VMedia, the upstart internet and cable provider known for lower prices and a legal spat with rival Bell, is moving to become a public company, announcing a proposed reverse takeover of a resource company listed on the TSX Venture exchange.

The move signals a growth strategy by VMedia, and a way to raise money to expand and offer its services to more customers.

The telecommunications industry in Canada is heavily dominated by three big companies — Rogers, Bell and Telus — in what has been a notoriously closed market to new entrants. 

“This is just an opportunity for us to be able to pursue growth a little bit more aggressively. It opens up opportunities for us in terms of expansion of our business,” said VMedia’s George Burger.

Phoenix Oil  is a junior oil and gas company with royalty interests in Alberta and British Columbia as well as Ecuador. The company is currently valued at $7.3 million but has seen annual revenues fall sharply from $39 million in 2014 to just $1.6 million last year. 

“We’ve been seeking somebody with operating assets that is cash flow positive as an investment partner,” said Phoenix CFO Mike Kindy. 

“We’ve conducted a search, we’ve looked at VMedia, and we’re enthused to go forward with VMedia,” he said. 

But VMedia isn’t taking over Phoenix because of its oil business. The move would allow VMedia — a privately held company — to in effect become a publicly traded company without the hassle and expense of an initial public offering or IPO, which is traditionally how private companies sell themselves to the public by offering shares.

“It really dramatically broadens the base of potential investors in the company,” said Burger. “And that’s really what we’ve been looking for for quite a while.”

“The business has been essentially a self-financed, bootstrap operation from Day 1 and it will be very exciting to be able to have some resources to pursue things a little bit more strategically and aggressively,” he said.

Founded in 2013 by Burger and Alexei Tchernobrivets and headquartered in Vaughan, Ontario, VMedia is an independent telecom service provider offering internet, home phone, home security, and television and cable packages.

VMedia is licensed by the CRTC to offer TV services nationally, which it does through IPTV or television over internet protocol. The company recently launched in the Atlantic provinces and with the potential increased access to capital it should be able to accelerate its growth plans.

“It’s been fairly aggressive in trying to expand its footprint,” said Dwayne Winseck, professor at the School of Journalism and Communications at Carleton University. 

Winseck, who is also the Director of the Canadian Media Concentration Research Project, says smaller companies like VMedia, TekSavvy, Distributel and others have been fighting for access to a Canadian market dominated by Big Telcos for more than 20 years. 

“This access to more capital could help [VMedia] build out its footprint as both an [internet] access provider and as an alternative cable service.”

“One of the key things that has held back these entities (smaller, independent ISPs and telcos) is a lack of access to the capital markets. So if this is a way to get more access to capital … than I think it’s just one more arrow in its quiver to continue to scratch away at the edges [of the Canadian telecom market].”

Winseck says smaller companies may have a very small market share in relation to the big telcos but they have been able to introduce some competition and helped lower prices.

As one such newer, smaller entrant, VMedia has had a history of using creative and controversial tactics to grow its business. Perhaps the best example is its legal battle with Bell over VMedia’s “skinny basic” cable package offered through an app on a digital media player.

VMedia’s package was nearly $8 per month cheaper than those of the big telcos.

Shortly after it launched, Bell Media sent a cease and desist letter threatening legal action if VMedia did not remove Bell’s signals from the new service, contending VMedia was violating copyright laws.

As a licensed BDU (Broadcasting Distribution Undertaking), VMedia is generally allowed to retransmit over-the-air TV signals at no cost on its own network. But it was offering the service through the Roku player over the open internet and didn’t require a specific VMedia internet subscription. 

A judge sided with Bell and ordered VMedia to pay $150,000 in legal costs

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