UPDATE 3-Telus tests Canada's spectrum resolve with Mobilicity bid

Thu May 16, 2013 1:05pm EDT
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(Adds context and comments from Telus and from analysts, updates share price)

By Alastair Sharp

TORONTO May 16 (Reuters) - Telus Corp, one of Canada's biggest wireless phone companies, said on Thursday it will pay C$380 million ($370 million) for debt-laden Mobilicity, testing the resolve of a government committed to opening the market to smaller players.

The deal, already backed by some Mobilicity debt holders, must now wind its way though a regulatory obstacle course involving several agencies and approval is far from certain. But the two companies suggested the alternative was death for the loss-making upstart.

"We believe this deal is significantly better than the alternative, which is highly likely to be bankruptcy," Telus marketing chief Dave Fuller said by phone. Proceeds from the sale will be used to pay down the startup's debt.

Privately held Mobilicity, whose formal name is Data & Audio-Visual Enterprises Holdings Inc, was one of three aggressive startups that entered the Canadian market after a spectrum auction which partially excluded the Big Three of Telus, BCE Inc and Rogers Communications.

But Mobilicity, which used cut-rate pricing of unlimited talk-and-text plans to challenge the established providers, has been losing money and building up debt.

Industry Minister Christian Paradis said the government will weigh Telus' bid for Mobilicity carefully. Under the rules of the 2008 auction, Telus cannot take ownership of Mobilicity's spectrum before February 2014.

"Our government has taken significant action to promote competition in the wireless sector," he said. "The government will take the time required to review the proposal carefully."   Continued...