With its bold $6.6B buyout of Clearnet Communications, TELUS Communications has acquired not only a national footprint for its wireless network, gaining in the process a vehicle for improved brand recognition and an accelerated entry into the lucrative Ontario and Quebec telecommunications markets, home to 60% of Canada’s population.<\/p>\n
Background<\/em><\/strong> Clearnet was one of four national licensed PCS\/Cellular networks, with about 10% market share. On the breakup of the Stentor alliance, their cellular affiliates, known as Mobility, broke up into two groups as well, but each group offered service in the other’s territory through resale. As a result, Canada really had three national companies and two regional operators.<\/p>\n Consolidation \/ Acceleration<\/em><\/strong> Industry Canada, the federal department responsible for allocating radio frequencies, has plans to auction spectrum later this year. Observers had felt that the auction was geared to facilitate TELUS and Bell acquiring capacity in the other’s territory. Now, TELUS has more spectrum than it requires, and indeed, in Western Canada, it will have more than permitted by Industry Canada rules. TELUS has stated that the acquisition saves it more than $1.5B in construction costs, and a further $0.5B in tax advantages. However, the acquisition will add Clearnet’s $2B debt to the total TELUS cost of the transaction – which was at a 50% premium to the closing share price.<\/p>\n
\nWhen the Stentor alliance of Canada’s former monopoly service providers collapsed, the incumbent local exchange carrier (ILEC) companies divided into two camps: TELUS in Western Canada (Alberta and British Columbia) and Bell Canada for the rest of the country. The two camps announced plans to enter each others’ markets: TELUS established TELUS Integrated Communications in the east and Bell Intrigna was established in Alberta and BC by Bell Canada in conjunction with MTS.<\/p>\n
\nThe companies named the project Quantum Leap – moving TELUS faster into a national market position, helping to establish brand awareness, physical infrastructure and skilled human resources. The TELUS \/ Clearnet acquisition results in each of TELUS, Bell and Rogers-AT&T controlling about 30% of the market with Microcell holding about 10% of the market. Canada’s cellular penetration rates are still in the mid 20% range, lagging most of its trading partners. Most analysts agree that there is a significant growth opportunity in the overall Canadian market.<\/p>\n