WHEN ASKED ABOUT how the reports that Wind, Mobilicity and Public Mobile are all looking for a way out of the wireless business in Canada, Industry Minister Christian Paradis told reporters in a conference call on Monday: “I still remain confident we can achieve our goal,” of having four wireless players in each region of Canada.
Mr. Minister, you are the only one with that confidence.
As we have noted before, the Canadian wireless market right now, has as many players as it will ever have and in all likelihood, we are headed back to the era of the big three (Rogers, Telus and Bell, plus their flanker brands), some regional players (SaskTel, MTS, Vidéotron, EastLink) and maybe some MVNOs. While Vidéotron has had some success in its home province, topping the 400,000 subscriber mark, leading some to hope against all evidence they could be a consolidator and go national (unlikely, given just about every division of the company except its struggling Sun newspaper chain and Sun News TV station is focused in and on Quebec), the Quebecor-owned company said back in 2008 it would not be a national player and that it planned to spend up to $1 billion getting its wireless business going in Quebec.
Basic math (ultra-basic, really) says that’s a minimum average acquisition cost of $2,500 per subscriber for Videotron sans-fil. It’s those types of numbers that likely kept Shaw Communications out of the game, preferring instead to concentrate on Wi-Fi and sell its spectrum to Rogers in an option deal that has angered some in the industry, and sent the federal government into damage-control mode with a new proceeding to try and slap new rules on spectrum transfers.
To us, the reasons why the new entrants haven’t been able to take hold are rooted in the 2008 AWS spectrum auction rules. We’ve got the benefit of hindsight now of course, but really, the federal government should have opened up the borders to direct foreign investment in new wireless companies then (not 2012) so that we wouldn’t have what we have now – three undercapitalized, abused wireless companies who thought things would be better.
With direct foreign investment allowed back then, Wind wouldn’t have been distracted for a year fighting unnecessary regulatory battles over their ownership structure. Mobilicity and Public would have had access to far more capital – and other foreign companies might even have been enticed to bid for spectrum back in 2008. Some enforcement of the tower sharing rules would have helped, too, since the incumbents sometimes filled their towers with dark (i.e. unused) equipment so they could claim the towers were “full”, or proposed extremely high rental rates.
Plus, Canadians who are more than willing to trade three years of their lives for a “free” phone also proved far more of a hindrance than the new three had expected. Consumer surveys would tell you that Canadians dislike the contracts and would love cell-phone freedom, as the newcomers said back in 2009-10, but when faced with the decision to get a shiny new handset for no new charge – as long as you signed on for another three years, we Canadians just wouldn’t resist.
So, thanks to that lack of policy foresight, weak tower-sharing rules, and ruthless competitive moves by the incumbents, the new three are looking for a way out. For the federal government, while it wants to save face somehow, it’s seems to us too late now to “fix” anything and force a fourth player on Canadians. As the 700 MHz auction approaches in November – with a June 11 deadline (that’s just 54 days from today) to declare your intentions to bid for on any of the spectrum, the government is in a bind. It wants more players because it wants as many auction competitors as possible to drive up the revenue it can earn from that process.
If Canadians really wanted out of our contracts, we would have fled en masse to Wind, Mobilicity and Public. If the feds really wanted more competitors in the market, it would have paid better attention sooner, enforced tower sharing and let foreign money into the market way before 2012.
Instead, its dubious idea now is to try to belatedly slap new restrictions on who spectrum licenses can be transferred to, which if pushed through, will dramatically decrease the value of Wind and Mobilicity. That would then cause any foreign investors thinking of spending money in wireless in Canada to flee and – as sure as the sky is blue – cause a host of lawsuits from the various industry players, almost all of whom object.
We certainly aren’t the only ones thinking the federal government is trapped in a predicament from which there is little escape and that it will not meet its goal of four players everywhere. (But, there will be a quartet to choose from in some of the country as Saskatchewan, Manitoba, Quebec, Nova Scotia and PEI have four, while the rest will not, if Public, Mobilicity and Wind go away.)
In a research note to clients this week, Scotia Capital’s Jeff Fan calls the wireless situation in Canada “messy”, adding: “we believe Industry Canada may be at a dead end in trying to sustain a fourth operator in each region of Canada.”
And if the feds do change the spectrum transfer rules, forcing the value of Wind and Mobilicity into the toilet? “Imagine Wind and Mobilicity suing the government for allegedly breaking contractual terms on the licences they obtained four years ago. We think this development would not help IC’s case of attracting new strategic investors. We thought the list of interested strategic investors was already short. If this messy situation materializes, we think it is safe to say even the insane would not bite at the opportunity,” writes Fan.
Researcher Seaboard Group also noted this week in a release “Competition in Canada’s wireless industry is in danger of dying on the vine.” It also proposed setting aside all of the 700 MHz spectrum for anyone but the big three, but the federal government won’t play that game. It wants – and needs – the billions of dollars most believe this auction will pull into government coffers and therefore needs Rogers, Bell and Telus taking part.
In short, we’ve got chaos on our hands and if the federal government really wants to see change and to see lower prices for Canadians, it would throw the doors wide open to foreign capital because when it boils right down to it, do Canadians care whether their network owner is Rogers, Bell, and Telus – or Vodaphone, Orange and AT&T, as long as they can get a great price on the neatest phone?
Otherwise, it’s time to accept what we have (and that’s not too different from other markets): three good, strong wireless players fighting – though some would say not hard enough – for the wireless dollars of Canadian consumers.
What do you think will happen? Where do you think the Canadian wireless market is headed? Let us know in the comments box below or at editorial@cartt.ca. We’ll keep your feedback confidential if you wish.
