5 national cellphone carriers a possibility in Canada?

By Peter Nowak Quebecor Inc. hascreated the possibility of five national cellphone providers in Canada by announcingon Thursday thatit will bid on wireless airwaves across the country, not just in Quebec.

The Montreal-based company submitted a deposit of $317 million in the form of letters of credit to Industry Canada on Monday ahead of the deadline to apply for the spectrum auction, which is scheduled to begin on May 27.

"We have always stated clearly that our Videotron subsidiary planned to build its own wireless network to serve the Quebec market. However, exceptionally favourable conditions for new entrants, which may never occur again, persuaded us it is in the interest of our shareholders that we try to extend our deployment across Canada," saidQuebecor chief executive officer Pierre Karl Peladeau in a statement.

"We will see at the conclusion of the auction if such a deployment is possible."

Peladeau had previously pledged at least $500 million to build a cellphone network in Quebec and hinted that he may have his sights set nationally.

A spokesman for thecompany declined to comment further.

MTS Allstream in the mix

Quebecor's confirmation comes on the heels of an announcement by MTS Allstream on Monday that it too would seek to become a national cellphone provider through an alliance with the Canada Pension Plan and U.S. private equity firm Blackstone Group.

The two companies will now compete in the auction, which is specially geared to encourage new entrants into Canada's cellphone market. Forty per cent of the airwaves being auctioned have been ear-marked for newcomers, and the three existing big players Rogers Communications Inc., Bell Canada Inc. and Telus Corp. are not allowed to bid.

All companies can bid on the remaining 60 per cent.

While Quebecor and MTS have now likely positioned themselves as competitors in the auction, it could turn out that both end up with enough spectrum to each build and service their own national networks, analysts said.

The eventual number of national cellphone providers may also not end at five, given that the full list of bidders to be announced on Friday could include some surprise applicationsfrom as-yet-unknown parties.

"You're actually looking at possibly even more than that," said telecommunications analyst Mark Goldberg. "Theoretically you could have three groups using just the new entrant spectrum, and there's nothing that prevents new entrants from also bidding on the wide-open spectrum."

Regional providers a possibility

Regional providers are also likely. Halifax-based cableprovider Eastlinkon Thursday also announced it had applied to bid on spectrum, although thecompanydeclined to elaborate on its plans.

Calgary-based Shaw Communications on Monday announced it too had applied to bid, but said that doing so would not necessarily result in the company building a cellphone network. Toronto-based Globalive Communications, which operates phone and internet reseller Yak, has also applied to bid.

Industry Canada will announce which applications qualify on March 31.

Quebecor and MTSwere ironically allied last year when lobbying the government to institute special rules on the auction. They formed the Coalition for Wireless Competition, which spoke out against what they said were the high rates and poor services offered by the big three.

Analysts at the time speculated that the Quebecor-MTS lobbying alliance could evolve into a full business partnership after the auction, wherein the two would join forces to launch a new wireless company.

The possibility still exists, but looks unlikely until the dust settles from the auction.

"You can pull together when you have a common interest but then you do the right thing for your shareholders," Goldberg said."Certainly what it appears that both companies have done is run the numbers and said, 'We're better off building our own network nationally.' Let's give it a shot."

If it comes down to a battle for spectrum between Quebecor and MTS, the Winnipeg-based company is seen to have the edge because of its funding partners and its need to include a wireless offering with its other national telecommunications services.

"MTS has an absolute compelling need to be a national wireless carrier," said Lawrence Surtees, principal telecommunications analyst for IDC Canada. "Will[Quebecor] have the stomach to go as long in the auction as they have to?"

Surtees said it is also difficult to read Shaw's intentions. The company has said repeatedly in the past that it has no interest in building a cellphone network, but it's possible thatcould bea bluff and Shaw emerges as a dark horse, Surtees said.