Wind Exit Opens Field for Quebecor Expansion: Corporate Canada

Jan 16, 2014 9:45 am ET

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Jan. 16 (Bloomberg) -- Quebecor Inc., the best-performing mobile-phone company in Canada last year, is emerging as the possible fourth major operator the government has long sought.

Montreal-based based Quebecor, whose shares rose 37 percent in 2013, may take advantage of weak interest in the federal government’s spectrum action to snap up wireless licenses across the country, Greg MacDonald, a Toronto-based analyst with Macquarie Group Ltd., said by phone yesterday. The media company offers Internet, cable and mobile-phone service under the Videotron brand in the province.

Quebecor is “the most logical candidate” to be Canada’s fourth national carrier, Marc L’Ecuyer, a fund manager at Cote 100 Inc. in Saint-Bruno, Quebec, said by phone yesterday. Cote 100 manages about C$400 million ($365 million) and owns Telus Corp. and Rogers Communications Inc. stock. “They have a strong base in Quebec, and they could do a partnership with another player to gain national scale.”

Canada’s government has offered preferential access to spectrum for new entrants in a bid to challenge the dominance of Telus, Rogers and BCE Inc., which together command 90 percent of customers. Lack of interest from international players Verizon Communications Inc. and VimpelCom Ltd., means incumbents may be able to buy spectrum at bargain prices at the auction that began this week.

Bidders are likely to buy blocks of premium spectrum close to the C$162 million starting price, MacDonald said.

‘Consumers First’

Quebecor has also signed a nondisclosure agreement with struggling phone company Mobilicity in an effort to gain operating licenses outside the province, Jeff Fan, a Toronto- based analyst with Scotia Capital Inc., said in a Jan. 10 note to clients.

Martin Tremblay, a spokesman for Quebecor, declined to comment on whether it had signed a nondisclosure agreement with Mobilicity and said government rules forbid it from speaking about the auction while it is under way. Joel Shaffer, a spokesman for Mobilicity, also declined to comment. Mobilicity is the brand name of Vaughan, Ontario-based Data & Audio Visual Enterprises Wireless Inc.

Wind Mobile, the largest of Canada’s new entrants with 650,000 subscribers, pulled out of the auction on Jan. 13, hours before it was set to start. Its backer, Amsterdam-based VimpelCom, said it wouldn’t fund the bid, Wind Mobile chief executive officer Tony Lacavera said in an e-mailed statement.

Premium Spectrum

Four mobile-phone companies in each of the country’s major markets will help “support more choice in our wireless market while putting the interests of consumers first,” Industry Minister James Moore said a Jan. 13 statement.

The last auction, in 2008, raised C$4.3 billion for the government. Fan said in his note that this round may only net C$1.8 billion. Jake Enwright, a spokesman for Industry Canada, declined to say how much revenue the government hopes to raise through the auction.

“There is an absence of qualified bidders remaining in the auction,” MacDonald, at Macquarie, said. Quebecor could pick up premium spectrum at a discount across the country, he said. “No other bidders may be bidding against them.”

Quebecor could team with Shaw Communications Inc., which owns cable television and Internet networks in the country’s west, or Verizon, said MacDonald. The New York-based U.S. phone company said it was considering a move into Canada before saying on Sept. 2 it would not participate in the spectrum auction.

Depatie’s Moves

Quebecor signing a nondisclosure agreement with Mobilicity, which is undergoing a court-run sale of its assets, is a sign the company is looking for national reach, said Fan at Scotia Capital.

Quebecor CEO Robert Depatie has already shown he’s willing to spend heavily on sports and other media content that can be packaged and sold on smartphones and tablets to boost consumer spending.

Depatie quadrupled profit at the company’s cable unit before becoming CEO in May 2013. Since then, he has closed unprofitable newspapers owned by the company and joined with Rogers in a $4.9 billion deal to buy exclusive broadcast rights for National Hockey League games.

‘Tough Game’

At the end of Sept. 30, Videotron had 478,000 mobile customers, up 26 percent from a year before, according to the company’s third-quarter earnings report.

Quebecor shares rose 0.3 percent to C$25.89 in Toronto at 9:44 a.m. today for a market value of C$3.2 billion. They fell 2.4 percent this year through yesterday, compared with a 1.1 percent gain for the Standard & Poor’s/TSX Composite Index, Canada’s benchmark gauge.

“It’s not that a company like Videotron couldn’t make a go of it if they raised some equity, supplemented their debt and got a whole bunch of spectrum, but it would be a tough game and there’s no certainty that they would be successful,” Bill Wolfe, senior analyst at Moody’s Investors Service, said by phone from Toronto yesterday. “The three incumbents have such a head start. They have been accumulating spectrum for 20 years. They have been building cell towers for 20 years. It’s tough to start from that far behind.”

Financial Play

Quebecor would have to build up “little by little, not one big swoop,” said Bruce Campbell, fund manager with StoneCastle Investment Management Inc. His Kelowna, British Columbia-based firm manages about C$100 million.

“If you look at the history of Telus, it was no different,” Campbell said in an interview in Bloomberg’s Toronto office. “They were Alberta and B.C., and now they’ve grown nationally. That would be the way they’d have to do it.”

It’s more likely that Quebecor will buy the spectrum with plans to sell it again in the future, Phillip Huang, a Toronto- based analyst with Barclays Plc, said in a Jan. 13 note to clients. “Quebecor management considers any potential investment outside of its Quebec footprint as a financial play,” he said.

--With assistance from Frederic Tomesco in Montreal, Andrew Mayeda in Ottawa and Hugo Miller in Toronto. Editors: Jacqueline Thorpe, Nick Turner