More Than Two Dozen Can Bid in Canadian Wireless Auction

In a low-key posting last week on its Web site, Industry Canada named 27 qualified bidders and partners angling for the 105 MHz of Advanced Wireless Services (AWS) spectrum going up for sale May 27. The spectrum auction, Canada’s first since 1995, will set aside 40 MHz for new national wireless players. The other 65 MHz will be open to all bidders, including major incumbents Rogers Communications, BCE and Telus (CD Jan 5 p5).

The lineup features several Canadian firms backed by moneyed U.S. entities. Angels include Charter Communications and Vulcan chief Paul Allen, big New York private equity firms Quadrangle Group and Blackstone Group, Virginia-based Columbia Capital, and Boston-based M/C Venture Partners. Other wealthy foreign backers include Weather Investments, a wireless firm headed by Egyptian billionaire Naguib Sawiris, and Novator, a wireless investment firm operated by Icelandic billionaire Bjorgolfur Thor Bjorgolfsson. Canadian rules ban foreigners from owning more than 46% of a telecom company.

But, relieving the three established national players and other domestic bidders, non-Canadian investors don’t include AT&T, T-Mobile, or other big foreign telecom companies. Speculation arose that a mystery firm, Niagara Networks, which pledged a huge deposit of C$881.4 million, far more than any other bidder, was backed by a large foreign company. But Niagara Networks withdrew its application, quitting the bidding along with Canadian Tele Corp. and YourLink.

“We're pumped now that this Niagara thing isn’t real,” Globalive Communications CEO Anthony Lacavera told the Toronto Star last week. “We were concerned that it was an investor with such extreme wealth, and no wireless experience, that they would be prepared to substantially overpay for the spectrum.” Globalive -- parent of Yak Communications, a Toronto-based re-seller of long distance service - is among regional wireless players qualifying to bid on the 40 MHz of AWS reserved for new entrants. Backed by Weather Investments and Novator, Globalive ante'd a C$235 million deposit to be able to bid in the auction. Industry Canada rules deem any company with less than a 10% share of the national wireless market a new entrant.

Bidder Data & Audio-Visual Enterprises (DAVE) Wireless made a splash by signing Allen and Quadrangle as partners. Headed by Canadian fast-food franchise mogul and XM Canada satellite radio founder John Bitove, DAVE paid a C$106 million deposit. Quadrangle owns 24% of the partnership, while Allen holds 20%.

A notable cell phone entrant backed by U.S. investors is a bidder using a numbered name, 6934579 Canada Inc. Led by Novacap, a Canadian private equity firm, it boasts financial backing by Columbia Capital and M/C Ventures. The firm put down a C$154.9 million deposit.

As expected, cable giant Shaw Communications, cable and printing company Quebecor and MTS Allstream and other regional wireless firms qualified for the 40 MHz of specially reserved spectrum. MTS Allstream, formerly Manitoba Telecom Services, beefed up its bid by allying with Blackstone Group and the Canadian Pension Plan Investment Board. The consortium paid a C$340 million deposit, while Shaw and Quebecor made deposits of C$400 million and C$317 million, respectively.

Several big Canadian investors entered the bidding as well. Besides Bitove’s DAVE Wireless, Triple Five Universal Enterprises, owned by the Ghermezian family of real estate developers, qualified. But the Edmonton-based Ghermezians - heads of a conglomerate that owns the huge Mall of America and West Edmonton Mall -- cut their deposit to C$11 million from a pledged C$143.6 million, indicating that they plan to pursue less spectrum.

Rogers, BCE and Telus, which together control about 95% of the $12.7 billion Canadian cell phone industry, only can bid for the 65 MHz open to all bidders. The Conservative government structured the sale that way to boost competition, lower prices, foster innovation and improve wireless service. Canada’s market lags the U.S. and other Western countries on several key measures.

Industry analysts are split over whether the government plan will create a fourth national mobile provider, as intended. In a note to clients last week, Jeffrey Fan, a UBS Investment Research analyst, said his firm believes that “a national facilities-based competitor is unlikely to emerge” from the auction. Noting that most bidders “do not usually win licenses and winning bidders may not necessarily build networks to operate those licenses,” Fan predicted the sale will bring only “new regional competition.”

But other analysts expect Canadian wireless to be shaken deeply even if no fourth national player immediately emerges. Quebecor’s Videotron cable unit and MTS Allstream are large companies that “can bundle a few things together and realize some synergies,” said SeaBoard Group analyst Amit Kaminer. He noted that auction winners could partner with other firms or sell frequencies they buy, creating even stronger competition to the Big Three.