By Greg O’Brien
IF THERE WERE NO big bogeymen around to scare the federal government into re-jigging an open wireless spectrum auction to favour such things as spectrum caps, or spectrum set-asides – and then mandated roaming – there is now, with the announcement that Telus is an active participant in the expected sale of Bell Canada Enterprises.
The press release arrived just after 8 p.m. last night and even though it means little right now, you’ve got to believe that the folks in Ottawa at Industry Canada who are deciding on the rules for the advanced wireless spectrum auction may be thinking something along the lines of “Holy moly, if this happens, we better have an auction where someone else can come in fast.”
The wireless auction rules (reply comments are due into Industry Canada on June 28) is just one of the ramifications of the announcement last night. Such a corporate combination would be unprecedented and would have far reaching competitive consequences that quite frankly, we can’t see any government overlooking. Of course, it could be that Telus just wants a look inside the BCE confidential virtual data room and has no intention of going forward with what could be a $35 billion purchase.
In any event, bids for BCE are apparently due this week. The other bidders are Onex Corp. with the Canada Pension Plan Investment Board, Caisse de depot et placement du Quebec, and Kohlberg Kravis Roberts & Co.; the Ontario Teachers Pension Plan and American private equity firm Providence Equity Partners and ;Cerberus Capital Management (the same company buying Chrysler) with some unannounced Canadian partners, one of which is rumoured to be CanWest Global.
The combination of Canada’s two largest telecom companies – and not even counting Bell Aliant – would produce a company with 16.5 million access lines (and owning most of the big business, or “enterprise” telecom market in the country), and over 11 million wireless customers.
Using year-end 2006 figures, a “Bellus” would own approximately 82.5% of the traditional telco customers in Canada. What’s that you say, the telecom field is hyper-competitive with many newcomers like cable and others? Even factoring those in, a Telus-Bell combo would own 77% of all local lines in the country.
As a consumer, those are hard to swallow numbers. Potentially anti-competitive numbers.
And those figures are compiled while factoring Bell Aliant and its 2.2 million wirelines as a separate company, even though BCE owns majority control of the income trust.
On the wireless side, the new company would own fully 60% of Canadian wireless customers.
A Bellus would mean a boon to shareholders, as analysts have said in the past that a coupling would mean anywhere up to a billion dollars of savings. Bell has about 54,000 employees. Telus, 32,000. Bellus’ first move would be massive layoffs, so I’m sure some union releases are on their way, soon, too.
Such a merger could amount to the monopolization of local phone lines in Canada because does anyone really believe Bell Aliant wouldn’t be subsumed in the deal or that MTS Allstream would still try to fight such a behemoth? (Crown Corporation SaskTel is an anomaly that will exist as long as the people of the Prairie province want it that way.)
Yes, I know, it’s not really a monopoly. As I said above, many other players have had phenomenal early success in the phone business. Canadian cable companies alone have about 1.5 million voice over IP customers. Compared to what Bellus would be though, they’re a group of pipsqueaks.
Such a merger would undoubtedly spawn another – the pairing of Rogers Communications and Shaw Communications – which would also have a seemingly impossible task of convincing the Competition Bureau a “Rawgers” would be a good thing.
Such a company would be a near pan-Canadian MSO and satellite operator (Shaw’s Star Choice) and would own about 51% of the TV households in Canada and about 60% of the cable households. Competitively speaking, this is far too many for one company to own and again, inches towards monopoly, especially if Rawgers were to purchase Cogeco, too, as RCI already owns a sizeable chunk of Canada’s fourth-largest MSO.
Sure, there are other emerging technologies like IPTV and wireless video which consumers may choose, to go along with the multitude of ways video can be procured from the ‘net, but the vast majority of Canadians get their TV from their cable company and that’s not going to change any time soon. A single company owning so much is not exactly a recipe for good competition.
Even in the States, they are limiting the total percentage of TV households a company may own to 30%, so the market power of a Rawgers would be unheard of – as unheard of as a telco with 80%-plus market share.
I’m not saying these mergers can’t happen. I’m not saying they won’t happen. Divestitures and newfangled regulatory oversight can overcome almost any obstacle, it sometimes seems, but my snap judgment is that I don’t think I like these two biggies (one potentially real, one imagined) at this point in time.
But wouldn’t it be neat to see how the competitive landscape would evolve if the owners of these big companies didn’t have to be Canadian? If we had a vast pool of money from elsewhere that could be deployed in Canada to help ratchet up the competition?
Just a thought.
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