700 MHz auction rules mean some new entrants not expected to bid

Some new entrant wireless carriers are not expected to file applications to participate in Industry Canada's upcoming 700 MHz spectrum auction due to regulatory restrictions on consolidation between auction bidders, industry sources said. With a June 11 participation deadline for the 700 MHz auction, time is running out for companies to know, before the auction process starts, whether Industry Canada will permit wireless industry consolidation between incumbents BCE Inc., Rogers Communications Inc. and Telus Corp. and new entrant carriers. After holding a consultation on new spectrum transfer rules earlier this year, Industry Canada has not yet released rules on whether the new entrants' spectrum, acquired as “set aside” frequencies in an auction in 2008, can be transferred to incumbents as part of industry consolidation. Telecom sources said a number of acquisitions could happen soon after Industry Minister Christian Paradis announces the spectrum transfer rules, particularly if those rules permit the incumbents to purchase new entrants Wind Mobile (owned by VimpelCom Ltd.), Public Mobile Inc., and Mobilicity, and their spectrum licences. The 700 MHz spectrum auction rules prevent two auction bidders from consolidating, and prohibit smaller players from transferring the spectrum they win in the auction to incumbents during the licence's first five years. People close to the auction process said they expect the rules will mean most of the companies that step in with applications and deposits on June 11 will be players that plan to use the spectrum to roll out mobile wireless services. The sources said they do not expect Public Mobile and Dave Wireless to participate in the auction though VimpelCom may. Several possible transactions involving new entrants are in play as Telus is in talks to purchase Dave Wireless (operating as Mobilicity) and former Wind backer Naguib Sawiris' investment firm Accelero Capital, in a partnership with outgoing Wind Mobile CEO Anthony Lacavera, has made an offer to purchase Wind Mobile Canada from Amsterdam-based VimpelCom. Newton Glassman, head of private equity firm Catalyst Capital Group Inc., has also expressed an interest in running a Canadian wireless company and purchasing Wind Mobile. New entrants expecting to consolidate after June 11 can avoid the 700 MHz auction rules by not registering to bid in the auction. The rules allow consolidation talks and mergers between a bidder and a non-bidder. Still, sources said uncertainty over Industry Canada's spectrum transfer rules is limiting potential bidders, as well as mergers and acquisitions of new entrants before the June 11 deadline for deposits and applications. “Market players need time to organize,” one person close to the issue said on a background basis Wednesday. “It's getting close to too late already.” The refundable deposits to participate in the auction require a letter of credit of about $15 million on June 11, the sources said, adding that the deposit amount depends on how many spectrum licences the company intends to bid on. According to the department's regulatory framework for the 700 MHz auction, scheduled to start Nov. 19, any discussions about ownership changes between bidders—from the June 11 deadline for applications until the final payments for winning auction bids—“would fall into the area of prohibited discussions and would be considered contrary to the auction rules.” The rules state that bidders may discuss ownership changes with other companies not participating in the auction that “are completely unrelated to other applicants,” as long as any acquisition is effective at least 10 days before bidding starts on Nov. 19. No merger or acquisition negotiations are permitted from 10 days before the start of bidding until the deadline for final payments, which will be 30 business days after the final licence winners are declared. The department is also imposing spectrum caps on each licence area in the 700 MHz auction, according to the licence rules, and any sales or transfers of spectrum following the auction cannot allow companies, namely the incumbents, to exceed those caps for the first five years of the licences' 20-year terms. Companies breaking the auction rules can be disqualified or face forfeiture penalties. In March, Paradis launched a consultation on what rules the department should establish for the transfer of spectrum licences, which would apply to the purchase of new entrant carriers, including Rogers' proposed purchase of unused AWS spectrum from Shaw Communications Inc. for $325 to $350 million. That consultation closed in May and is intended to support the minister's policy aim of ensuring the presence of a fourth wireless competitor in each region of the country to compete with the national incumbents. Mobilicity, which has struggled to find financing and in April announced a court-approved restructuring process with a sale as an option, said as part of Industry Canada's consultation on transfers that the government should not interfere in secondary markets for spectrum licence sales. The new entrants' "set aside" spectrum licences contain a five-year moratorium on their sales to incumbents. Scotia Capital telecom analyst Jeff Fan said in a research note in April that Canada's new entrant wireless carriers want the freedom to sell to incumbents, and that if Industry Canada laid out new rules preventing that, they could challenge the government in court “for allegedly breaking contractual terms on the licences they obtained four years ago.” Sources told The Wire Report that the department may release the new transfer rules around the time of Paradis' speech on June 5 at a conference in Toronto called the Canadian Telecom Summit. Public Mobile and Mobilicity did not respond to requests for comment for this story and Wind Mobile declined to comment. —With reporting by Simon Doyle at sdoyle@thewirereport.ca and copy editing by Nicholas Kyonka at nkyonka@thewirereport.ca

700 MHz auction rules mean some new entrants not expected to bid

News | May 15, 2013

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700 MHz auction rules mean some new entrants not expected to bid

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