Regional cable firms could buy up wireless entrants

MONTREAL — One of Canada’s new wireless players — Wind Mobile, Mobilicity or Public Mobile — could be acquired by a regional cable company as soon as next year, according to a new telecom report.

MONTREAL — One of Canada’s new wireless players — Wind Mobile, Mobilicity or Public Mobile — could be acquired by a regional cable company as soon as next year, according to a new telecom report.

Consolidation is likely among the new cellphone companies, which have a combined marketshare of under five per cent, and could happen in late 2013, Moody’s Investors Service said Wednesday.

“I have always thought there was going to be consolidation, but it could be one of the regional cable companies buying one of Wind or Public Mobile or Mobilicity,” industry analyst Bill Wolfe said in a phone interview from New York.

Canada could end up with more of a “patchwork” of regional wireless providers spread across the country, rather than another national wireless provider, he said.

Shaw Communications Inc. (TSX:SJR.B), Quebecor Inc. (TSX:QBR.B) and Bragg Communications Inc. are all possible buyers, as well as regional telecom companies SaskTel and Manitoba Telecom Services (TSX:MBT), said Wolfe, who authored the report.

These companies already have infrastructure, bundled service offerings and the financial means to make an acquisition, he added.

Wolfe, who is Moodys’ vice president and senior credit officer, said he believes it’s unlikely the three new wireless companies would ever merge because it wouldn’t improve access to funding or add to their infrastructure.

He also said he doesn’t believe Wind Mobile, Mobilicity or Public Mobile would be acquired by foreign players — or by major players Rogers (TSX:RCI.B), Bell (TSX:BCE) or Telus (TSX:T).

“I am skeptical that a big foreign player is going to come in and invest and acquire one of these smaller players to gain a toehold.”

There would also be potential political fallout if Rogers, Bell or Telus were to acquire one of the new entrants.

“Industry Canada has formulated things to try to promote competition so to have one of the big three incumbents swallow up one of the smaller players, I think would be an issue.”

Moody’s estimates that Rogers, Bell and Telus have a combined marketshare of 91.5 per cent.

Industry Canada auctioned off spectrum — radio waves over which cellphone networks operate — in 2008 to foster more competition in the domestic cellphone industry. The result was the launch of Wind Mobile, Mobilicity and Public Mobile as well as Quebecor’s wireless business.

Calgary-based Shaw Communications bought spectrum in that auction, puts its initial plans to launch a wireless business on the back burner.

Wolfe said Canada doesn’t necessarily need a fourth national wireless carrier, but four or five carriers are needed in each region to maintain competitive prices.

Wind Mobile is aiming to be Canada’s fourth national carrier and has said it wants to acquire one of the new players. Public Mobile has said it, too, wants to acquire one of its new competitors.

The new wireless companies aren’t prevented from buying each other, but Wolfe said consolidation likely won’t begin until after August 2013 when major wireless carriers will be allowed to buy their smaller competitors under government rules.

UBS analyst Phillip Huang also said consolidation is coming, but didn’t provide a timeline.

“We believe changes to telecom foreign ownership restriction have given new entrants greater access to capital and more strategic options,” Huang wrote in a recent research note.

“As such, we believe that while consolidation in the wireless industry is inevitable, it is not necessarily imminent.”

The next spectrum auction is expected early next year.

The federal government as moved to level the wireless playing field by placing limits on the coming wireless spectrum auction and lifting foreign investment limits on small telecom firms in an effort to boost competition.

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