Telus Throws in the Towel on Mobilicity; Will a Fourth Player Emerge?

Telus has given up on purchasing Mobilicity. How will this affect Canada’s mobile market?

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The Motley Fool

After three failed attempts to purchase struggling wireless provider MobilicityTelus (TSX: T)(NYSE: TU) has officially ended negotiations. Telus was faced with mounting opposition from the federal government on its plans to acquire Mobilicity’s spectrum and clients, as the government felt it would hinder competition in the market.

With Telus out of the picture, what is next for Mobilicity? The company is still under bankruptcy protection, and if no deal is made in the near future, bondholders will be left with staggering losses. The company is now more desperate than ever to find a buyer, but who is the most likely to step up and be the next big player in the market?

The government’s dream plan

If it were up to the federal government, Mobilicity would be purchased by Wind Mobile. Both companies joined the fray in the 2008 auction, and they are all that remain of the new entrants from that period. If the two companies were to merge, it would create a modest fourth player and give the government some “brownie points” for following through on its mandate to create a new competitor in the sector.

Wind Mobile has been increasing its numbers, adding 25,916 new subscribers in the past quarter, bringing its total subscription number to 702,125. In comparison, Mobilicity’s subscription base is only 165,000 today, and was only 250,000 this time last year. Wind Mobile declared that its past quarter was its best ever, citing new subscriptions and a 12% increase in “revenues per user.”

Normally, when a company posts numbers such as these, it’s a good thing. However, that isn’t the case for the owner of Wind Mobile, Vimpelcom (NYSE: VIP). It has taken some time for the company to reach this stage, and rather than investing for growth, it is looking to exit the Canadian market. This was reinforced when Wind Mobile did not participate in the recent 700 megahertz spectrum auction. Also, in the past couple of years the company has been forced to take a write-off totalling $1.5 billion in investments in Canada.

So Mobilicity is bankrupt, and the government’s dream partner is looking to leave the country. Who’s left?

The most likely suitor

It seems that there is only one possible player left to purchase Mobilicity and even Wind Mobile: Videotron, the wireless division of Quebecor (TSX: QBR.B). Back in January, Videotron entered into a non-disclosure agreement with Mobilicity, stirring rumors that the company would make a takeover bid if Telus failed.

Since then, Videotron spent $233 million at the 700 megahertz auction, picking up spectrum not only in its home province of Quebec but also in Ontario, B.C., and Alberta. Videotron also picked up some spectrum in Ontario during the 2008 spectrum auction.

Videotron is the only company that could afford to purchase not only Mobilicity, but also Wind Mobile — and all while fulfilling the federal government’s competition mandate. This would also give investors an opportunity to invest in a wireless company that still has ample room for growth.

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.

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