Investors lose out as US telco buys Woosh

Sept 17: Craig Wireless, a struggling, Toronto-listed, California-based telecommunications company, has entered an agreement to buy Woosh Wireless for $US5.5 million.

A convoluted deal, announced to the Toronto Stock Exchange, will see a new holding company, CW South take ownership Woosh. CW South will be 51% owned by Craig Wireless, and 49% by Woosh executive chairman Rod Inglis, who will chip in US$500,000 and sit on the company’s management team.

CW South will take control of Woosh's shares, secured advances from shareholders and spectrum.

It will also take on employees and assets, contingent on Craig Wireless gaining approval to acquire Woosh’s spectrum rights. Woosh holds rights to three chunks of spectrum (two expiring in 2020, one in 2030).

The takeover will see the New Zealand Australia Private Equity Fund, Bridge SPC and Kuwait Finance recover a small portion of their debt (As of June 2010, shareholders had advanced $22.38 million to Woosh; $18.8 million of that total was from Kuwait Finance).

But other long-time Woosh investors, including Todd Wireless, Vodafone and US venture capital outfit Clarity Partners, seem set to miss out.

Woosh has burned its way through around $120 million since its launch in the late 1990s.

Wrong bet
The company originally pinned its hopes on IP Wireless, a wireless broadband technology standard pushed by Clarity Partners. But IP Wireless was eclipsed as wi-fi (and the related WiMax) went mainstream, rendering Woosh’s original network investment worthless.

Woosh stopped investing in its IP Wireless network. And in 2006 it changed direction, buying landline ISP Quicksilver. The company’s services include an “unlimited” dial-up plan.

According to Craig Wireless’ Toronto Stock Exchange Filing, Woosh has 25,000 customers (a year ago, Woosh said it had 26,000 customers).

Back in black - but big debt
In its most recent filing, for its financial year ending June 30, 2010, Woosh recorded a $1.28 million profit on revenue of $18.03 million. In the previous year, a large write-down saw the company record a $38 million loss on revenue $16.9 million.

But although it had eeked out a profit, Woosh still had an albatross on its back in the form of $25 million in liabilities; most it loans extended by shareholders.

The company's main initiative of the past year was a tilt at the government's $300 million rural broadband tender, in partnership with FX Networks and state-owned Kordia. The trio lost out to a combined bid from Telecom and Vodafone. Woosh brought its spectrum to the party, which it promoted as 4G-friendly. The MED disagreed in the context of a rural rollout.

Woosh shareholders
The company has around 338 million private equity shares.

The largest holder, with 124 million shares, is the New Zealand Australia Private Equity Fund.

US venture capital company Clarity Partners - a long time investor that staunch backer of IP Wireless (with the benefit of hindsight, a duff technology bet) - holds 73 million.

Original investor Todd Wireless still holds 53 million.

Kuwait House holds 36 million; Walker Wireless Holdings 21 million and Stephen Tindall's Norwood Investments 17 million.

Noteable smaller investors include Craig Heatly (4.3 million), Woosh's original launch partner Vodafone (1 million) and ACC (600,000).

The new owner
Craig Wireless lost $US1.99 million in its most recent quarter, ending May 31, according to its stock exchange filing, an improvement on a net loss of $US4.29 million in the previous quarter.

The company said it had $US24 million in cash. The recent sale of Californian spectrum rights raised $20.4 million.

Craig Wireless owns spectrum rights in the US, Greece and Norway.

Its shares [TSX:CWG] have lost around half their value over the past year.

MED puts brakes on Woosh-Craig deal

UPDATE Nov 4: The government has put a handbrake on a convoluted $7 million deal for California-based Craig Wireless to take over New Zealand ISP Woosh Wireless.

Communications Minister Steven Joyce has refused permission for Woosh's spectrum licenses to be transferred to Craig Wireless, a rep for the minister's office told NBR this morning.

The $7 million deal was contingent on Woosh's radio spectrum rights being transferred to Craig.

While Woosh's core business has struggled, its three chunks of radio spectrum are potentially valuable as phone companies and others look to upgrade wireless networks.

Woosh wanted to transfer 30MHz spectrum in the 2.3GHz to 2.5GHz band to Craig.

The US company already owns 40MHz in the same band, which it wanted to pool with Woosh's spectrum for a 70MHz block.

Under MED rules, no company can own more than 40MHz in the band.

Craig Wireless has a history of buying then onselling radio licenses - or "spectrum farming" as some analysts label it.

MED radio spectrum manager Len Starling told NBR the ministry consulted with all the parties who own spectrum rights in the 2.3GHz to 2.5GHz.

Some had objected to the deal, and disclosed to the MED investment plans that they said would not go ahead if the spectrum cap was lifted premmaturely (the current rules apply until December next year, around the time the so-called "digital dividend" spectrum freed up by the analogue-to-digital swichover will be auctioned).

Mr Starling refused to say which companies had objected.

Beyond Woosh, spectrum holders in the 2.3GHZ to 2.5GHz range are Kordia, Huataki (the iwi minority shareholder in 2degrees), Cayman (a Craig Wireless subsidiary), Telecom, Vodafone and Blue Reach (established by CallPlus), Mr Starling said.

On CallPlus publically opposed lifting the spectrum cap.

Woosh executive chairman Rod Inglis did not return NBR's call for comment.