Rogers Wireless Communications Inc.’s $1.1 billion agreement to acquire Microcell Telecommunications Inc., Canada’s smallest wireless operator, could propel Rogers Wireless past Bell Mobility as the nation’s largest wireless operator with approximately 5.1 million total subscribers.
The deal also trumps a long-standing unsolicited $800 million offer from rival Telus Corp., which was initiated in May and has been extended numerous times since. Microcell’s management repeatedly encouraged its shareholders to refuse Telus’ offer in an attempt to gain maximum value for the carrier, which emerged from bankruptcy protection last year.
“We believe that this transaction constitutes an attractive opportunity for our customers and shareholders alike,” said Andre Tremblay, president and chief executive officer of Microcell, adding that the Rogers offer also had fewer conditions compared with the Telus offer and required fewer approvals from the country’s competition board.
The Microcell deal was possible following a separate agreement by Rogers Wireless’ parent company, Rogers Communications Inc., to buy AT&T Wireless Services Inc.’s 34-percent stake in Rogers Wireless for more than $1.3 billion.
Rogers Wireless said the deal will provide it with a stronger presence in Quebec and Ontario and will unite Canada’s largest GSM-based carriers. RCI President and CEO Ted Rogers also said the deal would allow Rogers Wireless to provide a compelling competitive offering against the incumbent wireline/wireless offerings from Bell Canada and Telus.
“This transaction will position Rogers to better compete against incumbent telco wireless operators in Canada,” Rogers said. “It also ensures a healthy, competitive marketplace and all of the associated benefits for wireless customers across Canada.”
RCI’s management said it expects to keep Microcell’s Fido brand name alongside its own offering and that Microcell customers would be able to benefit from the additional coverage provided by Rogers Wireless’ superior network without having to switch phones. Rogers Wireless also said it expects to keep the recently launched City Fido service, which provides unlimited local calling in Toronto and Vancouver at prices that are competitive to local wireline offerings.
“I like that City Fido attacks the premise of wireline local business,” said Nadir Mohamed, president and CEO of Rogers Wireless.
Analysts have questioned the value of Microcell’s customer base, which is split evenly between low-value prepaid customers with an average revenue per user per month of less than $15 and higher-value postpaid subscribers with monthly ARPU of around $50. However, RCI noted the Fido brand has proven appealing to the youth market. In addition, the brand is expected to prove compelling against Virgin Mobile’s impending entrance into the market using Bell Mobility’s network through a mobile virtual network operator arrangement.
RCI also noted that Microcell’s spectrum holdings in the 2.5 GHz band would open up additional opportunities for future offerings similar to the wireless broadband service Craig McCaw’s Clearwire Corp. is providing in a handful of U.S. markets. McCaw recently invested $50 million in Microcell and has a long history with both Rogers Wireless, through McCaw Cellular, and Telus, through Clearnet.
“My friend Craig McCaw is a partner in [Clearwire] and I look forward to working with him and learning from them,” Rogers said. “They are developing the same service in the U.S. and provide a great opportunity to merging our services.”
Despite Rogers Wireless’ pending acquisition of Microcell having garnered approval from Canada’s competitive regulators as well as Microcell’s board of directors, Telus has not conceded defeat. Shortly after RCI and Microcell held a press conference announcing the deal, Telus released a statement extending its offer to Microcell shareholders until Oct. 12 “with a view to evaluating the terms and conditions of the Rogers bid and the likelihood of that bid being completed.”
Telus added that as of Sept. 20, it had received 837 class A restricted voting shares, 172,311 class B non-voting shares, 91,166 Warrants 2005 and 91,398 Warrants 2008 from Microcell shareholders.
“Telus will continue to asses its options with respect to any further extensions and amendments to its bid once the Rogers bid is available,” Telus added. The company did not return calls to elaborate on its options in regards to Microcell.
Analysts initially were skeptical of Telus’ offer, noting the carrier would face a tough task whether continuing to run Microcell’s GSM-based network in addition to its current CDMA and iDEN networks or trying to convert Microcell’s network and customer base over to a new technology.
