August 8, 2013 / 11:11 AM / 4 years ago

UPDATE 2-Verizon entry could be "catastrophic", says Quebecor CEO

* Verizon entry could leave new entrants empty handed: CEO

* Quebecor seeks amendment of current auction rules

* Second-qtr adj earnings per share C$0.85 vs est C$0.88/share

* Telecom rev up 5 pct, rev at media business falls 10 pct

By Bhaswati Mukhopadhyay

Aug 8 (Reuters) - Canadian media and telecom conglomerate Quebecor Inc said the potential entry of Verizon Wireless into the the country’s wireless market could be “catastrophic” for regional operators looking to expand.

Verizon’s entry would radically alter the outcome of the current auction rules, Quebecor Chief Executive Robert Depatie said in a post-earnings conference call.

Canada’s wireless industry is bracing for its biggest shakeup in decades as Verizon Wireless, the biggest U.S. mobile service provider, prepares to bite into the lucrative market that has been dominated by three big domestic players.

Rogers Communications Inc, Telus Corp and BCE Inc’s Bell cater to 90 percent of Canada’s wireless subscribers.

“... Nothing in the current rules prevents Verizon from acquiring half of the prime spectrum blocks in every region of the country,” Depatie said.

Similarly, nothing prevents Verizon from limiting its deployment in urban areas, he said.

Quebecor, which competes with BCE in the mostly French-speaking province of Quebec, said in May its Videotron wireless arm would team up with Rogers to build and operate a shared high-speed wireless network in and around the province.

The 700 megahertz spectrum, due to be auctioned in January 2014, is coveted for its ability to travel farther than certain other airwaves, thereby requiring fewer towers for rural coverage.

Seven blocks are available in the auction, which is expected to raise billions of dollars for the Canadian government. Of these, the most coveted are the four blocks aligned with U.S. airwaves used by AT&T and Verizon Wireless.

Depatie said Verizon’s entry could be catastrophic to new regional players such as Videotron as the four prime spectrum blocks could end up being shared among only three players, resulting in the new entrants ending up empty handed.

The auction rules, set up in 2012 by Industry Canada aimed at fostering greater competition, will prove counter-productive and should be amended, the CEO said.

He urged the government to modify the existing regulatory framework by setting aside one prime 700 megahertz spectrum block per region for new entrants under Canadian ownership.

MEDIA STILL A DRAG

Quebecor reported a 15 percent rise in second-quarter adjusted profit. Total revenue rose less than 1 percent and weak advertising and circulation revenue continued to be a drag on its media business.

Revenue at the media business fell 10 percent in the quarter.

Quebecor’s Sun Media Corp, Canada’s largest newspaper chain, cut 360 jobs last month and said it was closing 11 newspapers to cut costs amid falling advertisement revenue.

Quebecor, which started in 1950 with a small neighborhood newspaper, owns the Toronto Sun and the Calgary Sun.

Sun Media, like other publishers, is working on strengthening its digital platform as advertisers flee the print medium and consumers ditch subscriptions in favor of digital access for their smartphones and tablets.

Earlier on Thursday, Canada’s telecommunications regulator rejected a bid by Quebecor’s Sun News television channel to be included on all basic cable packages. A successful application would have meant more revenue for the loss-making network.

Quebecor’s total revenue in the quarter rose 0.8 percent to C$1.09 billion. Revenue in the telecom business, that includes phone, cable-TV and internet services offered under the Videotron brand, increased 5 percent to C$678 million.

Quebecor’s net loss attributable to shareholders was C$45.1 million ($43 million), or 73 Canadian cents per share, compared with a net profit of C$65.5 million, or C$1.02 per share, a year earlier.

Adjusted income from continuing operations rose to C$52.9 million, or 85 Canadian cents per share. It missed analysts’ average expectation of 88 Canadian cents per share, according to Thomson Reuters I/B/E/S.

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