(Bloomberg) -- Communications firm Quebecor Inc. has finally landed its prize — a wireless business with 1.7 million subscribers that gives it a growth strategy outside its home base of Quebec. Now it has to make it pay off.
The company received approval from the Canadian government Friday to buy Freedom Mobile from Shaw Communications Inc. for C$2.85 billion ($2.1 billion). It’s linked to a C$20 billion telecommunications megadeal in which the rest of Shaw will be acquired by Rogers Communications Inc.
It’s a big bet by Pierre Karl Peladeau, the billionaire who led Quebecor’s push into television, internet and wireless upon acquiring cable firm Videotron Ltd. in 2000.
“Just as Videotron has done in the Quebec market, Freedom will promote competition by competing aggressively with Canada’s wireless carriers in order to lower prices for the benefit of consumers,” Peladeau said in an emailed statement Friday.
Quebecor rose 2.3% to C$33.21 at 2:59 p.m. in Toronto.
Read More: Rogers Seals Shaw Merger as Canada Approves After Two Years
Analysts have said the price tag looks reasonable, considering Shaw has pumped C$5 billion into the wireless business since 2016. But Shaw struggled to make a return on that investment — one reason it opted to sell to Rogers.
Videotron will double the number of its wireless subscribers to around 3.5 million. But it doesn’t have much experience operating in its core business outside of Quebec, Canada’s second-largest province and the only one with a majority French-speaking population. In the past, Peladeau made a foray into the English-speaking provinces by acquiring a newspaper chain, declaring: “It’s a great day for Canada.” The group was later sold for a fraction of the purchase price in a 2014 deal, and the company retreated to Quebec.
Separatist Politics
Peladeau has a colorful history. In 2014, he made the leap into politics, running for office for a separatist party and devoting himself to securing Quebec’s independence from Canada. It didn’t go as expected and by 2017, he was back at the helm of Quebecor.
Peladeau has highlighted his company’s role in providing competition to Canada’s three dominant wireless firms, Rogers, BCE Inc. and Telus Corp. He has attacked them verbally, calling them “this cozy telecom country club.”
Francois-Philippe Champagne, Canada’s industry minister, is counting on Peladeau to continue his disruptive ways. Before approving the deal, Champagne secured promises that Videotron will retain Freedom Mobile’s licenses for at least 10 years, invest C$150 million within two years in its network, roll out 5G services and offer wireless packages at a price 20% lower than the Big Three in Ontario, Alberta and British Columbia.
“In Quebec, prices are 20% lower on average than in the rest of the country,” Champagne said during press conference in Ottawa. “When we bring in a fourth national player in the equation, it has a tendency to drive down for everyone.”
BMO Capital Markets analyst Tim Casey suggested it won’t be hard for Quebecor to meet its lower-price promise. Freedom Mobile’s average revenue per user is about C$37 a month. That’s already much lower than the C$58 reported by Rogers, BCE and Telus, Casey said in a note to clients.
“When T-Mobile came in the US, they were a small, scrappy, subscale carrier, and I think Quebecor’s in the same position,” John Butler, an analyst at Bloomberg Intelligence, said on BNN Bloomberg Television. “But they can gain share through attractive pricing.”
However, Peladeau needs Freedom to be not only a cheaper player, but a profitable one. He has repeatedly observed that Quebec has become a mature market, which prompted the search for business in other provinces.
Last summer, Quebecor bought Toronto-based VMedia, a small internet and television provider. Peladeau has said the transaction would allow Quebecor to offer an “attractive bundle” of wireline and wireless services to consumers outside of Quebec, if the Freedom deal was approved.
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