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Consumer groups applaud blocked Telus bid for Mobilicity – but will celebration be short lived?

Consumer groups are celebrating the government’s decision to quash a bid by Telus Corp. to acquire smaller rival Mobilicity, hailing the decision as a boost to competition in a sector long dominated by three operators in Telus, Rogers and Bell.

“This government stood up for wireless consumers today by telling the incumbent carriers that it wants consumers to be able to choose from four or more wireless carriers,” John Lawford, executive director and general counsel for the Public Interest Advocacy Centre said following the surprise decision.

The Consumer’s Association of Canada also applauded the decision from Industry Minister Christian Paradis.

The question facing consumers now however is how long that competition – and the lower prices for smartphone and cellphones services it has produced – can be sustained.

Mobilicity is struggling under a mounting debt load and an underwhelming subscriber base of 250,000 or so customers. Analysts suggest the operator’s investors won’t continue funding the carrier for much longer.

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Mobilicity’s chief competitor meanwhile, Wind Mobile, the largest of three players to enter the market in recent years to compete against the existing wireless providers, finds itself up for sale as well with backers who appear unwilling to sink more money into the venture.

Minister Paradis is likely pushing off the inevitable, some say. Once a moratorium lifts next year prohibiting Rogers, Bell or Telus from acquiring either carrier, Telus may well close the deal then.

“This is a setback for Telus, but we suspect the company should be able to re-approach Mobilicity once the lock up period ends,” Ric Prentiss, a stock analyst at Raymond James said.

That’s assuming that Mobilicity doesn’t go bust in the interim.

“It now seems inevitable that Mobilicity will go bankrupt,” Canaccord Genuity analyst Dvai Ghose said in a note.

Paradis said Tuesday Ottawa continues to pursue a strategy to bolster competition and enhance choice in the number of wireless providers to buy services from.

The choices at present for the players responsible for sustaining that competition however appear quite limited.

“If new entrants are not allowed to be sold to the only obvious buyers – the incumbents – we wonder why investors would want to fund the independent [providers],” Ghose said.
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In a statement, Telus said Mobilicity’s customers, employees and investors “now face considerable uncertainty due to the pressing financial challenges facing the company.”

Michael Geist, a law professor at the University of Ottawa and widely followed commentator on Canadian telecommunications policy, said on his blog the decision was “defensible” but it wasn’t enough on its own to maintain a competitive balance.

“The government needs to do more than simply buy time by enforcing the five-year spectrum set-aside rule,” he said.

Among other suggestions, the academic proposed a “full set-aside” of spectrum in a forthcoming auction for airwave licences next January — a repeat of the auction process Ottawa ran in 2008 that allowed Mobilicity, Wind and two regional providers, Public Mobile and Videotron, to enter the fray.

That seems unlikely however. Instead, others said Tuesday Ottawa may be hoping the move spurs another party to bid for both Mobilicity and Wind, and after consolidating the two pony up additional funds to buy spectrum at the auction — spectrum deemed essential to offering services comparable to what the incumbents are able to provide.

Anthony Lacavera, founder and chief of Wind, told Reuters Tuesday his firm could be a possible buyer of Mobilicity, which Lacavera has attempted to acquire unsuccessfully in the past.

That too may be a far-fetched scenario, said Jeff Fan, an analyst at Scotiabank.

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“Effectively what [Ottawa] has done is de-valued Mobilicity and delayed the decisions on the above transactions until 2014, hoping that a strategic investor will step forward,” he wrote in a note to clients. “Were these moves enough to entice a strategic investor? We do not believe so.”