Wind Seeks Spectrum From Mobilicity or Others to Compete

Jun 17, 2014 1:38 pm ET

(Updates with CEO comment on ownership in final paragraph.)

June 17 (Bloomberg) -- Wind Mobile needs to acquire more mobile-phone spectrum, including airwaves owned by other companies, to take on Canada’s three major wireless carriers, Chief Executive Officer Anthony Lacavera said.

While revenue and subscriber rolls are improving, Wind couldn’t afford to buy more capacity in the government’s last spectrum auction and hasn’t been able to count on financial backing from its main investor, Amsterdam-based VimpelCom Ltd., Lacavera said today in a speech at an industry event in Toronto. A merger with struggling rival Mobilicity or another small competitor would help, he said.

Getting more spectrum licenses -- permission from the government to use radio frequencies to offer mobile-phone service -- would help Wind upgrade its network to long-term evolution technology, or LTE, which provides faster download speeds for smartphones and tablets. Lacavera is seeking to make Wind a viable option for consumers seeking a choice beyond Rogers Communications Inc., Telus Corp. and BCE Inc.

“A combination with other new-entrant spectrum or a combination with Mobilicity would be of a significant benefit to both companies,” Lacavera said, according to a copy of his prepared remarks. “The challenge we at Wind face is securing any one of these sources of spectrum at terms and value levels that the business of Wind can support, and within the timeframe that the spectrum is needed to meet LTE demand.”

Subscriber Growth

Mobilicity would be the most attractive merger candidate because it operates in the same market as Wind and has complementary spectrum licenses, Lacavera said in an interview. While the struggling mobile-phone provider’s assets could be sold at a discount in bankruptcy proceedings, the court process is difficult, he said.

Wind, the brand name of Toronto-based Globalive Wireless Management Corp., now has more than 735,000 subscribers in Canada after adding 21,000 in May. While that’s up from 650,000 in December, it falls short of the company’s target for 1.5 million in its first three years after beginning operations in December 2009.

The company expects to record a loss before interest, tax, depreciation and amortization this year before making a profit, excluding those items, next year and beyond, Lacavera said in his speech.

“There’s been a lot of analysts reports suggesting the end is nigh or Wind is dead,” he said in the interview. “That’s just all categorically false.”

The company needs about C$400 million to C$500 million ($370 million to $460 million) to build an LTE network, a process that would take about two years, Lacavera said in the interview. Wind needs an LTE network in place in the next three to four years to compete, he said.

Sawiris Struggles

Wind struggled early on, in part, because of legal actions from Telus and other carriers, who challenged Wind’s right to operate because it was founded with backing from a foreign investor, Egyptian billionaire Naguib Sawiris, Lacavera said. Canadian courts cleared Wind’s right to operate in 2011, the same year VimpelCom acquired its stake in the company from Sawiris.

Revenue per user was up 12 percent in May from a year earlier, boosted by offerings such as unlimited roaming in the U.S. Subscribers on long-term contracts averaged C$38 a month, and prepaid customers paid C$23. Rogers, Canada’s biggest mobile-phone provider, averaged C$65.20 a month from contract subscribers in the first quarter.

Wind pulled out of a government spectrum auction on Jan. 13, hours before it was set to start, after VimpelCom declined to fund a bid. VimpelCom, controlled by Russian billionaire Mikhail Fridman, operates wireless services in more than a dozen countries. It wrote down the value of Wind to zero in March, citing “the challenges faced in the country” in an investor presentation.

Quebecor’s Win

Quebecor Inc. emerged as a winner in the government auction, spending about $200 million to acquire airwaves in Quebec, Ontario, Alberta and British Columbia. While the purchases gave the Montreal-based company an opportunity to expand its mobile-phone service nationwide, it said it had no immediate plans for how to use the assets. The auction win may put Quebecor in position to acquire Wind and Mobilicity, Dvai Ghose, an analyst at Cannacord Genuity Group Inc., said last month.

VimpelCom may sell Wind or swap it for a stake in a larger carrier in Canada, CEO Jo Lunder said in a phone interview in May.

While investors would be interested in Wind, they’re hampered by regulations that require approval for new stakes in a telecommunications provider, Lacavera said.

“Given the trajectory of the business, I think that there’s a lot of interest in it. It’s not like the business is distressed and you’re running a fire sale,” he said in the interview. “VimpelCom would be happy to invest if there weren’t these regulatory constraints.”

--With assistance from Ilya Khrennikov in Moscow and Hugo Miller and Gerrit De Vynck in Toronto.