Experts say approval of Bell’s MTS acquisition likely

BCE Inc. announced Monday morning that it will purchase Manitoba Telecom Services Inc. in a $3.9 billion transaction that, if approved, will see the number of players in Manitoba’s telecom market fall from four to three. Some experts said the deal is likely to be approved, especially given a pre-emptive move to shift some subscribers to Telus Corp. The deal is subject to approval from shareholders, the CRTC, Innovation, Science, and Economic Development Canada and the Competition Bureau. Bell CEO George Cope said in a Monday conference call with analysts that he expects the regulatory approval process to take between nine and 12 months. Gerry Wall, president of telecommunications consulting company Wall Communications, said in a phone interview he doesn’t think there would be anything holding up CRTC approval. “In the past, there has been some concern about foreign ownership, particularly with acquisitions in the wireless area. That’s not triggered here,” he said. CRTC spokeswoman Patricia Valladao said in an email that the commission “will review and analyze the application” once they receive it. When he was asked by reporters about the acquisition, Innovation Minister Navdeep Bains said, according to a transcript: “there’s a clear regulatory framework and process in place with that, of course we want more competition, more choice and availability of service, so we’ll be working very closely with the Manitoban government … just to make sure that the regulatory process is done properly. And of course, as you know, the Competition Bureau will look at the transaction as well.” The Competition Bureau is likely to do the heaviest lifting on the approvals front, according to Wall, who added that he doesn’t “expect in the end that the Bureau would prevent this transaction.” Three carriers is “the average number of competitors in any market around the world,” Wall said. “So if you look at Manitoba, compared to any other market, where are you going to say there’s a higher degree of competition that would warrant that you not allow this to happen?” The previous Conservative government pushed strongly for the creation of a fourth wireless carrier when it was in power, but the current Liberal government’s stance on telecom policy is still unclear six months into its mandate. David McFadgen, an analyst with Cormark Securities, said in a phone interview that the company could have “put out the feelers” ahead of time. “I wouldn’t be surprised if they… kind of got maybe a conditional sort of approval,” he said. Given the deal with Telus, the acquisition will probably get approved, he said. Bell said in a press release release Monday that it will divest one-third of MTS’ postpaid wireless subscribers to Telus, and “assign one-third of MTS dealer locations in Manitoba” to the company. Wall said the deal, which involves about 140,000 subscribers, is a pre-emptive move. “It’s a very unusual kind of move,” Wall said, adding that there could also be a request from regulators for concessions on offloading spectrum. Cannacord Genuity analyst Aravinda Galappatthige said in a research note that the intent behind the deal with Telus is to reduce “regulatory risk due to wireless concentration,” and to ensure no incumbent would have a larger than 50 per cent market share in the province. He said such regulatory risk “remains an issue.” Given that the Telus deal is dependent on the MTS acquisition closing, “we assume this eliminates a potential competing bid” by Telus, Galappatthige said. “We also do not see Rogers as being a legitimate contender at this time, he said, noting it has a much larger share of Manitoba’s wireless subscribers, at 33 per cent compared to Bell’s six per cent. Should the deal be approved, “we believe this would set a significant precedent, as it would reduce Manitoba to a 3-player wireless market from four,” he said. “As a result, we also believe that this would give Shaw a potential exit strategy in wireless should it decide to sell . In addition, we believe it could reduce regulatory opposition to the sale of ’s non-Quebec spectrum assets.” Galappatthige said in a second research note that he believes there is a “better than 50 chance of regulatory approval for the transaction.” But he noted that “ have heard very little from the new Liberal government on Telecom policy, particularly on the matter of wireless competition. Against that backdrop, making a call on the regulatory outcome is tricky.” He said Bell and MTS would likely argue that “while the number of wireless players in the province falls from four to three, the composition could change in a way that maintains a good degree of competitive intensity.” While MTS currently has 51 per cent of the market, followed by 33 per cent, Telus’ 10 per cent and Bell’s six per cent, after the transaction there could be a “more even” split between Bell at 43 per cent, Rogers at 33 per cent, and Telus with 24 per cent. “It can be argued that a more evenly shared market could engender significant competition and ensure