Wind Mobile in the doldrums

New ownership raises questions about the company's commitment to Canada.

The success of Wind Mobile, which is angling to become the country’s fourth national wireless carrier, has always been in question. But with its main financial backer merging with another company, its prospects are uncertain.

Chairman Anthony Lacavera sought financing from Egyptian billionaire Naguib Sawiris more than two years ago to get the company started, which officially launched last December. Sawiris, who operates international carrier Orascom Telecom Holding, owns a 65% equity stake in Wind. He’s now selling most of his telecom assets to Russian company VimpelCom Ltd., and will retain a 20% stake in the new entity.

The deal is expected to close early next year, and the company has not indicated how Canada factors into its plans. Lacavera, however, is optimistic. “It’s a big positive,” he says. “The combined entity would have a great deal more financial strength.” Sawiris’s operations were saddled with more than US$15 billion of debt, and the merger, which creates the world’s fifth-largest carrier, relieves some of the strain. It also opens the door to acquiring the other new entrants (Public Mobile and Mobilicity) to gain market share, although Lacavera stresses he has not discussed this possibility yet.

But some analysts are questioning the degree to which VimpelCom will fund its new Canadian asset. In a conference call about the merger, executives indicated they may sell “non-core” assets, such as those the company has limited ability to control. “Canada could fall under this category,” wrote Scotia Capital analyst Jeff Fan in a research note. Although VimpelCom would own the majority stake in Wind, Lacavera retains voting control.

VimpelCom doesn’t have many options if it wants to sell Wind, however. Federal regulations prevent the incumbent carriers — Rogers, owner of Canadian Business, Bell and Telus — from purchasing the newcomers before 2014. Foreign ownership rules also currently limit a sale. “VimpelCom may wait for foreign ownership [regulations] to be removed (tightening belts in the meantime) and sell the Canadian business,” wrote RBC Capital Markets analyst Jonathan Allen in a research note.

VimpelCom is also more conservative than Sawiris, who is a huge risk-taker. (Orascom operates in North Korea, after all.) Competing against the Canadian telecom oligopoly is a challenge in which VimpelCom may not be interested, speculates one analyst who requested anonymity. “It is quite possible that VimpelCom will want to salvage what it can from Wind by either selling it…or by cutting costs by slowing down the network expansion and being more disciplined on marketing costs,” he says. Wind added 100,000 subscribers during its first six months, the analyst notes, a rate that makes it difficult to reach its goal of 1.5 million after three years.

Lacavera says the criticism is off-base. In July, when Wind last disclosed the number of subscribers, the company had not yet rolled out in Vancouver, and other cities had only limited coverage. “We’re not standing still,” he says, adding the company is also boosting its retail presence. Whether VimpelCom will want to fund Wind to continue at the same pace may ultimately depend on Lacavera. “We have to demonstrate to them why Canada is a great place to invest,” he says.