UPDATE 1-Rogers, Videotron extend reach with network-sharing deal

* Deal would cut Rogers’ spending, boost Videotron market share

* Spectrum portion of deal adds to pressure on Ottawa

* Shares of Videotron parent Quebecor rise more than 4 pct

TORONTO, May 30 (Reuters) - Rogers Communications Inc and Quebecor Inc’s Videotron wireless arm plan to build and operate a shared high-speed wireless network in and around Québec, a cost-saving arrangement that is expected to stoke competition in the French-speaking Canadian province.

Rogers, the nation’s largest wireless provider, now spends far more on its network than its main rivals, Telus Corp and BCE Inc’s Bell unit, do on their shared network.

The pairing with Videotron, announced late on Wednesday, means Rogers will narrow that gap. The deal will also help Quebecor’s Videotron arm broaden its range of wireless services and perhaps increase market share in Québec, where the three national operators already have a head start in wireless.

“Quebecor with this deal gets a lot of tools to become more competitive,” said Desjardins analyst Maher Yaghi, adding that the deal could eventually lead to an even broader asset sharing arrangement between the two sides.

The 20-year network sharing deal will help the companies expand a high-speed wireless network using technology known as long-term evolution, or LTE, in Québec and the Ottawa region. The two sides will continue to compete for customers.

“It’s going to save both on operating costs and capital requirements to maintain and evolve that wireless network,” said Izabel Flis, a buy-side research analyst with Bissett Investment Management, which owns Rogers stock.

Over 10 years, Videotron is set to pay Rogers C$200 million ($194.20 million), and Rogers will pay Videotron C$93 million, based on the fair value of the services each is providing.

Quebecor shares jumped 4.1 percent to C$46.59 in afternoon trading, while Rogers stock was down 0.3 percent at C$47.80.


The companies also said Rogers would pay C$180 million to buy Videotron’s unused spectrum in the greater Toronto area. Videotron bought those airwaves in a 2008 auction in which the federal government set aside some airwaves for new entrants, including Videotron.

The deal on spectrum puts pressure on the government, whose attempts to foster competition within the sector have been stymied as the small players have struggled. Telus earlier this month bid C$380 million bid for Mobilicity, an upstart that is now fighting to stave off insolvency.

The three major telecoms are scrambling to buy up smaller competition or obtain their airwaves, the lifeblood of mobile providers, as demand explodes for speedy mobile streaming of video and other data-heavy applications.

“Ottawa is in a tight position,” Bissett’s Flis said. “It’s a challenge for them because they really wanted more players ... and it doesn’t seem like that’s going to be the case, except for Québec, where Videotron is pretty strong.”

Asked to comment on the Rogers-Videotron transaction, the government said all spectrum transfer requests remain subject to its approval. It is currently reviewing a recent Rogers deal to buy spectrum from Shaw Communications, as well as its broader policy on the transfer of spectrum licenses.

Shaw, a dominant cable company in Western Canada without a mobile telephone business, had bought set-aside spectrum in 2008 but later nixed plans to build a wireless network.

Although the government has indicated it is displeased with the Rogers-Shaw deal, Desjardins’ Yaghi said the agreement with Videotron may stand a better chance of passing muster, given that company’s track record of forcing down prices in Quebec.

“Of the deals that have been announced, Videotron has actually implemented in Quebec what the government hoped to have in creating a fourth, very competitive player,” he said.