September 16, 2014 / 10:00 PM / 3 years ago

Wind Mobile buyout limited threat to Canada telcos, for now

3 Min Read

TORONTO (Reuters) - The sale of Wind Mobile to a group of private equity investors will need to be followed by hefty investment and further deals before Canada`s No. 4 wireless provider poses a significant threat to its much larger competitors.

Shares of BCE Inc, Telus Corp, and Rogers Communications Inc all fell slightly on Tuesday following the news, which some view as a first step to creation of a stronger challenger to the three dominant national players.

"It definitely makes consolidation more likely ... but it doesn't worry me as an investor in Bell, Telus or Rogers," said Ryan Bushell, a portfolio manager at Leon Frazer, which holds shares in the big telcos. "I don't think they can compete at the high-end of the market, which is where the margin is."

The deal announced on Tuesday replaces Amsterdam-based Vimpelcom - a majority equity owner who was unable to turn that into a controlling stake - with five private equity backers who sources say paid some C$300 million combined.

While the Canadian government will likely tout the deal as validation of its promise of four viable wireless players across the country, there was little indication the new backers have such lofty ambitions.

Wind Mobile founder Anthony Lacavera said the carrier - which operates in populous Ontario, British Columbia and Alberta - would now focus on improving service and had no big expansion plans.

"The business plan has evolved," he told Reuters. "There are already four carriers in all other Canadian markets, so we don't necessarily want to enter as a fifth carrier in any of those markets."

BCE, Rogers and Telus compete with Eastlink in the maritime provinces, with Quebecor Inc in Quebec, Manitoba Telecom Services in Manitoba, and Sasktel in Saskatchewan.

The sale may put Wind in a better position to bid for airwaves at upcoming Canadian government auctions of wireless spectrum. But Frazer's Bushell said he did not think Wind would have a significant impact.

"Just given the number of investors it took to get this deal done at C$300 million, I can't see them then dropping upwards of C$1 billion on spectrum," he said.

Investors and analysts said the next crucial question for the industry is whether Wind can now do a deal with regional operator Quebecor, which owns cable and wireless provider Videotron.

While Quebecor loaded up on spectrum outside the province during a recent auction, it seeks further regulatory concessions before committing to expansion.

"There is a prospect of a rebel alliance here, which means that neither Videotron nor Wind would have to duplicate or replicate each other's spending," said Iain Grant, the managing director of telecom consultancy Seaboard Group.

"Now that (Wind) have an owner who's going to pay attention, someone who actually cares about the company, who's not trying to wash their hands of an inconvenient investment, the company can now become all it could have been."

Editing by Jeffrey Hodgson and Andrew Hay

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