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 almost eight per cent, Telus was off more than five per cent, and BCE shed more than four per cent in early trading on the TSX.
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 officer Fran 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 think there's 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.
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.
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