The government is needed in today's world – there is no arguing that fact – we need them to protect our rights and freedoms, but there is also a time for them to keep their respectful nose out of our businesses…especially when companies could lose big dollars because of the Government's decisions. One such area in the Canadian Government is their constant insistence to meddle in the wireless industry and control every facet of it – especially when they keep changing the rules, making it difficult to businesses to make a decision because they may have no idea if the Government will change the rules midway through.
The Government's insistence on creating a fourth major wireless carrier is one such situation – preventing Mobilicity from getting out of bankruptcy by blocking its sale to a larger carrier or preventing WIND Mobile, which is for sale, from selling to a major player. It appears that this is also the case with Shaw Communications' sale of spectrum to Rogers. Shaw had originally purchased a valuable chunk of spectrum with thoughts of going into the wireless industry. When those plans were abandoned, they needed to sell their spectrum to help recoup some of their loses…and an option to this spectrum was inked to Rogers for $300 million. It now looks as though the government is going to step in and block the sale, as they have stated frequently of their policy to block sales or transfer of spectrum to their major players – Roger, TELUS or Bell.
Shaw still believes the deal can go through and Shaw's Chief Executive Officer Brad Shaw said on a June 26 conference call, "Well, the rules [were] pretty clear when we bought this spectrum that after five years you could transfer them to incumbents, and so we still work on that premise and we are not sort of entertaining hypothetical ideas."
Analysts, however, do not believe that Ottawa will approve the transfer…so what options does this leave Shaw? Scotia Capital Inc.'s Jeff Fan suggests that Shaw could contribute that spectrum in a WIND Mobile sale or Mobilicity buyout since the Government is willing to do whatever it takes to create that fourth carrier. Fan suggests that the value of the spectrum is $150 million and that Shaw could consider taking equity in the new company. Other analysts do not believe Shaw would want to participate in such a venture – they paid $189.5 million in the 2008 auction, but projected that building a wireless business could cost them $1 billion. Shaw is now focused on building a Wi-Fi network in Western Canada and spent $1.2 billion to acquire ViaWest, Inc.
Rogers has already paid $50 million for the option to buy the spectrum and that is non-refundable. A refundable $200 deposit can be returned if the option is not exercised. Shaw, themselves, are in risk of losing the spectrum if they fail to do something with it within the ten year period that was set forth in the terms of license.
There is potential here for a lot of companies to lose out in this one transaction – the Government claims that they are only promoting expansion and competition in the wireless industry, but from a business point of view, they are making it next to impossible for the wireless companies to conduct business. Will a fourth network really help the subscribers with lower monthly plans or is withholding spectrum from the larger telecoms, hurting the subscribers more by denying them better service?
Please hit us up on our Google+ Page and sound off – is the Canadian Government doing the right thing or should they keep out of it…as always, we would love to hear from you.