Is There A WIND-Mobilicity Merger In The Making?
We have been hearing some rumours about a WIND-Mobilicity merger. Many people seem to believe that it is only a matter of time before Mobilicity, who is currently in creditor protection, is eaten up by WIND.
Mobilicity’s ambitious start
Mobilicity, derived from the words ‘mobility’ and ‘simplicity’, was founded in 2009 with the aim to deliver Canadians a simple mobile solution. For $243 million, the new entrant bought 10 MHz of AWS spectrum blocks largely covering Southern and Eastern Ontario, Vancouver, Calgary and Edmonton. Their strategy was to use cheaper and unlimited long-distance packages to lure home-phone subscribers in big cities to ditch their landline with Canada’s large providers. However, Mobilicity was entering a battlefield. The other wireless startup WIND Mobile, had the same plans and tried to steal customers from the incumbents at the same time by offering lower rates and offering a $150 credit to anyone who converted from Rogers, Bell and Telus. Mobilicity had anyhow a promising start and gained 250,000 subscribers in their first years of operation.
Telus’ failed attempt to buy Mobilicity
It is very hard for new entrants to survive in the telecom industry. Desirable spectrum is expensive and advertising costs are very high, leading to tough margins and ruthless competition. Incumbents further try to compete with entrants by introducing flanker brands such as Telus’ Koodo and Rogers’ Chatr that match entrants services and pricing, but work on their established network. Moreover, the new entrants also made fatal miscalculations in their business plan. The 3 incumbents offer low, subsidized handsets if customers would sign up for a long-term contract and entrants wrongly assumed that Canadians would abandon these subsidized phones in exchange for low-priced voice and data plans with few contractuall terms. Also, Mobilicity got into financial complications quickly and ongoing losses resulted in a high and unsustainable debt. On May 16, 2013, Telus announced it agreed to acquire Mobilicity for $380 million, pending regulatory approval. A month later, the Canadian government announced it did not approve the acquisition because it would result in the transfer of Mobilicity AWS wireless spectrum to Telus, which would be in violation with the conditions of the 2009 auction. On April 17, 2014 they made a second attempt for $350 million but dropped it again weeks after the federal government warned them that they would take retaliatory measures if Telus did not abandon its bid.
WIND trying to take over Mobilicity
WIND, with 800,000 subscribers, is also luring at Mobilicity spectrum and subscribers. In December, they launched a promo, offering a $60 credit to those who make the jump and sign up for a WIND plan. Today, they go even further and offer Mobilicity customers 6 months of free service and a free SIM card if they sign up for a standard WIND plan. Analysts think WIND is attempting to push the carrier, who is currently in creditor protection, into bankruptcy. Forcing them to liquidate their assets would make it easier to buy the company’s spectrum and subscribers without being saddled with the debt. WIND, however, needs to act fast: with the AWS-3 auction less than 2 months away, WIND is looking to ensure it can scoop up as much spectrum as possible.