Prices for Canadian wireless service dropped in 2013, thanks in no small part to increased competition from new entrants, like Wind and Mobilicity, according to a recent Wall Communications Inc. report.
But if Canadians think they will continue to see prices drop, should U.S. telecom giant Verizon Communications Inc. (Nasdaq:VZ) enter the Canadian wireless market, they should consider the prices it charges in the U.S., says one telecom analyst.
“In the U.S., certainly, Verizon is not a price leader in terms of a low price,” said telecom consultant Mark Goldberg. “They’re not the scrappy, upstart aggressive-pricing company.”
Even if Verizon did manage to keep the low prices offered by the wireless startups it is considering buying – Wind and Mobilicity – it will come at a cost, Telus (TSX:T) warns.
Those costs include job losses reduced investments in cellular networks, especially in rural areas, and devalued pension funds.
Telus, Rogers Communications (TSX:RCI) and BCE Inc. (Bell) (TSX:BCE) have launched a national public relations campaign aimed at stopping Verizon from entering the Canadian wireless market with what it calls an unfair advantage.
At the core of the Big Three’s concerns is spectrum – the airwaves over which cellular signals travel.
In 2008, in an effort to promote more competition, Industry Canada set aside spectrum for new entrants, facilitating entry into the Canadian wireless market by Wind, Mobilicity and Public Mobile Inc.
In January, Industry Canada plans to auction off more spectrum – the 700 MHz band.
There are four blocks being auctioned, but two of them are off limits to Bell, Rogers and Telus. Two were set aside for new entrants.
That set-aside was based on the idea that small upstarts can’t compete with the incumbents for a limited amount of spectrum in an open auction.
The Big Three say that justification falls apart, if Verizon is considered a new entrant and is allowed to bid. With a market cap of $150 billion, Verizon is no upstart.
“We welcome competing with Verizon or any other large foreign entity,” said Josh Blair, chief corporate officer for Telus. “We fundamentally believe it needs to be on a level playing field though.” Telus has seen its share prices plummet and market cap shrink 21% since May, when rumours first began circulating that Verizon might enter the Canadian wireless market. Rogers and Bell have seen similar market cap shrinkage.
Telus has been investing about $2 billion a year in building out its LTE network and extending services to rural areas – something Blair said it can’t continue doing if Telus is forced to compete against a company that is 10 times the size of Telus.
“I think rural wireless coverage is at risk, I think investment in the quality of networks in general is at risk. Jobs are at risk.”
With10,000 employees in B.C. and 40,000 Canada-wide, Telus is one of B.C.’s biggest employers.
The Big Three aren’t the only ones worried about the job losses. The Communications, Energy and Paperworkers union (CEP), which represents 45,000 Canadian telecom workers, has joined with Canadian Council of Chief Executives in a lobbying effort against Verizon entering on an unlevel playing field.
“Here you have a subsidy to a mega international corporation that is just rich in cash coming in to resell in a Canadian market,” said CEP national president Dave Cole. “And any time this kind of thing takes place, there’s going to be massive job losses.”
Richard Smith, director of the Centre for Digital Media, dismisses those fears.
“If Verizon comes in, they’re going to have to hire a ton of people,” Smith said. “If anything, there’s job creation.”
Canadian wireless market by the numbers
Total annual market value: $52 billion
Canadian mobile market share by subscribers
Rogers: 9.4 million
Telus: 7.7 million
Bell: 7.7 million
Wind: 601,017
Videotron: 420,900
Mobilicity: 250,000
SaskTel (Sask): 607,659
MTS Mobility (Man): 493,216
Company size by market cap as of August 1, 2013
Bell: $33 billion
Telus: $20 billion
Rogers: $16.8 billion
Verizon: $143 billion US
Source: Canadian Wireless Telecommunications Association, TSX
Full-frontal assault
Verizon’s potential entry into the Canadian wireless market has prompted Telus, Bell and Rogers to launch a major public relations assault over the past couple of weeks, including full-page ads decrying unfair competition.
Richard Smith, director of the Centre for Digital Media, said the campaign is not so much aimed at Canadian consumers – who love to hate their cellphone providers – as the Stephen Harper government.
He said the Harper government appears to have seized on widespread consumer frustration with cellphone companies to score political points by encouraging more competition.
“They seem to be taking a populist stance, which is that another large cellphone company would be a good thing for Canadians, and they’ve made a bet that that’s going to get them more votes than protecting Bell, Rogers and Telus,” he said.
Despite the federal government’s attempts to create a competitive market, new entrants like Mobilicity are struggling. Some insiders believe the Harper government wants a big player, like Verizon, with deep pockets to help shore up the competition.
Rogers vice-president Philip Lind recently told the Toronto Star that federal government officials went to New York specifically to court Verizon.
James Moore, the new industry minister, declined to be interviewed by Business in Vancouver.
