TORONTO – There were no federal politicians that we could see in the audience at the Canadian Telecom Summit on Wednesday and just a handful from the CRTC and Industry Canada, but the message sent by new Quebecor CEO Pierre Dion was certainly meant for the ears of those in charge in Ottawa:
If the CRTC moves to dramatically lower the roaming rates the Big Three extract from smaller wireless newcomers to roam on their networks in Canada – and if Industry Canada can fix the tower sharing problems with better rules, Vidéotron will be that fourth national wireless company the federal government says it covets, he told CTS delegates.
Less than two months on the job after taking over from former CEO Robert Dépatie in late April, no one was sure what message Dion would have for the annual gathering, and as announcements go, this was a big one.
“Today, we are even more convinced than ever that the wireless business, not only in our Québec base, but in the rest of Canada as well, is the future,” he said. “Under the right conditions we are ready, willing and able to become Canada’s fourth wireless competitor.”
Now, we’re not sure how Wind Mobile feels about that comment as they released some pretty solid looking numbers on Tuesday, have 200,000 more wireless customers than Videotron, and Wind CEO Tony Lacavera told us he is energized and ready to grow his company nationally any way he can, but Dion spoke the truth in noting his company is much better financed than Wind. The Quebecor CEO also said his company is willing to play consolidator of Wind and ailing Mobilicity.
“We are contemplating the possibility of consolidation with one or two of the undercapitalized new wireless entrants,” said Dion. “If completed, this would allow us to almost triple our customer base… Videotron is uniquely positioned to very effectively address the Canadian government’s stated policy objective of a serious fourth competitor in the markets where this is lacking – a fourth competitor who is experienced, well-financed, well-equipped, highly entrepreneurial and customer-focused.”
“We are contemplating the possibility of consolidation with one or two of the undercapitalized new wireless entrants.” Pierre Dion, Quebecor
Dion also promised dramatically lower wireless retail prices if he did proceed with a national rollout, explaining that Wind’s successes show “a clear demonstration of market demand for service offerings priced more competitively than the high-cost ones provided by the incumbents.”
Of course, none of this will happen unless those “certain conditions” are met first. Videotron already has spectrum in Ontario upon which to build a viable business outside of Quebec – and it has the money to do it when compared to Mobilicity and Wind. “The remaining barriers to successful competition lie in the other two aspects: prohibitive wholesale roaming charges levied by incumbents that are far above cost, and tower-sharing. As the experiences of Wind Mobile and Mobilicity have demonstrated, the greatest of these competitive impediments are the incumbents’ prohibitive roaming charges,” said Dion.
So with Wind’s foreign backer having written the asset down to zero on its books (having been blocked by the feds from taking it over) and Mobilicity in creditor protection (with the feds blocking its sale to any incumbent), it would seem Quebecor could purchase one or both at reasonable prices.
Add that to how the federal government and the Regulator are taking action on domestic roaming rates already – and how badly the Tories want a strong fourth player and seem to want to do anything to make that happen – and we can certainly envision Videotron Wireless going national.
Not everyone is bullish on that. Canaccord Genuity analyst Dvai Ghose says being the last one into the national wireless game carries far more risk than opportunity. “If the Government’s new entrant strategy is focused on spectrum and network based competition, Videotron will have to eventually build its own networks outside Quebec and incur major losses,” he wrote in a note to investors late Wednesday.
Besides, “four player markets have not been successful,” he added. “We are seeing widespread consolidation in Europe to 3 from 4 players with vocal support from European leaders including (German chancellor) Angela Merkel. This is in stark contrast to Canada. The U.S. has 4 national carriers, but is dominated by Verizon and AT&T and Sprint and T-Mobile US have struggled. The market is expecting Sprint to make a bid for T-Mobile US. While this may not be approved by regulators, surely Canada cannot support four national wireless carriers if the U.S. cannot."
Plus, “Videotron Wireless has not been that successful in Quebec,” wrote Ghose. “It only has around 10% market share and a $40 ARPU nearly 4 years after its facilities based launch. Videotron has invested over $1.6 billion in wireless, including spectrum inside and outside Quebec and has yet to generate a significant positive wireless EBITDA track record.”
