MONTREAL – Videotron has reached a deal that gives the Quebec-based telecom company the option to sell its unused spectrum for cellphone networks in Toronto for $180 million to Rogers Communications (TSX:RCI.B).
Such a deal, if given regulatory approval, would allow Rogers to expand its network capacity in Canada’s most populous city to help meet the growing use of smartphones.
Industry Minister Christian Paradis is reviewing the federal government’s policy on the transfer of wireless licences.
The government had said during the previous spectrum auction that it wanted to stimulate competition in the wireless industry, which has been dominated by Rogers, Bell and Telus, by ensuring some licences went to new players.
Videotron has been able to become a staunch regional competitor in Quebec’s wireless market but the other new entrants have made little headway against the established players.
Rogers and Videotron have also agreed they will co-operate to build a faster wireless network together that they will share in Quebec and Ottawa.
“This agreement will benefit businesses and consumers and is part of Rogers focused, strategic game plan,” Rogers president and chief executive Nadir Mohamed said in a statement.
The shared network will use Long Term Evolution technology (LTE) that is suited for data-heavy services such as streaming video, gaming and mobile apps on smartphones.
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“This network and spectrum sharing agreement, combined with the expansion of our LTE footprint, will allow even more consumers to experience the superior connectivity and incredibly fast speeds that LTE delivers,” Mohamed said.
Rogers (TSX:RCI.B) has also previously announced that it has an option to buy unused spectrum from Shaw Communications.
Spectrum refers to radio waves that carry data and voice messages over wireless networks networks.
Calgary-based Shaw (TSX:SJR.B) spent $190 million in the federal AWS spectrum licence auction in 2008, but eventually dropped its plans to launch a wireless business.
Videotron, a subsidiary of Quebec Inc. (TSX:QBR.B), has granted Rogers an option buy its Toronto spectrum licences beginning Jan. 1, 2014.
“This agreement will enable us to go farther and to do it faster and is indicative of our determination to anticipate our customers’ needs and to maintain the close relationship we have built with them,” said Quebecor president and chief executive Robert Depatie.
Telecom analyst Troy Crandall said the networking sharing agreement allows Videotron to “piggyback” on Rogers and cuts the Quebec company’s costs by about 50 per cent for a new network.
Crandall also said the federal government knew there was the possibility that spectrum could be purchased and sold by the original buyer without ever being used.
Videotron’s original plan may have been to establish a presence in Toronto, where Quebecor has other businesses, but that it didn’t work out, said Crandall, of MacDougall, MacDougall & MacTier.
“Who else are they going to sell it to? No one else has any money to buy it other than the incumbents,” Crandall said, referring to major players Rogers, Bell and Telus.
Telus has a proposal to buy Mobilicity for $380 million and has said while it doesn’t need the financially struggling carrier’s spectrum, it’s valuable to own due to the growing number of smartphone users.
Crandall agreed.
“Everybody wants spectrum and they don’t necessarily have a use for it yet, but they know at some point they’re going to use it.”
Under the overall agreement, Rogers and Videotron will provide each other with services, for which Rogers will receive $200 million and Videotron $93 million, payable over a period of 10 years.
Meanwhile, Rogers axed its short-lived 24-hour CityNews Channel and slashed production in some areas of its Omni Television operations Thursday in an abrupt announcement that took viewers by surprise.
A Rogers spokeswoman said the changes “impacted” 62 full-time employees in total – 23 at CityNews Channel and 39 at Omni Television.
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