Telus announced a plan Thursday to buy struggling wireless carrier Mobilicity for $380 million, a deal observers say that will prompt higher prices for monthly cellphone service if it is allowed.
“Maybe you want to talk to your provider and renegotiate your deal now,” said John Lawford of the Public Interest Advocacy Centre.
Mobilicity was part of a new wave of small wireless companies to challenge Telus (TSX:T), Rogers (TSX:RCI.B) and Bell (TSX:BCE) after the last wireless spectrum auction.
The company, which does not require long-term contracts, brought unlimited talk-and-text plans to the marketplace, said Lawford, executive director of the Ottawa-based group.
“In a lot of places where Mobilicity offers service you’re going back to just three operators. You can guess who they are — Bell, Telus and Rogers. Prices will just go up.”
The Telus offer is subject to conditions including approval by the federal Competition Bureau, Industry Canada, and Mobilicity’s debtholders.
The Vancouver-based telecommunications company said the purchase needs quick regulatory approval because the money-losing carrier can’t make it financially on its own.
“Given Mobilicity’s financial situation, we’re asking for and expecting an expedited review,” Telus chief marketing officer David Fuller said from Vancouver.
Mobilicity has about 250,000 cellphone subscribers and had been looking for a buyer or debt restructuring. It offers wireless services in Toronto, Ottawa, Calgary, Edmonton and Vancouver.
“Their financial situation puts a different spin on when they need to make a decision and when they need to give approval,” Fuller said of the government approvals needed for the deal to go ahead.
However, Industry Minister Christian Paradis didn’t seem in any hurry to sign off on the deal.
“The government will take the time required to review the proposal carefully,” Paradis said in a statement.
Fuller said the majority of Mobilicity’s debtholders support the acquisition and if it goes ahead, Telus will keep its 150 employees and pay off the company’s debt.
Mobilicity president Stewart Lyons said his company approached Telus about the deal because of its reputation.
“I am confident Telus will look after our employees and our customers, mitigating any disruption to their service, while offering the best outcome for all stakeholders,” Lyons said.
At issue, though, is Mobilicity’s spectrum licence which doesn’t expire until the winter of 2014.
Fuller said since it’s not financially sustainable for Mobilicity to keep operating on its own until its spectrum licence expires, Telus is asking it be allowed to buy Mobilicity now.
Mobilicity’s spectrum, radio waves over which its network operates, was purchased in a special auction for new wireless carriers in 2008 to create more competition. Industry Canada has said the spectrum that was set aside for the new companies cannot be sold to established carriers before 2014.
Telecom analyst Iain Grant said he believes Mobilicity’s spectrum licence would be revoked if sold early.
“So what Telus would be buying is the customers and the operation,” said Grant, managing director of SeaBoard Group.
“Industry Canada has tried to stimulate competition in Canada. It has proved to be too little, too late. Going forward, we would look to Industry Canada to take a much firmer stand,” he said.
Grant said if the sale of Mobilicity goes ahead, there will be one less competitor, but noted Mobilicity has few options.
“What our worry is if Wind Mobile were to go the way of Mobilicity and Public Mobile were to go the way of Mobilicity, then in fact it would be inevitable that prices would rise.”
The other two new wireless players also face uncertain futures.
Dutch owner VimpelCom has put Wind Mobile up for sale, opening up the possibility a bigger company could swoop in and pick it up and it has been reported that Public Mobile has hired an investment banker to find a buyer.
Analyst Troy Crandall said there are usually consequences with fewer competitors.
“If you reduce competition almost all the time it does eventually lead to an increase in prices, lower innovation and less choice,” said Crandall of MacDougall, MacDougall & MacTier.
He noted that prices for voice minutes have gone down with more competition but carriers started making up for that with more revenue from data plans on smartphones.
Crandall also said Industry Canada may make an exception for Telus because the five-year licence may be close to expiring by the time the deal would close.