fair pricing in the province,” he said. “Furthermore, as we have seen in past transactions (e.g., Rogers' acquisition of Mobilicity) there may be a spectrum component to this transaction,” he said, suggesting that Bell could be required to transfer spectrum to Shaw Communications Inc.'s Wind in order to obtain regulatory approval. In an MTS press release Monday, Bell said it will invest $1 billion in the five years after the close of the transaction in order to make its IPTV service, Fibe TV, available in the province, expand its gigabit Internet service to Manitoba within the first year, which it noted it will offer “average access speeds up to 20 times faster than what MTS customers receive today,” and to expand “the mobile LTE network and make improvements to mobile data speeds that will double our customer's average download speeds.” “A successful national operator like Bell has the scale, reach and financial strength to offer better access to advanced services for more Manitoba consumers and businesses, and to compete and invest in the province's infrastructure in the long term," MTS president and CEO Jay Forbes said in the release. Some expressed concern Monday that the acquisition could lead to higher prices and less competition. SeaBoard Group telecom analyst Iain Grant said in an email that the impact of the deal on competition, and consumers, won’t be good, since it will lead to poorer service and higher prices. “Bell left Manitoba in 1908 after the provincial government expropriated its interests in Winnipeg due to poor erratic service — let’s hope that history doesn’t repeat itself,” he said. Grant added that Rogers “made a coup a few years ago by gaining MTS as an ally,” and said he expects “that relationship will quickly be cancelled.” In 2013, Rogers announced a five-year spectrum-sharing deal with MTS to cover the roll out of LTE technology in Manitoba, which expanded a 2009 agreement though which the companies share the cost of an HSPA+ wireless network. The Public Interest Advocacy Centre (PIAC) is going to be closely watching the deal, John Lawford, PIAC executive director, said in a phone interview. The wireless sale to Telus is “obviously to appease the Competition Bureau in advance and I’m not sure if that’s going to be adequate to allay our concerns that prices will rise and there’ll be a concentration in the Manitoba market,” Lawford said. Removing one of the primary competitors from the market leaves a landscape prime for price increases, at least up to the levels seen in Ontario and British Columbia, Lawford said. He added that it’s not only current MTS prices that could see increases, but those of competitors such as Rogers and Telus since “they have fairly stable market shares across the country and very low churn in provinces where there aren’t four.” “It’s certainly not a race to the bottom on pricing after this. It will be tempting to go up,” Lawford said. The transaction with Telus adds to the competitive landscape in Manitoba, Cope argued Monday in a conference call with analysts. “Clearly Telus’ position in the wireless industry is significant in this transaction, as is Bell’s, and so you would expect the market to continue to be as competitive as it has, and even more, as a result of all this, but we’ll see how that unfolds,” Cope said. The acquisition didn’t come as a surprise to some industry watchers, especially following the company’s sale of Allstream. Wall said it wouldn’t “make a lot of economic sense in the long term” for MTS to continue as a standalone company. “So I consider the acquisition somewhat inevitable — it was only a matter of time.” MTS completed the $465-million sale of its business communication division to Zayo Group Holdings Inc. in January. Last November, before the MTS-Allstream transaction was finalized, 3Macs telecom analyst Troy Crandall told The Wire Report that Bell was a likely contender for an MTS takeover once all was said and done because of a previous relationship between the two companies. “I think a number of us anticipated that MTS would always get taken out in the next few years,” Adam Shine, an analyst with National Bank Financial, said during Monday’s conference call. “This is just a tremendous asset and I think there was a general understanding in the investing community that the Allstream asset that was owned by MTS previously was probably a regulatory hurdle too high for a company like Bell,” Cope said during the call in response to a question from Shine about why the transaction was taking place now. The elimination of that hurdle alongside a mature wireless base and an opportunity for the extension of fibre into Manitoba communities made for an enticing opportunity for Bell, Cope added. — With reporting by Anja Karadeglija at akarad@thewirereport.ca and reporting and editing by Charelle Evelyn at cevelyn@thewirereport.ca

Experts say approval of Bell’s MTS acquisition likely

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Experts say approval of Bell’s MTS acquisition likely

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