Both The Globe and Mail and the Financial Post report that all three of Canada’s new entrant wireless mobile companies are for sale, the latest story focusing on Telus’ interest in picking up Mobilicity. Rumours of mergers and takeovers have been circulating, however, since shortly after the new entrants were licensed in 2007.
Industry Canada licensed new entrants to make the market more competitive and this resulted immediately in lower prices. All three new entrants, Mobilicity, Wind and Public Mobile, however, have had a slower, more expensive growth path than they anticipated. There are several reasons for this.
The first is that both at the corporate and individual markets the most lucrative customers were already signed up with one of the big three, Bell Telus and Rogers, all of which already had national networks in place. The new entrants had to start their networks, get existing customers to change suppliers, attract new customers into the mobile wireless market, and build out their networks from the main population hubs as they could afford it.
The second major barrier to entry is the three year contract. This makes it more difficult to win over new individual customers and provides the big three with a target market window to offer special deals to those whose contract is about to expire. It also inhibits the development of secondary markets in new and used handsets. The three year contract is not permitted in many other jurisdictions, so no, it is not just a matter of free market business choices. In jurisdictions where they prefer more competitive markets in mobile communications they have chosen not to allow long term contracts in the market structure.
The third major barrier is the capability of the big three to bundle mobile wireless services with their original monopoly phone or cable services as well as fixed line internet access.
In another liberalizing feature, the smaller players were permitted a higher level of foreign ownership to provide more access to capital to expand their networks. To some extent this has succeeded but the business case has to be attractive enough to the foreign investors to make it worthwhile. At this point it appears that the verdict is that the competitive environment is not sufficiently attractive and the existing owners are looking for buyers.
If the mobile market re-consolidates back to the three major players, it will mark the failure of an important Industry Canada policy direction towards more competition and consumer choice. So far Shaw has backed out of a mobile launch and has a deal to sell its spectrum to Rogers awaiting regulatory approval. Videotron has also declined to move forward. Of the cable companies, now only Eastlink appears to still want to move forward.
That leaves Mobilicity, Wind and Public Mobile. All three have announced that they have withdrawn from the CWTA, Canadian Wireless Telecommunications Association, the mobile wireless lobby group, because it represents the interests of the big three, not theirs.
It is clear that Industry Canada and the CRTC do not want a re-consolidation to occur. It is less clear if they can adjust the rules more in favour of competition. The sales rumours clearly step up the pressure in that direction.
There will be a spectrum auction in November for very desirable 700 MHz band. It is desirable for mobile wireless because, like the 800 MHz bandwidth used for the original analogue cellular roll-out in the 1980’s, the towers and antennas cover more territory than at higher frequencies so less infrastructure is required. Fewer participants at the auction means less revenue for the government. More importantly, fewer participants in this market will mean higher prices and less service diversity. But we will have lots of really cool ads!
N.B. The author consults for Ice Wireless, a competitive mobile wireless company in the north.