(Adds notice of mediation in 7th paragraph)
By Alastair Sharp
TORONTO, April 25 If Telus Corp hopes to
press its advantage in an upcoming auction of wireless airwaves,
the Canadian telecom may need to abandon its plan to snatch a
floundering rival out of creditor protection and back away from
a nasty fight with the government.
Canada's Conservative government has aggressively opposed
the carrier's expansion plans, which Ottawa sees as a challenge
to its policy of encouraging more competition in an industry
dominated for years by Telus and its two main rivals, BCE Inc
and Rogers Communications Inc.
In effect, Ottawa has warned the entire industry that it
will not tolerate any move that could interfere with its
The government has already blocked two previous bids by
Telus to swallow Mobilicity, a low-cost carrier that owns
valuable spectrum assets. The third attempt, a C$350 million
($317 million) bid, was announced late last week by Mobilicity
and its court-appointed monitor.
Ottawa is now waving a big stick at Telus, warning of dire
consequences if the carrier fails to abandon the pursuit,
according to a report in the Globe and Mail newspaper on Friday.
If Telus will not stand down, the government threatened to shut
it out of an upcoming auction of airwaves, the lifeblood of the
wireless industry, by changing the rules of the sale, the paper
said, citing unnamed government sources.
Telus declined to comment on the Globe and Mail report.
But the company and the government, along with Mobilicity
and its debtholders, will have a chance to hash out their
differences next week after the court dealing with the issue
ordered mediation, to be overseen by a veteran retired judge.
A spokesman for Industry Minister James Moore, when asked
about the newspaper report, said the government's policy of
transferring the rights to use airwaves remained the same, and
that it would block any deals that decrease competition.
Moore himself said on Thursday that a decision on the Telus
bid would come soon. Even so, the Globe and Mail story suggests
he has already made up his mind to stop Telus from taking
Mobilicity and its coveted airwaves, even if that means the
small carrier could cease operating.
Even if Ottawa's threat is empty, Telus would likely be
best-served by walking away to fight another day, experts say.
"In a battle against government, Telus will lose. And I
think Telus knows that," said telecom analyst Iain Grant of
consultancy Seaboard Group.
Telus is well-placed to win big in the upcoming 2500 MHz
auction, since the rules severely restrict bids from Rogers and
BCE, which already own large chunks of similar frequencies.
"Mobilicity's spectrum is a very narrow swath of less useful
spectrum" compared with what is on offer in the upcoming
auction, Grant said.
One industry source who declined to be identified said the
government message was likely a warning shot it hopes will stave
off further legal challenges or public disputes.
Telus, Rogers and BCE last summer teamed up to launch an
intense lobbying effort after U.S. giant Verizon Communications
Inc showed interest in rules that allow it to enter the
domestic industry under favorable terms. Verizon later decided
not to proceed, highlighting the government's challenge in
trying to foster more competition and drive down consumer
Mobilicity entered Canada's wireless industry via a 2008
auction in which it bid on airwaves that Ottawa marked as
off-limits for the established operators.
The effort to encourage competition has had limited effect.
Only one of the three newcomers to the industry, Wind Mobile, is
still in business, and its financial backer, Russia-based
Vimpelcom, is reluctant to sink more cash into Canada.
A third newcomer, Public Mobile, has already been swallowed
by Telus, while Shaw Communications Inc, an
established regional carrier, bought spectrum in 2008 but
decided against building out a mobile network.
Quebecor's Videotron bought regional airwaves in that
auction and then expanded its reach outside its home base in the
mostly French-speaking province of Quebec with a purchase in a
700 MHz auction earlier this year.
Some industry insiders think Telus' latest bid, which comes
after a moratorium on the transfer of spectrum owned by
Mobilicity has ended, may have been an attempt to force the
government to bar the deal. Lawyers say that would open the door
to Telus suing Ottawa and posing a direct challenge to the
government's ability to rule on such matters.
Telus has not commented in this line of thinking.
By threatening to bar Telus from the coming auction process,
the government may not only have signaled its intention to block
this deal, but also to discourage Telus from launching legal
action against its final ruling on the Mobilicity deal.
($1 = 1.1030 Canadian dollars)
(Additional reporting by Louise Egan in Ottawa and Euan Rocha
in Toronto; Editing by Matthew Lewis and Dan Grebler)