04/26/2013 11:12 EDT | Updated 06/26/2013 05:12 EDT

New wireless players Mobilicity, Wind Mobile and Public Mobile may all face sale

Small wireless company Mobilicity is joining new players Wind Mobile and Public Mobile in facing the possibility of being put up for sale.

Mobilicity said Friday that it was business as usual for its cellphone customers and employees, but that it was starting a restructuring process to deal with its debt.

Under the process, which has been approved by the Ontario Superior Court of Justice, Mobilicity's debtholders will be asked to approve both a plan to sell the company and a recapitalization plan at a meeting on May 21. Proceeds from a sale would be used to repay its debt.

"The purchase price received would be applied to repay all of the outstanding first- and second-lien debt of Mobilicity, with the remainder being used to repay outstanding unsecured debt securities issued by Mobilicity," the company said in a statement.

If a buyer cannot be found, Mobilicity said it will go ahead with the recapitalization plan.

Under the recapitalization plan, the share capital of Data & Audio-Visual Enterprise Holdings Inc. — Mobilicity's legal name — would be reorganized, certain debt would be repaid and Mobilicity would get funds to continue operating.

Mobilicity said it would have no further comment the matter, although there have been reports that Telus (TSX:T) has been in talks with Mobilicity to buy the small carrier.

The move quickly came in for harsh criticism from one of the company's major bondholders, private equity firm Catalyst Capital Group.

Catalyst, which reportedly holds more than $50-million of Mobilicity's senior debt, said in a statement issued Friday that it was concerned that neither the new financing nor the proposed plans would benefit creditors or result in a successful sale of the company.

"It is hard to see how the proposed plans would provide the capital required for Mobilicity to grow its business, acquire spectrum or provide viable, sustainable services to Canadian consumers," Catalyst said in a statement Friday night.

"In fact, the conditions on the proposals may result in the opposite outcome."

It said Mobilicity had put itself in position to require a Canada Business Corporations Act plan of arrangement or a Companies' Creditors Arrangement Act filing as part of the mandatory terms of its February financing.

Catalyst said it wants to see Mobilicity restructured in a way that fully respects its existing stakeholders' rights and interests and that leads to "a successful and viable major mobile player in Canada."

"Catalyst intends to take an active role in the restructuring with a view to achieving that result," it vowed.

Mobilicity's announcement underlined problems faced by new entrants five years after Ottawa auctioned off radio waves over which cellphone networks operate to allow several new companies to launch in Canada in hopes of spurring competition.

"The market hasn't turned out the way everybody had hoped," said Greg O'Brien, editor and publisher of web-based, which covers Canada's telecom industry.

"We're going to end up with Rogers, Bell and Telus," O'Brien said from Hamilton, Ont.

Another of the new players, Wind Mobile, has been put up for sale by Dutch owner VimpelCom, opening up the possibility that a bigger company could swoop in and pick it up. And it has been reported that Public Mobile has hired an investment banker to find a buyer.

"It just doesn't look, to me, as though these three small companies are going to be able to survive," O'Brien said, adding that Wind Mobile might have an "outside shot" of staying in business if founder Anthony Lacavera can raise the money to buy it back.

He estimates that Mobilicity, which began operation in May 2010 and offers no-contract cellphone service in Toronto, Ottawa, Calgary, Edmonton and Vancouver, has between 250,000 and 300,000 cellphone customers.

O'Brien said he's not sure why a foreign telecom company would bother with "such a tiny company" like Mobilicity or with Canada for that matter.

However, regional telecoms such as SaskTel, MTS-Allstream (TSX:MBT) could show an interest in Mobilicity if they wanted to branch out and be national players, he added.

To help the small wireless companies, the federal government has eliminated restrictions on foreign ownership rules for small wireless providers and announced it's reviewing its policy on licence transfer requests, which could make it harder for Rogers, Bell and Telus to buy up the new players and their radio spectrum.

Under Industry Canada licensing requirements, Mobilicity can't be bought by Rogers (TSX:RCI.B), Bell (TSX:BCE) or Telus until February 2014, a five-year period after its spectrum licence was granted in 2009.

O'Brien said many western countries have just two or three national wireless players and can be owned or operated by a foreign company.

He noted that in the United States that AT&T and Verizon are strong, but that Sprint, T-Mobile and Metro PCS are all struggling.