Over the past year Telus (TSX: T)(NYSE: TU) has been busy buying up smaller telecom players such as Novus and Public Mobile. These small players came to be through the 2008 spectrum auction along with Wind Mobile and Mobilicity. Now six years later, two of these companies have been purchased by Telus and the other two are broke and looking for buyers.
Mobilicity has been a target for Telus twice in the past 12 months, but both times it was blocked by the Federal government on grounds of reduced competition — a party line the government has been trying to sell to the public through its “More Choice” campaign, with the hopes of better service and lower prices for wireless customers.
Mobilicity has been kept alive since September due to creditor protection and has been attempting to find a buyer to keep the company afloat. Mobilicity contacted 25 different organizations back in December to find a potential buyer. Of those 25 organizations only five submitted a bid to purchase. Of those, only a $350 million bid by Telus was deemed acceptable by Mobilicity and the court-appointed monitor.
Both companies are attempting to reassure the government that this deal will meet the criteria’s of the Federal Competition Bureau and the Minister of Industry. If the deal is accepted it is claimed that the “vast majority” of Mobilicity’s 165,000 subscribers would be migrated to Telus’s network, and staffing levels would remain the same.
Another factor working in Telus’s favor is the end of the five-year moratorium on re-selling spectrum sold in the 2008 auction to incumbent players. This means that any further rejection of the deal from the Federal government could leave Mobilicity with the choice to pursue legal action or exit the market.
Either option may have the same result for customers, as can be seen with Telus’s “endgame” with Public Mobile. Once Telus acquired the company’s spectrum licenses in Ontario and Quebec, its 260,000 subscribers were transferred to the Telus 4G network. Many of the subscribers will have to upgrade their phones to use the network, as Public Mobile’s network was considered outdated (though now growing in potential).
Foolish bottom line
No matter what decision the government makes, one thing is clear. If nothing is done, Mobilicity will continue to operate at a loss and will be out of cash by July, leaving its 165,000 subscribers in Toronto, Ottawa, Calgary, Edmonton, and Vancouver without service.
For Telus this is another opportunity to increase the area and the bandwidth capabilities of its network. This growth is more important now than ever since Telus surpassed Bell (TSX:B CE)(NYSE: BCE) as the nation’s number two wireless provider.
The acquisitions of Public Mobile and Novus Wireless raised the percentage of the population it can service from 80% to 97% and the addition of Mobilicity would further cement its foothold in urban Canada. For investors, the addition of spectrum gives Telus greater stability in the Eastern Canadian market and allows it to compete even better against regional incumbents Bell and Rogers.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Cameron Conway does not own any shares in the companies mentioned.