TORONTO (Reuters) - Tight debt and equity markets mean that newcomers to Canada’s wireless sector could be delayed in launching services to compete with the country’s Big Three carriers.
Privately held Globalive Communications, as well as publishing and media group Quebecor Inc and other potential new entrants, won wireless spectrum in this summer’s C$4.25 billion ($4.10 billion) government auction.
However, obtaining financing for creating a network could prove difficult because of the meltdown in the U.S. financial services sector and its related fallout.
“It’s a scary time to be looking for financing in any field, let alone telecommunications, especially when you’re looking at a multibillion-dollar price tag to build out your network,” said Carmi Levy, an industry analyst at AR Communications.
“The outlook today is much darker than the outlook was even a month ago,” Levy said.
If newcomers have trouble obtaining the required funds to create a new network, one of the key aims for the government’s spectrum auction could go unfulfilled: increased competition.
Canadians have long complained of expensive service plan prices and while the Big Three -- BCE Inc, Telus Corp and Rogers Communications Inc -- claim that competition is fierce, users often decry what they see as a monopolized market.
Globalive -- best known for its Yak discount long-distance service -- has said it wants to roll out service in the second half of 2009. It has spectrum across Canada except in the province of Quebec, where Quebecor was a big winner during the auction.
“Given the broader financing challenges, it is possible that new entrant wireless competition could come later than currently expected,” National Bank Financial analyst Greg MacDonald wrote in a note to clients.
One way that new entrants could bear the heavy burden of a network build-out in the current environment is to partner up.
Asked if Globalive and Quebecor have discussed a partnership, Globalive Chief Executive Anthony Lacavera told reporters this month that “we will reach out to everyone.”
Backers of Globalive include Weather Investments, which owns service providers in Italy and Greece, and the majority of Orascom Telecom Holdings, one of the biggest mobile phone firms in the Middle East.
“Though Globalive is backed by Orascom Telecom, it has limitations on its funding commitment and foreign ownership,” MacDonald wrote in his note. “Orascom will provide a total of C$500 (million) to C$700 million over four years to support Globalive’s plan.”
He estimates about half of Globalive’s network build-out could be financed with vendor sources.
That would leave “up to C$700 million to be raised by outside sources (depending on whether partnerships can be struck to share the network build),” he wrote.
He added that it was noteworthy that Telus and Rogers -- the companies most exposed to new competition from the likes of Globalive and Quebecor -- are also the best funded, with “loads” of free cash flow and no material debt coming due until 2011.
Fresh competition is not the only facet of Canada’s wireless industry being threatened by the meltdown in financial markets. BCE is being bought out in a C$34.8 billion ($33.6 billion) deal by a group of private-equity firms using billions of debt.
Investors have fretted that the banks financing the takeover could pull their financing because of the credit crisis, which in turn could collapse the deal.
Reporting by Wojtek Dabrowski; editing by Rob Wilson