There has been a great deal of news about wireless developments in the last several weeks. We have had the following events:
- CRTC’s Wireless Code
- Public Mobile gets major new shareholders
- Telus bid for Mobilicity
- Industry Canada rejection of Mobilicity spectrum transfer to Telus under the bid
- Verizon interest in Wind
- Industry Canada issues new spectrum transfer rules
With the last announcement, Industry Canada confirmed its policy objective to have four competing wireless carriers in most parts of the country. So far, that is not going very well. Shaw changed its mind and never launched. Eastlink has just launched recently. There are a few regional carriers and, of course, SaskTel and MTS, the telco incumbents in Saskatchewan and Manitoba. The Big Three, Rogers, Bell and Telus dominate the market in BC, Alberta, Ontario, Quebec and the Atlantic provinces. BCE sub Northwestel serves the territories and parts of northern BC as does competitor Ice Wireless. The others are mostly either bargain brands owned by the Big Three or MVNO’s (Mobile Virtual Network Operators) that lease bulk capacity from the Big Three and resell it.
For about two years, now, the 2008 entrants, Wind, Mobilicity and Public Mobile have let it be known that their growth and market share had not been sufficient to continue on the current path. All have been looking for buyers or new funding. The rules for the pending 700 MHz spectrum auction have been another major factor overhanging the future prospects of competition in wireless.
The most important feature of the Wireless Code was reducing the 3-year contract, in effect, to a 2-year contract and requiring clarity in contract documentation through a number of specific regulations. Clarity, as anyone who buys their own mobile phone knows, has been a remarkably rare feature of Big Three mobile marketing, sales, contracting and customer service. Whether this is enough to strengthen competition in the mobile market is doubtful, but the Code has weakened the biggest anti-competitive tool in the arsenal of the Big Three.
But this, and other potential changes to the rules to foster competition may be too little, too late for the new competitors. The two big mistakes, in my view, were licensing too many new entrants and failing to change the rules back in 2008 to make the market more competitive. The new competitors were chasing the same market segment, low revenue individual customers. This segment was also being addressed by MVNO’s like Virgin Mobile and Big Three bargain brands like Koodo and Fido. So here we are in 2013 and the two largest of the new entrants want to sell out, leaving Industry Canada’s policy to foster competition in jeopardy.
Public Mobile, however, has found major new funding from the Thompson Group. Telus made a very public bid for Mobilicity but that deal foundered on Industry Canada’s refusal to authorize spectrum transfer prior to the expiration of the 5-year prohibition in the original spectrum auction rules. Now that deal is off the table.
Then Verizon expressed an interest in acquiring Wind, currently owned by Orascom. Many see Verizon as a white knight or a game changer in this predicament and it certainly is big news. Translated into the banking world, it would be like Citibank having a look at buying something like National Bank or maybe a chunk of CIBC. But with the familiarity of the Verizon brand just to the south, it is easy to forget that Orascom is also a powerful well-funded owner with expertise in wireless. If Orascom could not succeed, what makes us think that Verizon can?
We have been down this road before with long distance competition. AT&T became the U.S. white knight for Unitel when it was losing money and Sprint picked up Call-Net. Both were later consolidated under Rogers.
I suspect that Verizon will want to see some rule changes before it follows through. Most of these will be difficult because it will be changing the rules in the middle of the game; not exactly fair, neither from the perspective of participating in spectrum auctions nor from the perspective of Orascom.
If Verizon ends up buying Telus, which would require further changes to the foreign ownership rules, it would change very little in my view. There would still be a comfortable Big Three oligopoly with weak competition around the edges of the market. How about merging Wind and Mobilicity and picking up SaskTel and MTS to provide a regional incumbent base? That would require a whole raft of changes but it would up the competitive landscape.
N.B. The author consults for Ice Wireless, a mobile competitor in the northern territories.