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Will US telcos find interest in Canada? Don't count on it, say analysts

MONTREAL – Big U.S. carriers Verizon and AT&T could find access to Canada’s wireless market too small for their liking, with new entrants like Wind Mobile or Mobilicity offering few incentives to head north, say telecom analysts.

“If you wanted to come into Canada, you’d want to come in to dominate it,” said Iain Grant of the SeaBoard Group.

“These are companies that make big bets for big pots.”

Foreign carriers in Canada are restricted to buying wireless companies that have 10 per cent, or less, of the marketplace. Such a small piece of the Canadian market wouldn’t do much to improve Verizon’s or AT&T’s financial results, Grant said.

“Making a little bet for a marginal player, even if it did really well, wouldn’t actually move your stock price,” he said.

The Globe and Mail reported that Verizon has talked with Wind Mobile investors and also flirted with the possibility of picking up Mobilicity. AT&T, Norway’s Telenor and Great Britain’s Vodafone were also cited as possible investors, it said.

But those transactions might offer too small a share of the Canadian market to keep U.S. telecom giants interested.

The federal government lifted restrictions on foreign ownership for small telecom companies more than a year ago to help encourage competition. Industry Minister Christian Paradis has said that Ottawa is committed to having a fourth wireless player in every region of the country.

Newcomers to the Canadian wireless industry haven’t grown as quickly as hoped.

Although Wind Mobile has more than 600,000 subscribers, it fell short of its goal of 1.5 million subscribers after its launch in 2009.

Mobilicity, which was in the crosshairs of a Telus Corp. (TSX:T) acquisition before it was nixed by Ottawa, has about 250,000 subscribers and is awash in debt.

The country’s three biggest carriers Rogers (TSX:RCI.B), Telus and Bell (TSX:BCE) have about 25 million wireless subscribers between them, and unlike the smaller carriers, their coverage spans most of the country.

Troy Crandall of MacDougall, MacDougall & MacTier said Verizon would be entering a fragmented market if it bought the smaller regional carriers.

“You’re still only in parts of Canada,” Crandall said. “You’re not a full national-wide network.”

And Verizon wouldn’t benefit much from its brand recognition in the U.S., he said.

“A lot of people know who they are, but one has to say a lot of people here in Canada don’t know who they are either,” he said.

Both Verizon and AT&T declined to comment on whether they’d be interested in making investments in Wind Mobile, which is up for sale by its Dutch owner VimpelCom, or financially struggling Mobilicity.

The two U.S. carriers both have a history of playing the Canadian market, and also share the similar decision of leaving the country.

Verizon sold its 20 per cent interest in Telus to the Vancouver telecom in 2004 and Rogers bought out AT&T’s stake in the Toronto company the same year.

Analyst Eamon Hoey said it makes more sense for Norwegian global telecom player Telenor pick up an interest in Wind Mobile.

“Of all of them, I would put my eggs with Telenor because they would have an interest, but Telenor is a very conservative company,” said Hoey, of Hoey Associates Management Consultants Inc. in Toronto.

Canaccord Genuity analyst Dvai Ghose questioned if Industry Canada will be able to fulfil its goal of four wireless players in all regions of the country — especially in more rural communities and smaller cities.

But even Ontario is under threat of falling short on competition, he said in a recent note.

“We have seen nothing thus far from Industry Canada that would support independent new entrant survivability or sustainability of a four-player market in Ontario or Western Canada,” he wrote.

Those regions “together make up for approximately 65 per cent of the Canadian population.”