Bloomberg News

Manitoba Telecom Climbs on Ownership Rule Change: Toronto

March 15, 2012

Manitoba Telecom Services Inc. (MBT) climbed to its highest since May as the phone company, cited by analysts as a possible takeover target, said a loosening of foreign ownership rules announced yesterday by the Canadian government opens up “valuable new opportunities.”

Chief Executive Officer Pierre Blouin said the government’s move is particularly welcome for its Allstream unit, which caters to businesses including BMO Financial Group and has 65,000 customers across Canada.

“For MTS Allstream this announcement means greater access to capital and the potential to open up valuable new opportunities, particularly for Allstream,” Blouin said today in a statement.

Manitoba Telecom rose 2.3 percent to C$34.26 at 4 p.m. in Toronto, the highest close since May 31. The Winnipeg, Manitoba- based company, which has a market value of C$2.3 billion ($2.3 billion), has climbed 15 percent this year.

Industry Minister Christian Paradis yesterday said foreign companies can now buy operators with less than 10 percent of Canada’s market share by revenue. The move, which applies to new entrants such as Public Mobile Inc. and Mobilicity as well as smaller existing providers like Manitoba Telecom, will “remove a barrier to investment for companies that need it most,” Paradis said.

Manitoba Telecom has been cited as a possible takeover target by analysts including Drew McReynolds at RBC Capital Markets, who said the new rules give the company “strategic flexibility.”

Prime Wireless Spectrum

Paradis also said yesterday the government will reserve wireless spectrum for small phone companies at an auction next year and cap at 75 percent the amount of what it calls “prime” 700-megahertz frequency spectrum that the country’s three big phone companies -- BCE Inc. (BCE), Rogers Communications Inc. (RCI/B) and Telus Corp. (T) -- will be allowed to buy.

Wind Mobile, the largest of four new entrants that have started service during the past two years, criticized the government for not setting aside at least 10 megahertz for each new entrant. Wind Mobile said that much is needed to build a network that can compete with the big three.

“Without the ability to acquire 10 megahertz, no new entrant can build out LTE, which means no new entrant can viably compete in the long term,” Wind Mobile CEO Anthony Lacavera said in a statement today. The big three are spending billions of dollars to build faster LTE, or long-term evolution, networks that can handle data-hungry devices like Apple Inc. (AAPL)’s iPhone and iPad which are surging in popularity.

Helping Wind Mobile

The foreign ownership changes do resolve one headache for Wind Mobile. Its parent company Globalive Communications Corp. has fought a battle over its right to operate in Canada ever since 2008, when it bought spectrum with a $700 million loan from Egyptian billionaire Naguib Sawiris’s Orascom Telecom Holding SAE. (ORTE)

Globalive won a court appeal in June that secured its right to continue selling phones in Canada, reversing an earlier decision that Globalive did not meet the country’s foreign- ownership rules.

Lacavera has said consolidation among new entrants is needed to create a viable long-term competitor to Bell, Telus and Rogers. Globalive was in talks to buy Toronto-based Mobilicity, a person familiar with the discussions said in December.

RBC’s McReynolds said the rule changes should accelerate that consolidation.

“With the clarity now on both foreign ownership and the wireless auction rules, we would expect some form of new wireless entrant consolidation to occur over the next 12 months,” he said.

‘Credit Negative’

The rule changes are “credit negative” for the big three because the revisions are designed to foster competition even if they won’t alter the playing field much, Moody’s Investors Service said today in a statement.

“While the announced policy initiatives are credit negative for the three national incumbents, we do not think that the government’s proposal will dramatically alter the competitive landscape,” the ratings company said.

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net


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