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Quebecor could be interested in buying struggling small carrier Mobilicity

MONTREAL - A Scotiabank (TSX:BNS) analyst says regional telecom operator Quebecor may be interested in acquiring Mobilicity, a small and financially struggling wireless company that has been trying to find a buyer.

Analyst Jeff Fan says he believes Quebecor, owner of wireless operator Videotron, has signed a non-disclosure agreement with Mobilicity, indicating it has some interest in buying spectrum outside Quebec in the wireless auction, which began Tuesday.

Fan says Quebecor could become a solution to Ottawa's plan to have four national wireless carriers, but he doesn't see the company pursuing a big expansion across Canada.

Quebecor's wireless business is based only in Quebec, where it competes against big carriers Rogers (TSX:RCI.B), Bell (TSX:BCE) and Telus (TSX:T), as well as Public Mobile, recently sold to Telus.

Mobilicity has about 180,000 cellphone customers and provides service in Toronto, Ottawa, Calgary, Edmonton and Vancouver. It has been operating under creditor protection since last fall.

Wind Mobile dropped out on the eve of the 700 megahertz wireless spectrum auction due to a lack of money and has said it would like to buy Mobilicity.

"The most important potential twist could be that Quebecor-Videotron may pursue licences outside Quebec for opportunistic and financial reasons," Fan said in a research note.

Quebecor (TSX:QBR.B) spokesman Martin Tremblay refused to comment on the company's interest in Mobilicity.

Mobilicity couldn't be reached for comment.

Fan said Quebecor could potentially become a "solution to the government's fourth operator objective in British Columbia, Alberta and Ontario" — areas where Wind Mobile also operates.

Quebecor could also have network sharing agreements with Rogers, a network partner it has had in the past, if it buys spectrum outside the province.

He also noted that if Quebecor decides to buy spectrum — radio waves needed to operate cellphone networks — outside Quebec, it will raise the company's bidding costs.

The current auction is for radio waves considered essential for expanding networks because they allow cellphone signals to travel longer distances in rural areas and penetrate buildings and elevators where calls are often dropped in dense urban areas.

Fan said he estimates the cost of the 700 megahertz auction for Canadian wireless carriers Rogers, Bell, Telus, Quebecor and Manitoba Telecom Services to be about $1.8 billion.

But he said he expected the "competitive intensity" of the auction to be low since there are no foreign telecoms participating. Big U.S. carrier Verizon said last fall it wouldn't participate in the auction.

The last auction in 2008 raised $4.3 billion and ushered in new players Mobilicity, Wind Mobile, Public Mobile, Maritime-based Eastlink and Quebecor's Videotron.

The Canadian Press


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