When American telecom giant Verizon Communications Inc. (Nasdaq:VZ) recently announced that it has no interest in entering the Canadian wireless market, a collective sigh of relief might have been expected from Canada’s Big Three telecoms.
After all, the way Ottawa has set up its January auction of spectrum (wireless airwaves), one of Canada’s Big Three providers, Telus (TSX:T), Rogers Communications (TSX:RCI) or BCE Inc. (Bell) (TSX:BCE), could have been left empty-handed, with only four blocks of spectrum up for sale and Verizon allowed to buy two of those blocks.
Under the spectrum rules, each of the big three is limited to buying one block of spectrum while any new entrant – a reference that includes Canada’s smaller or regional telecommunications companies like Wind Mobile or SaskTel – is allowed to buy two. So if one of the new entrants outbid one of the Big Three, the incumbent would have been out of luck.
And with Verizon looming on the horizon, that outcome was more likely.
As a result, share prices dropped for the Big Three, but rebounded when Verizon announced last week that it had made a deal to buy out Vodafone’s 45% interest in Verizon Wireless for US$130 billion. At the time it also made clear it had no intention of entering Canada in the immediate future.
But while no other major player has declared its intention of bidding for Canadian spectrum, that doesn’t mean it might not happen, Telus’s chief corporate officer Josh Blair told Business in Vancouver.
“Now that Verizon has said they’re not interested, maybe that opens up a door for someone else who said, ‘Well, if Verizon’s going, there’s no point in two of us going,’” Blair said. “It’s still something we’re very concerned about.”
There’s also Public Mobile to worry about. Acquired in June by the private equity firms Thomvest Seed Capital (controlled by Peter Thomson of the Thomson family) and Cartesian Capital, the upstart mobile carrier is well capitalized and has stated it plans to bid in the January spectrum auction.
The company also confirmed in June it is pursuing “consolidation opportunities” – which could mean the acquisition of Mobilicity or Wind Mobile or both.
Steven Globerman, director of the Center for International Business at Western Washington University and a senior fellow at the Fraser Institute, believes cable companies may also want to bid on the new spectrum.
“This is speculation on my part but for whatever it’s worth one of the trends is a convergence between wire line and wireless carriers,” Globerman told BIV. “So cable companies are increasingly thinking about the need to move toward wireless to facilitate a network that would be really robust for mobile.
“So if a company like Quebecor or some other cable company thought they wanted to go out and get a fully integrated network that can operate wherever anybody is, they don’t have to be in a wi-fi spot, then they’ve got to start thinking about building out a cell network that complements their cable.
“And everyone wants to ultimately have an integrated suite of services they can offer.”
Other companies may also be looking to buy spectrum, even if they can’t use it themselves, Globerman said. For example, Wind Mobile may want to buy the spectrum to make itself more valuable to possible suitors, like Verizon, in the future.
“A large part of the value [in a company] is the spectrum that company holds,” Globerman said.
Levelling the telecom playing field in Canada
Regardless of how the spectrum auction plays out in January, it’s competition on an unlevel playing field, according to a recent report authored by economist Steven Globerman for the Fraser Institute.
If the Harper government is bent on creating a fourth national wireless carrier, hamstringing Canada’s three incumbent telecoms by placing limits on the amount of spectrum they can buy, while favouring new entrants, is the wrong way to do it, Globerman says.
He argues that liberalizing foreign ownership rules in Canada is.
Under current rules, a foreign company can buy a Canadian wireless company only if that company has less than 10% of the Canadian market. Once in the Canadian market, that company would be allowed to grow organically or through internal expansion, Globerman said.
Opening up Canada’s wireless sector to greater foreign ownership would give Canadian companies like Telus greater access to foreign capital, said Josh Blair, chief corporate officer of Vancouver-based Telus.
Michael Geist, Canada research chairman, Internet and E-commerce Law, at the University of Ottawa, agrees that liberalizing Canada’s foreign ownership laws for telecoms and cable TV and Internet providers might be the best way to achieve true competitiveness.
“I think that fully opening the market – both for telecom and broadcast – may ultimately be needed,” Geist said.
But liberalizing ownership rules for Canadian telecoms could open a can of worms. Telus and Bell aren’t just phone companies – they’re Internet and cable TV providers.
Although the Canadian Radio-television and Telecommunications Commission (CRTC) could still enforce Canadian content for rules for cable TV providers owned by an American or European company, Canadians are fiercely protective of their Canadian TV news and entertainment.
“The view, for whatever reason, is that, in foreign hands, our broadcast system would lose its Canadian identity,” said telecom consultant Mark Goldberg. “The challenge is – unless you have the stomach for doing it on the broadcast side – then it’s actually meaningless.”
