Rogers backing rival bids to thwart Verizon; incumbents lobby government on spectrum policy

5 Aug 2013

Rogers Communications is backing private equity takeover bids for two smaller Canadian cellcos in an attempt to block US giant Verizon’s entry into the country, according to sources familiar with the matter quoted by Reuters. The sources said that Rogers aims to assist Toronto-based Birch Hill Equity Partners in funding takeover bids for Wind Mobile and Mobilicity, both of which Verizon is reportedly in ownership negotiations with. Current Canadian federal policy prevents Rogers or the other two nationwide incumbent cellcos Bell and Telus from acquiring smaller, more recent entrants such as Wind Mobile or Mobilicity.

Last month James Moore became the new minister of Industry Canada (the ministry with responsibility for telecoms policy), and gave a speech last Wednesday which repeated the stance of predecessor Christian Paradis stating that the government has no intention of giving in to lobbying from Rogers, Bell and Telus who want changes to the current rules in the wireless sector restricting the transfer of spectrum licences as well as the amount of spectrum the three incumbents can buy in Canada’s upcoming 4G 700MHz auction. The upcoming auction precludes bidding parties from entering takeover discussions or network sharing deals while the process is underway. The new minister reiterated that the policy is aimed at establishing four competitive wireless players in every region of the country. The deadline for initial bids is 17 September 2013.

On 1 August 2013 Rogers Communications issued an appeal for dialogue with the federal government over the current spectrum auction rules which it says give an unfair advantage to prospective new foreign entrants – including Verizon – over Canadian incumbents, potentially allowing them to purchase twice as much 700MHz spectrum as Rogers, Bell or Telus with ‘minimal network rollout requirements’. The appeal also referred to the current policy on spectrum licence trading, which restricts the purchase of new entrants’ frequencies by incumbents (and threatens the completion of two pending deals previously agreed by Rogers – to purchase all of Shaw Communications’ AWS licences plus some spare unused AWS licences from Videotron).

Nadir Mohamed, CEO of Rogers Communications, stated Rogers’ position as follows: ‘We share the government’s goal of a competitive, world leading wireless sector… Unfortunately the government’s current policies have resulted in unintended consequences that allow massive foreign companies like Verizon to take advantage of loopholes and get special advantages over Canadian companies. We welcome competition, we’re just asking for a fair and level playing field. Specifically we’re asking the federal government to:

1. Offer equal bidding rights in the 700MHz auction – give Canadian carriers the same rights as large foreign incumbents;

2. Create an open environment – if a Canadian wireless player seeks a buyer, everyone should be able to bid;

3. Strengthen auction rollout requirements – ensure foreign carriers invest and build a national network in rural areas;

Rogers and its Board of Directors have taken the unprecedented action of writing a joint letter to the Prime Minister of Canada expressing our concerns and requesting a meeting to further discuss this important issue. Rogers looks forward to meeting with the Prime Minister directly on this matter.’

The appeal from Rogers followed a similar statement from Telus, calling on Minister Moore to ‘carefully consider all the facts and perspectives about the upcoming 700MHz wireless spectrum auction’. Auction rules allow Bell, Telus and Rogers to bid for only one of the four prime blocks apiece, and two of the seven blocks available in total. Smaller players such as Wind, Mobilicity and Public Mobile, regional providers such as Quebecor’s Videotron or a large new entrant like Verizon, may bid for up to two of the four prime blocks. Telus claims that the current rules have three critical loopholes that give giant foreign carriers like Verizon ‘unfair advantages’ over Canadian companies, which it puts as follows:

• The current rules would allow Verizon to bid on two of the four blocks of prime wireless spectrum being auctioned, or half the available prime bandwidth which wireless companies will require to serve customers into the future, especially in rural Canada given the superior signal reach of 700MHz spectrum. This could result in one of Canada’s major wireless companies as well as the developing wireless firms not acquiring any of this vital spectrum at all.

• The current rules would allow Verizon to build infrastructure in urban centres only and ignore rural and suburban Canada. The current rules would furthermore allow Verizon to piggyback on existing Canadian networks rather than building their own network. Notably, if Verizon was required to build its own network, it would result in significant job creation and economic investment across the country, especially in rural Canada.

• The current rules would allow Verizon to buy small wireless carriers in Canada while preventing Canadian firms from competing to buy them. This would enable Verizon to purchase these firms at artificially depressed values and thereby gain access to the spectrum they each bought at a 41% taxpayer-subsidised discount in 2008.

The boards of directors of Telus, Bell and Rogers took also sent the Prime Minister a joint letter on the same issues on 9 July. This letter can be found at www.FairForCanada.ca.

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