[Jonesy1966]

Government incompetence to blame:

Wind Mobile pulls out of spectrum auction - The Globe and Mail

Wind Mobile is dropping out of the 700 megahertz auction after its foreign investor yanked its financial support to buy licences for those airwaves – a development that deals a devastating blow to the federal government’s efforts to ensure sustainable competition in the $20-billion wireless market.

Industry Canada made the disclosure on its website late Monday, stating that Globalive Wireless Management Corp., which operates as Wind Mobile, had “withdrawn” from the auction. Amsterdam-based VimpelCom Ltd., Wind’s main investor, informed the government of its decision hours earlier.

VimpelCom decided not to fund Wind’s 700 MHz spectrum purchases because of ongoing conflict over Ottawa’s foreign investment rules which, to date, have prevented it from taking formal control of the small Canadian carrier. The first round of bidding is set to begin on Tuesday; Wind was forced to drop out of the auction as it lacks the time to line up alternate financing.

Wind’s decision to drop out of the auction is a disastrous development for the Conservative government, which has set a goal of ensuring that at least four carriers compete in every region of the country. Not only has the Conservative Party solicited political donations on its track record of “standing up for wireless consumers” against big telecom, but the Harper government is currently funding a $9-million national advertising campaign touting its competition policies for the wireless sector.

Without Wind’s participation in the auction, Ottawa lacks a sustainable fourth player in the key markets of Ontario, Alberta and British Columbia. That’s because Wind was the only independent new-entrant carrier to register for the 700 MHz auction. Mobilicity has been languishing under court-protection from its creditors since the end of September, while Public Mobile was sold to Telus Corp. late last year.

Without 700 MHz licences, Wind will grapple with a spectrum crunch that will hobble its ability to compete since it lacks the critical ingredient to build a next-generation long-term evolution (LTE) network that provides faster data speeds to smartphone users.

“Wireless costs are down almost 20 per cent in markets where Wind operates. It is a sad day for competition and real choice Canadian consumers and businesses that Wind is unable to participate in the 700 MHz auction,” Wind Mobile CEO Anthony Lacavera said in a statement.

“Wind has emerged as the fourth carrier in Ontario, BC, and Alberta, but we have need of additional spectrum for LTE. Today’s development leaves us with a spectrum shortfall we must still address.”

Neither Industry Canada, nor the minister’s office, immediately responded to a request for comment.

“We decided that we were not going to sponsor or fund Wind Canada’s participation in the 700 MHz spectrum auction at this time as we remain in discussions with the shareholder with majority voting rights and the government to craft a path forward to develop Wind Canada as a strong fourth player in Canada,” said VimpelCom spokesman Bobby Leach. “We hope to have an opportunity in the future to perhaps re-apply and bid on spectrum, should the government decide to re-open another 700 MHz spectrum bid process.”

Wind’s decision to withdraw from the auction was not expected to have any immediate impact on its operations. Mr. Lacavera stressed that it is “business as usual” at Wind, which has roughly 675,000 customers. The Toronto-based carrier launched service on a 3G (third-generation) wireless network in late 2009 after spending $442-million on wireless licences for the Advanced Wireless Spectrum (AWS) band in a 2008 government auction.

Although Wind registered to bid in the 700 MHz auction, speculation has been rife since last fall that VimpelCom would ultimately refuse to fund Wind’s efforts to acquire 700 MHz spectrum or other AWS wireless licences from another struggling start-up carrier, Mobilicity. VimpelCom, which is still smarting from a botched attempt last year to take formal control of Wind, has stated in recent months that it would prefer a “clean exit” from Canada due to regulatory hurdles.

Not only is VimpelCom unable to formalize its control over Wind, but it is similarly blocked from auctioning off the startup to a major Canadian carrier. Despite the fact that a federal ban on selling Wind to one of the Big Three incumbents is set to expire in March, Ottawa has introduced new rules for spectrum transfers between wireless carriers. Industry Minister James Moore, meanwhile, has said that his government will not approve any deals that result in diminished competition.

Jeff Fan, a telecom analyst with Scotia Capital Inc., has suggested in recent weeks that VimpelCom’s “dilemma” is that “its investment in Wind is effectively stranded.” As a result, many on Bay Street are doubtful that VimpelCom will make further investments in Canada.

Even though Ottawa changed the foreign investment rules to provide global carriers with the opportunity to take full control of small Canadian telecoms, VimpelCom was forced to withdraw its application to take control of Wind last summer. Sources have said that VimpelCom’s withdrawal was a face-saving measure because the government was set to reject the deal on national security grounds.

Federal officials were said to be worried about giving a Russian entity control of Wind’s network infrastructure, which was built by Chinese telecoms gear maker Huawei Technologies Co. Ltd. VimpelCom is based in the Netherlands but its major shareholder is a company controlled by Russian billionaire Mikhail Fridman. Moreover, sources say that Ottawa was concerned also because Wind uses Huawei equipment on its so-called “core” network or the network’s main backbone.

