Federal review expected if Rogers tries to buy Wind

A possible attempt by Rogers Communications to head off competition from U.S. giant Verizon by picking up one of Canada's smaller wireless carriers would be subject to plenty of scrutiny from federal regulators.

A published report Friday said that Toronto-based private capital company Birch Hill Partners was working on a plan with Rogers to buy a controlling stake in struggling carrier Wind Mobile.

The report said Rogers wouldn't get an equity stake in Wind, but would contribute money and gain access to Wind's spectrum to add to its own network to meet the growing use of data on smartphones and tablets.

A spokesman for new Industry Minister James Moore wouldn't comment specifically on the report but said that the government has indicated that it's not willing to change the rules it set out at the end of June.

"Any requests received by the department will be reviewed based on that framework," spokesman Sebastien Gariepy said in an email.

Birch Hill and Rogers declined to comment.

The Globe and Mail also reported that Rogers had offered more than $1 billion to buy Wind Mobile, which has approximately more than 600,000 customers.

Earlier this week, the industry minister repeated the federal government's stance on fostering more competition in the wireless industry, and the need for four wireless carriers in each of Canada's regional markets.

New government guidelines were recently issued that prevent Rogers (TSX:RCI.B), Telus (TSX:T) and Bell (TSX:BCE) from scooping up unused spectrum or spectrum licences from small wireless companies without a federal review.

In the past, the federal government blocked Telus from buying financially-struggling carrier Mobilicity, which has about 250,000 cellphone customers.

Canaccord Genuity analyst Dvai Ghose said he questions whether a transaction by Birch Hill and Rogers would be approved by the federal government.

"We believe that Industry Canada may oppose Birch Hill's acquisitions of Wind and Mobilicity if indeed they are financed by Rogers, or any of the other incumbents, especially if it is obvious that such transactions are merely designed to keep Wind and Mobilicity from Verizon ownership," he said in a research note.

Ghose said he also believes that Telus and Bell may not oppose such a proposal because their "primary aim" is to ensure that Verizon does not acquire Wind or Mobilicity.

Analyst Iain Grant said Wind Mobile's seller, Russian telecom VimpelCom, could find that there's too many conditions attached to the rumoured Birch Hill-Rogers deal and Industry Canada also may not look kindly on the deal.

"I am sure that Industry Canada would not give anyone 'a nod's as good as a wink' on this one," said Grant, managing director of the SeaBoard Group.

Foreign ownership restrictions for small wireless companies with less than 10 per cent of the wireless market have been recently loosened, paving the way for Verizon and other foreign competitors to enter the Canadian cellphone market and buy up these players. Rogers, Bell and Telus are still restricted to being one-third foreign owned.

Bell wouldn't comment on the possible Rogers deal but said it would prefer that deals in the wireless industry be reviewed by the Competition Bureau rather than Industry Canada.

Bell CEO George Cope has said that Bell, Telus and Rogers have taken a $15-billion cumulative hit on the capital markets since news that Verizon might enter Canada broke in late spring. The three carriers combined have about 25 million customers compared with Verizon's more than 100 million.