Verizon takes aim at telecom Big 3 with possible Wind Mobile bid

Shares in Canadian telecom giants Rogers, Telus and Bell fell sharply after a report in the Globe and Mail that the largest U.S. cellular company is ready to dip its toe into the Canadian market by buying Wind Mobile.

Citing two unnamed sources familiar with the negotiations, the Globe and Mail reported Wednesday that U.S. wireless giant Verizon has offered to buy Canadian cellular upstart Wind Mobile with an initial bid of $700 million, after weeks of advanced talks.

If market reaction is any indication, investors are concerned by the prospect of a monied U.S. player. Rogers shares dropped more than nine per cent, Telus was off by eight per cent, and BCE shed four per cent by the end oftrading on the TSX.

Speaking on CBC's The Lang & O'Leary Exchange, Anthony Lacavera, the chairman and CEO of Wind, saidthat he couldn't comment.

"I have no direct information at this time," he said.

When approached for the story by CBC News, Verizon declined comment on the report.

At a wireless industry conference last week, Verizon's chief financial officerFran Shammo confirmed that the company is looking into "dipping its toe" into the Canadian wireless marketplace.

The deal would mark a major shift in the wireless industry in Canada, which has long been characterized as a three-headed oligopoly between Bell, Rogers and Telus. The entrance, however small for now,of a monied U.S. player with an extensive network and an international presence could change all that.

Changed telecom rules

Ottawa has a stated goal of wanting to see four viable competing wireless companies in every market across Canada. To that end, the government relaxed stringent rules over foreign ownership last year to allow foreign takeovers of telecom companies with less than 10 per cent of the market.

At just over 600,000 customers, Wind is well within that range.

Veritas Investment Research telecom analyst Neeraj Monga says the timing could be right for Verizon. The company had a minority stake in Telus more than a decade ago, but has only been interested in a Canadian foothold if it could own 100 per cent of the asset.

"If it's true, I thinktheres more than a high probability this can work for them," Monga said.

There are many synergies that make the tie-up sensible. Monga notes that Canadians spent $1.5 billion on cross-border roaming fees last year, so Verizon's plan could be to market to heavy smartphone users not currently Wind's customer base.

"They can market to people interested in a North America wide voice and data plan, and make real gains on power users with the incumbents there," Monga said.

Doubts remain

Verizon is also the largest smartphone buyer in North America, so it wouldn't be difficult to take what they're already doing with handsets and offer a new selection to Canadians at an incremental cost to them, he says.

Others sayit's not a foregone conclusion that Verizon would see success in Canada.

Troy Crandall, a telecom analyst at MacDougall, MacDougall & MacTier in Toronto, notes that Wind's existing infrastructure and wireless spectrum will need significant investment to truly compete on a national stage.

Wind's infrastructure is built by Chinese firm Huawei and is incompatible with Verizon's back-end technology in the U.S. The Canadian and U.S. governments have already expressed concern about allowing extensive telecommunications to go over Chinese-made infrastructure.

And Verizon "would be unable to offer a competitive bundle of services to compete with incumbents given their lack of wireline, TV and internet offerings," Crandall noted.

The sell-off in telecom stocks "has worried investors that increased competition in the wireless space could be imminent," Crandall said.

Bruce Kirby, senior vice president forstrategyand business development atPublic Mobile,said the Canadian wireless industry may have just changed forever.

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"IfVerizon is serious, the government and Canadian consumers may have just found their white knight that will lead not just to a fourth player, but a new competitor willing and able to challenge the incumbents across all aspects of the wireless market," Kirby said. "Itvalidates the government's pro-competition policies and provides hope to Canadian consumers everywhere. The oligopoly has reason to be afraid."