The government most recently blocked the sale of another teleco, MTS Allstream Inc., to Accelero Capital Holdings over unspecified national security concerns. Accelero is the investment arm of Egyptian telecom tycoon Naguib Sawiris, the man who originally bankrolled Wind Mobile Canada before his interest was sold to VimpelCom. Sources have previously said that Accelero was looking to use Allstream’s fibre network to provide enhanced “backhaul” services for Wind – an essential behind-the-scenes function that allows data from customers’ smartphones to be transmitted from cell towers to carrier’s backbone network.

“Foreign ownership restrictions for non-incumbents were lifted in 2012, but the first two applications (Wind and Allstream) for change of control in favour of a foreign investor have not been successful – this has been very damaging to foreign investor interest and confidence,” added Mr. Lacavera.

Without 700 MHz spectrum, Wind’s long-term prospects remain in doubt. It currently does not have sufficient spectrum to build a next-generation LTE wireless network that would allow it to better compete with Rogers Communications Inc., BCE Inc. and Telus Corp. Without an upgrade to LTE, Wind and Mobilicity also face a potential handset availability problem over the coming years.

As a result of Wind’s withdrawal, only 10 bidders remain in the 700 MHz auction, which was widely billed as the most valuable air waves that have ever come up for bidding in Canadian history. A shorter bidder list is good news for the Big Three incumbents because they face less competition for those valuable wireless licences.

[raino]

OT, but interesting to see a 700 MHz auction in Canada. Not only will it complicate cross-carrier compatibility that we somewhat depend on in the US, but it may have the same effect for you guys North of the border (although probably not as bad.)

In a selfish way, I'm glad they're out of the 700 MHz auctions, because if the only LTE band their phones had was one of the 700 MHz ones (unlikely, but stranger things have happened,) we TMO customers who would import WIND phones would be screwed lol.

[SteveBB10]

This is to bad Canada's cell phone rates are ridiculously high. Hopefully the orange rumors are true.

Canadian BBM Channel C001234A4

[jedi365]

Wow! Not happy.....was looking forward to the main providers losing customer.....there is no competition here at all......

Posted via CB10

[Jonesy1966]

This is not the final nail in the coffin for WIND just yet, many analysts are suggesting that this could turn out pretty well for them:

1) WIND has supposedly bid on Mobilicity for $190M. Although this is just a rumour it is known that WIND has had their eye on Mobilicity's spectrum for quite some time and if they could secure it, it would be a much cheaper LTE alternative than what it would have cost them in the auction. Let's not forget that WIND was the first carrier to test LTE in Canada in December 2010 causing quite a stir at the time. LTE on AWS is a viable and relatively inexpensive fall back;

2) The block of spectrum that WIND would have been bidding on in the auction will most likely go unsold; none of the 3 carriers* that were supposedly being fostered by the government to create competition are involved any longer leaving only some small regional players to bid. The government has already said that what ever spectrum is left over will be disposed of in some manner. The most obvious way is to attempt to re-auction the remaining spectrum in about 6 months or so, but the most intriguing way is via what's called a "beauty contest". This method was very popular in the 80s and 90s and it's what helped establish the incumbents as the powerhouses they are today. Essentially the government looks at who deserves the spectrum the most and either gives it to them or sells it at a much reduced amount. This is done regionally and the criteria would be along the lines of who would benefit the most; who would serve the most users; who would drastically improve their service with new spectrum, etc. Many analysts are leaning toward this route; it enables the government to help the smaller players and save some face without admitting they were wrong, and this is one government that just cannot admit fault no matter how small, face is important;

3) VimpelCom's withdrawal was mostly politicking and grandstanding. It seems to me this whole thing is a calculated risk by VimpelCom to highlight the difficulties in doing business in Canada, the timing of the announcement couldn't have been anymore perfect for maximum affect. The Feds claim to be encouraging competition in Canada but the rules and regulations they've introduced are having the opposite effect. VimpelCom has already poured over a billion $s into WIND and they're not seeing the sort of return on investment they'd like to see. This is made even worse by the fact that they can't sell to an incumbent and many foreign interests, greatly reducing WIND's value in the marketplace, who else has the sort of money to invest in a telcom outside of the Big3 or foreign interests? VimpelCom has often publically complained they'd rather not be doing business in Canada but over the past year have invested in tower upgrades and expansion, and deepened the advertising budget quite considerably; both of these things don't indicate a complete unwillingness to do business here. In fact, many industry insiders have opined that VimpelCom seems to want to stay, at least tacitly, providing they can work with the Canadian Government as a partner rather than an adversary and this withdrawal of backing is more strategic than meaningful.

Anyhow, that's my (somewhat) educated opinion on the whole thing. Regardless, what ever happens is not going to happen immediately and we're probably not going to have a clearer picture for another 6 months or so. Either way, WIND is not going anywhere, at least not for another 18 months to 2 years or so.

*Public Mobile: Had their name down as an auction participant at the onset but withdrew when they were purchased by Telus; Mobilicity is in creditor protection and is currently in the process of auctioning off its assets. Telus tried to buy Mobilicity with an offer valued at $380M but the sale was blocked by Industry Canada forcing Mobilicity to seek out bankruptcy, and; WIND. We all know what's going on here

[Jonesy1966]

CEO Lacavera on CBC's Lang & O'Leary Exchange last night (14/01/2014):

Wind CEO on telecom bid - Business - CBC Player