Fewer speculators to bid in 700 MHz auction: analysts

Analysts expect to see fewer speculators participating in Industry Canada's 700 MHz auction following the passage of the deadline for deposits to participate. "Unlike in the 2008 auction, where you might have gotten some speculation, I don't think you're likely to get a lot of speculators in this auction. The risk profile is now higher, given that you can't sell to an incumbent," Macquarie Capital analyst Greg MacDonald said in a phone interview. He said he assumes companies coming into the auction intend to be involved in wireless operations largely due to the licences' build out requirements and lack of obvious opportunities to sell the spectrum to the big Canadian players. Midday Tuesday was Industry Canada's deadline for initial deposits and applications to participate in the auction of 700 MHz licences, for which bidding is scheduled to start Jan. 14, 2014. The list of registrants will be made public on Sept. 23. Companies are expected to spend hundreds of millions of dollars on spectrum licences. Scotia Capital has forecasted that the auction will generate proceeds of about $2.6 billion for the federal government, with each incumbent telco spending an average of about $750 million for national coverage. The 700 MHz licence conditions that require service rollouts and limits on the number of 700 MHz licences incumbents can own are two reasons bidders in the auction are more likely to be providers serious about Canadian operations, Ronald Gruia, a telecom analyst in Toronto with consulting firm Frost & Sullivan, said in a phone interview. Another factor is Industry Canada's new spectrum transfer rules, released this year, that give the industry minister the power to block incumbent providers from spectrum acquisitions if it means they will have an “undue concentration" of spectrum affecting competition. Gruia said the list of registrants released next week will not be definitive because some companies may register for the auction and then never bid. "Don't be surprised if we see some foreign players in there, and who knows, some private equity firms. There's going to be some speculators, but if it's a service provider bidding, I think they're going to be the ones who want to stay," he said. Incumbent telcos BCE Inc., Rogers Communications Inc. and Telus Corp. are expected to bid, as well as regional providers SaskTel, MTS Inc., and Bragg Communications Inc. Among new entrants that came into the market following the 2008 AWS spectrum auction, Wind Mobile was the first to confirm its participation. In a phone interview Tuesday, Anthony Lacavera, chief executive of Wind Mobile, wouldn't say who will be financing Wind's auction bids, though he noted that Wind is backed by Amsterdam-based VimpelCom Ltd., which has a 65 per cent equity stake in the Canadian business, operated by Globalive Wireless Management Corp. "Everyone forgets that VimpelCom is a global company with more than 200 million subscribers. Everyone lumps Wind Mobile in the same basket with Mobilicity and Public Mobile, and that's just categorically absurd. You're dealing with a global operation that's 10 times the size of Bell, Telus and Rogers combined," Lacavera said. "They obviously have a vested interest in achieving the best outcome for all of their operating assets." Still, Lacavera said VimpelCom continues to look at "strategic alternatives" for its investment in Wind Mobile, which included a possible sale of its stake earlier this year. "I believe they continue to assess strategic alternatives and, very importantly, I continue to maintain my commitment to achieving a satisfactory outcome for all stakeholders at Wind, and if the desired solution is an exit, then I'm committed to getting VimpelCom the best value that I can," Lacavera said. Gruia said Wind's plan to enter the auction could be compared to a home owner doing some upgrades on their home before selling it. "You're going to do some refurbishing," he said. Wind, which says it now has about 650,000 subscribers, said after its launch that it aimed for 1.5 million customers within its first three years of operation. Accelero Capital Holdings, one of the companies that earlier this year made an offer for Wind, confirmed in an email Tuesday that it will not bid in the auction, nor is it backing Wind's participation. "Accelero is not submitting a bid to participate in the 700 auction on September 17th nor is it financially supporting a bid made by Wind," Noha Khalil, head of investor relations at Paris-based Accelero, told The Wire Report in an emailed statement. "Accelero is totally focused on closing the Allstream deal," he said, referring to Accelero's $520-million agreement to purchase the business services unit of MTS Inc., announced in May. The deal, once it closes, would give Accelero ownership of a national fibre network that could support backhaul for mobile wireless services. That could mean Accelero may intend to remain involved as an investor in Canadian mobile services through the Allstream business asset. Canaccord Genuity analyst Dvai Ghose said in a note to clients on Tuesday that an initial deposit for two national, prime blocks of 700 MHz spectrum is about $16 million, and given that it's fully refundable, some large foreign players could be on the list. He pointed to speculation about possible interest from U.K.-based Vodafone Group plc and Norwegian multinational telco Telenor Group. Verizon Communications Inc., the largest wireless provider in the U.S., said this month that it has no plans at this time to expand into Canada. Ghose added that registering for the auction may not cost much for these companies, though "buying spectrum, building LTE and acquiring WIND and Mobilicity could easily exceed $3 billion." Ghose and MacDonald both said Wind Mobile's involvement in the auction could signal financing, or debt, from VimpelCom. New entrant Public Mobile Inc. also said it planned to participate in the 700 MHz auction in June, when was acquired by private equity firms Thomvest Seed Capital Inc. in Toronto and Cartesian Capital Group LLC in New York. “By operating the way we do, there’s still a play for us to operate as a niche player in the markets we operate in and to expand with additional spectrum,” Bruce Kirby, Public Mobile’s vice-president of strategy and business development, said at the time, adding that the company would bid in the 700 MHz auction with or without mergers with other new entrant carriers. “The sensible longer term strategy is to have this consolidation, but we held up a plan that says we continue to grow as ourselves," Kirby said. At the time of that announcement Public Mobile said it had received "continuing support and partnership" through Chinese telco ZTE Corp. and the Export-Import Bank of China. According to the auction rules, companies participating in the auction are not permitted to discuss their bidding strategies or comment on them through the media, including which spectrum blocks they intend to bid on or their post-auction market structures. "Discussions regarding the mere intent to participate in the auction are not considered to contravene the rules," Industry Canada said an email on Sept. 12 to wireless companies. "However, an applicant or potential applicant is precluded from sharing information including, but not limited to, bidding strategy such as the specific licences or licence areas under consideration, or the amount or magnitude that the applicant is willing to pay." VimpelCom and Public Mobile declined to comment, saying the list of applicants will be made public Monday. —With reporting by Simon Doyle at sdoyle@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Fewer speculators to bid in 700 MHz auction: analysts

News | September 17, 2013

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