the hour on the phone was spent talking about what it would take for the company to take wireless national and when it might make a decision. Here are the main points we took away.
1. If Videotron (or some other brand) is going to go national, it likely won’t be going it alone. Company CEO Pierre Dion and CFO Jean-Francois Pruneau were pretty clear about that. The value the company brings to the table for a joint venture or a new division is the 700 MHz spectrum it purchased earlier this year – and it will not be betting its Quebec farm on a national wireless play.
“It is not our intention to contribute our business in Quebec in such a venture. Our business in Quebec will remain 100% owned by Quebecor Media and there will be no change to that. It’s a brand new venture,” said Pruneau.
“We acquired assets of great fundamental value at a basement price. I think we’re just being responsible by looking at all of the options that we have and I think we’re being responsible for making sure we’ll have all the right conditions,” added CEO Dion. “That doesn’t mean we’ll have 100% of the right conditions, but if we decide to go ahead, it’s because we think we have enough of all the right conditions to go ahead.”
2. Those conditions have not changed since Dion announced at the Canadian Telecom Summit last month (from which our picture was taken) that it would be the national fourth wireless player the federal government so desperately wants – as long as the politicians and bureaucrats play ball…
Specifically, it wants wireless wholesale domestic roaming rate answers. So far, the federal government has capped the rates and the CRTC is moving to address the issue with a hearing starting September 29th. Ed note: With all the pressure there is on this file, we would expect a decision from the CRTC from that hearing well in advance of Christmas because…
…In order to be eligible for the spectrum being set aside for operating new incumbents in the March 2015 AWS-3 auction, those new entrants have to be operating in the regions they are bidding for new spectrum. Which, “technically speaking, that does mean that you have to buy either Wind or Mobilicity,” acknowledged Dion on the call.
“Everything is on the table at this stage." Jean-Francois Pruneau, Quebecor
However, before he would make such a move, the domestic roaming file has to be settled. “Before investing more in such a venture, we will work at ensuring all conditions are right to minimize our risk,” he added.
3. After listening to the call, we got the distinct impression Quebecor is hot to be that fourth national wireless player – but only if the conditions are exactly right and if risks are low – and really, only with the help of another investor, whomever that might be. “In terms of contribution, obviously we have a very valuable asset to contribute, which is the spectrum… with respect to additional contribution in cash, we need to know what the structure is going to look like before committing to anything,” said Pruneau.
But would it be a financial partner or an operational partner (perhaps a foreign wireless player)? “Everything is on the table at this stage,” said Pruneau.
However, skepticism abounds on Bay Street. “Given the amount of capital that we assume is required, we fear that Videotron would be diluted to a very small ownership in a hypothetical (joint venture) if it just contributed its spectrum. Then again this may be better than investing and destroying capital,” wrote Canaccord Genuity analyst Dvai Ghose in a note to investors Thursday afternoon. “We are left wondering why a partner would only partner outside Quebec, where Videotron has no obvious competitive advantages. Any scale benefits from going national may be compromised for Videotron in Quebec, if the ownership of wireless outside Quebec is completely separate.”
Added another analyst who spoke on condition of anonymity: “I am very very skeptical of a financially viable fourth player… but I think Quebecor knows that, too, and won’t pursue unless the mythical investor with all the money shows up.”
Photo by Michal Tomaszewski
