Mobilicity takes first step to be acquired by Telus but approvals needed

Struggling wireless carrier Mobilicity has taken the first step in the process of being acquired by Telus in a $380-million deal that will ultimately need federal government approval.

Debtholders of Mobilicity approved a plan on Thursday to sell the company to Telus Corp., which will go to court for approval of the deal early next week.

An acquisition by Telus would provide continuing service for Mobilicity’s 250,000 cellphone customers and jobs for its 150 employees, said Mobilicity president and chief operating officer Stewart Lyons.

“This is a significant step towards final approval of the plan through which the business, combined with the financial strength of Telus, can be continued in a way that will benefit our customers and employees,” Lyons said in a news release.

Mobilicity provides no-contract cellphone service in Toronto, Ottawa, Calgary, Edmonton and Vancouver.

Industry Minister Christian Paradis has said he will take whatever times is necessary to review the acquisition carefully.

Under current rules, Mobilicity’s spectrum licence cannot be sold to established carriers before 2014. However, Telus (TSX:T)has urged that the deal be approved sooner because Mobilicity is in dire financial straits.

Mobilicity, as well as Wind Mobile, bought spectrum — radio waves over which cellphone networks operate — that was set aside for new players to bid on in order to bring more competition to the cellphone market.

As a result, their licences can’t be sold and transferred to any of the big carriers until next year.

Telus said it welcomed the approval by Mobilicity’s debtholders.

“Today’s positive vote is an important step on the road to allowing Telus to sustain service for Mobilicity’s quarter-million customers and preserve the jobs of their 150 employees without a disruption caused by their current financial challenges,” David Fuller, Telus chief marketing officer, said in a statement.

Telecom analyst Eamon Hoey said the federal government shouldn’t sign off on the deal.

“The company has failed,” said Hoey, of Toronto-based Hoey Associates Management Consultants Inc. “The government shouldn’t be in a position of having to bail out failed companies.”

Hoey said Mobilicity should be allowed to go bankrupt and the federal government could reacquire the spectrum and auction it off again at some point.

However, he suggested that Telus could buy Mobilicity’s customer base.

But analyst Troy Crandall said Mobilicity is “bleeding money” and that its access to other investors is limited because it is in the midst of a sale process with Telus.

“Telus is essentially offering them a lifeline in buying them, which would keep the lights on and allow their clients to continue with the service as it is,” said Crandall, of MacDougall, MacDougall & MacTier.

“Time isn’t on Mobilicity’s side.”

There is some pressure on the federal government because jobs are on the line and because Mobilicity’s subscribers need a working wireless carrier, he added.

Crandall said Paradis likely won’t make a decision before June 11 when bidders have to hand in their applications for the next spectrum auction, set for late fall.

Mobilicity, formerly known as Data & Audio-Visual Enterprises Wireless Inc. (DAVE Wireless), also said Thursday that a vote on a recapitalization plan had been postponed and would be pursued only in the event the acquisition by Telus doesn’t go ahead.

Two other new wireless carriers are also facing an uncertain future.

Wind Mobile, with its just over 600,000 subscribers and no-contract service, has been put up for sale by Dutch owner VimpelCom.

It has also been reported that Pubic Mobile, the third company that launched after the last spectrum auction, has hired an investment banker to find a buyer.