Bloomberg News

Harper Plan for New Canada Carrier Now Lies With Separatist (3)

March 11, 2014

Canadian Prime Minister Stephen Harper’s pledge to foster a fourth national wireless carrier to help reduce smartphone bills now rests in the hands of a businessman who wants to break up the country.

Pierre-Karl Peladeau resigned as vice chairman of Quebecor Inc. (QBR/B) to run for the separatist Parti Quebecois in next month’s provincial election. Harper’s government championed the Montreal-based firm as a potential fourth carrier after it bought wireless spectrum across the country in a February auction. Now Harper must reconcile his desire for increased competition with the optics of nurturing a company identified with a separatist entrepreneur.

“They have the capacity to be and I think they will be,” Canada’s fourth carrier, Industry Minister James Moore told reporters Feb. 19 after Quebecor spent C$233 million ($210 million) at a government auction to snap up airwaves in Ontario, Alberta and British Columbia.

Jake Enwright, a spokesman for Moore, declined to comment yesterday on the Quebec businessman’s decision.

The surprise announcement by Peladeau is the latest in a string of setbacks for Harper’s telecommunications policy. On the eve of the government’s spectrum auction two months ago, Amsterdam-based VimpelCom Ltd. pulled out of the sale, dashing hopes its support for Toronto-based Wind Mobile would provide the roots for a fourth national carrier to compete with Canada’s three large incumbents. Six months earlier, Verizon Communications Inc. (VZ:US) had expressed interest in entering the Canadian market before deciding against it.

Big Three

Now Harper risks angering English Canadians by continuing to support Quebecor if it decides to expand beyond its home province versus backing down from his consumer-friendly wireless platform.

“Should you allow that to color what might otherwise be a good business for Canadians?” said Jonathan Lemco, senior analyst with Vanguard Group Inc. in Valley Forge, Pennsylvania, who was born in Montreal and wrote a book on the sovereignty movement “Turmoil in the Peaceable Kingdom.”

“It’s all going to come down to optics,” Lemco said.

Some Quebec residents say they have already canceled their contracts with Videotron, Quebecor’s wireless and cable unit, in protest of Peladeau’s move. “Goodbye Videotron -- you will get my resignation this week,” a woman named Leona Caputo yesterday wrote on Facebook Inc.’s social-networking site. She said she will opt instead for BCE Inc. (BCE)’s Bell service.

New Entrants

“Videotron is no longer an option,” Peter Katsigiannis wrote on the same site a day earlier. “I’m going to be leaving to support my country.” Caputo and Katsigiannis didn’t immediately reply to a Facebook message sent to the accounts they used to post the comments. Videotron customer service representatives posted replies on Facebook to Caputo and others, offering to discuss their services if they wished.

Harper’s government has been pushing for at least six years to spur competition against BCE, Rogers Communications (RCI/B) Inc. and Telus Corp. (T) which together control about 90 percent of the Canadian wireless market. New entrants Wind Mobile, Public Mobile and Mobilicity have struggled to make inroads against the three.

Quebecor CEO Robert Depatie hasn’t specified what Videotron, the company’s cable and wireless unit, would do with the new airwaves, in an auction that raised a combined C$5.3 billion for the Harper government.

Independence Referendum

Quebecor Class B shares fell 0.4 percent to C$25.39 at the 4 p.m. close in Toronto. The stock had dropped 4 percent this year after jumping 37 percent last year.

“Videotron is now well-equipped to develop its network in the years to come,” Depatie said last month. “We now have a number of options available to us to maximize the value of our investment.”

Martin Tremblay, a spokesman for Quebecor, couldn’t immediately be reached for comment today. In addition to Videotron, which is the country’s third-largest cable operator, Peladeau and his family control media assets such as TVA Group Inc., the owner of the province’s most-watched television network and Sun Media, which owns English-language newspapers across Canada.

Peladeau appeared alongside Quebec Premier Pauline Marois over the weekend to announce his decision to run for office in the district of Saint-Jerome, north of Montreal. Marois last week called a provincial election for April 7, aiming to turn her minority government into a majority, fueling speculation she will call a referendum on independence.

Economic Heft

The candidacy of Peladeau, one of Quebec’s most prominent and wealthy businessmen, adds some economic heft to Marois’s campaign, eroding arguments from the Liberal Party that a Parti Quebecois majority would undermine the province’s economy.

“It looks like quite a coup for Madame Marois,” said Andre Juneau, a fellow at the Institute of Intergovernmental Relations at Queen’s University in Kingston, Ontario. “He’s a business star, he’s a media star.”

A Parti Quebecois victory also puts Harper’s government in an unusual position of dealing with Quebecor on telecommunications issues even as it negotiates with Peladeau, the company’s largest shareholder, on other matters depending on his role in a future Quebec government.

“Peladeau is obviously going to get a high profile economic portfolio because of his business credibility,” said Nelson Wiseman, a political science professor at the University of Toronto.

Blind Trust

Peladeau said he will put his ownership of Quebecor in a blind trust. Peladeau and associated companies in his name own 89.5 percent of Quebecor’s 39 million Class A shares, which carry 10 votes per share, according to data compiled by Bloomberg.

“Selling Quebecor is out of the question,” he told reporters yesterday in Saint Bruno-de-Montarville, Quebec. “I’ve been fighting for our companies to remain Quebec-owned, so I would be in a very bad position to start selling my shares. There’s no way.”

While Harper is in a bind having invested so much effort on the fourth-carrier pledge, a victory for Peladeau and the Parti Quebecois is not a foregone conclusion.

A survey conducted for Radio Canada by polling company CROP shows Marois’ party locked with the Liberals at 37 percent each, short of the support needed to form the party’s first majority government in more than a decade.

Peladeau “entering the political fray does not mean the end of Sun, or the dashing of a possible fourth Canadian national carrier,” said Iain Grant, president of wireless policy consulting firm The Seaboard Group.

To contact the reporters on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net; Theophilos Argitis in Ottawa at targitis@bloomberg.net; Frederic Tomesco in Montreal at tomesco@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net Jacqueline Thorpe, David Scanlan


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