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Oh Canada: Verizon Ponders Northern Expansion

Tickers in this article: AMX VOD VZ

NEW YORK (TheStreet) -- Many folks hoped the Verizon quarterly results call last week would give some clues about how serious the telecom giant is about making a foray into Canada via acquisition of new entrant Wind Mobile. At the end of June it was reported that Verizon had made a tentative bid of between $600 million and $800 million to VimpelCom, for its Wind subsidiary, with more specific pricing pending due diligence.

Under such a scenario, Verizon would then move to snap up other entrants such as Mobilicity, rolling up further AWS spectrum, acquire 700 MHz spectrum and then deploy LTE, making it a vibrant new fourth player that would go head-to-head against the big three incumbents (Bell, Rogers and Telus) instead of just competing at the bottom of the market.

Canadians would welcome such a development, as VimpelCom, perceived to own the new entrant with the highest "staying power", has put Wind on the trading block, jeopardizing the long-term continuation of fierce competition that has brought much needed discounts. Prior to the advent of the new entrants, which came onto the market shortly after the last AWS spectrum auction, Canadian consumers were paying among the highest service rates in the world. Verizon's tone during the call was one of moderation; the company continues to evaluate the Canadian market, and if conditions are right, it would certainly consider entering it via an acquisition of Wind.

Making the Wind Acquisition Work Requires a Lot of Heavy Lifting

But a Wind Canada acquisition would come with a lot of additional considerations for Verizon to ponder. Wind currently owns roughly 1,400 cell sites covering only about 14 million pops. Cross-country coverage would entail a lot of extra base stations (as many as 3,000 to 4,000) and a significant decrease in roaming costs, requiring active regulatory intervention. Furthermore, Wind's only 20 MHz band in AWS spectrum (1.7-2.1 GHz) is in Southern Ontario. Wind also has 10 MHz holdings in Atlantic Canada, Eastern Ontario, Manitoba, Saskatchewan, Alberta and British Columbia, but none in Quebec, where Quebecor purchased all the 40 MHz of spectrum available.

For a carrier with nationwide aspirations such as Verizon, these spectrum holdings are not sufficient, requiring Verizon to acquire another new entrant, such as Mobilicity. Mobilicity had received a $380 million offer from Telus, which was rejected by ex-Industry Canada (IC) Minister Christian Paradis in early June. That disapproval essentially lowered the asking price as no other player would be able to match the price offered by an incumbent.