This article was originally published in Maclean's Magazine on August 19, 2013
Compared to cable and broadcast, relatively little regulation is foisted upon Canada’s $19-billion wireless industry. Most of it has to do with which companies get access to which airwaves—or “spectrum”— and how much they should pay for it (the airwaves being deemed a public resource). Given the technical nature of the subject matter, many key decisions tend to be made well beyond the glare of the public spotlight. “What happens in Ottawa stays in Ottawa,” says Iain Grant of telecom consultancy the Seaboard Group. Occasionally, he says, a CEO will speak to an audience of Bay Street investors. “That’s usually the extent to which the industry bothers talking about public policy matters.”
But that’s all changed in recent weeks as U.S. giant Verizon Communications looks to enter the Canadian market, a move that would fundamentally alter a competitive landscape created by strict foreign ownership rules. Verizon, known for its “Can you hear me now?” ads, is looking at buying struggling Canadian upstarts Wind Mobile or Mobilicity, or possibly both. Suddenly, Canada’s big three wireless companies—Bell Canada, Telus and Rogers Communications (which owns Maclean’s )—are desperately trying to call attention to “loopholes” in Ottawa’s rules that would favour the $116-billion American behemoth, which boasts nearly four times as many U.S. customers as the entire Canadian industry.
The public relations campaign has so far included full-page newspaper ads, including one that warned of thousands of lost jobs if U.S. giants get “sweetheart deals,” and a pleading letter to the Prime Minister that was co-written by the boards of Bell, Telus and Rogers. One industry insider, who spoke on the condition of anonymity, said it was the most emotional response he’s seen from the wireless industry in his 30-year career. Wind CEO Anthony Lacavera was less charitable, saying, “They’re running around like chickens with their heads cut off.”
It’s unclear whether the message is getting through. With a history of complex pricing and complaints about customer service, Canada’s big wireless companies hardly make for sympathetic victims—a reality not lost on the voter-attuned Conservatives, who are said to be going out of their way to court Verizon. “We want all regions of Canada to benefit from competitive market forces,” Industry Minister James Moore recently wrote on his website. “Which is why more progress must be made.”
Though Lacavera declined to comment on Verizon’s interest in Wind, a source familiar with the matter said the U.S. wireless firm is “far along” in its discussions with the company’s board. Verizon is also said to be looking at cash-strapped Mobilicity, which Telus attempted to buy for $380 million earlier this year only to be shot down by Ottawa because it would limit the number of competitors in the market. (Telus has filed a federal legal challenge in response.) Wind and Mobilicity, which combined represent about 850,000 subscribers, are now free from foreign-ownership restrictions thanks to a rule change last year that was designed to help the struggling upstarts by allowing foreign investors to own 100 per cent of any telecom with less than a 10 per cent share of the market.
Bell, Rogers and Telus say they welcome competition, but are strenuously opposed to Ottawa actively helping Verizon set up shop north of the border. Under the current rules, they say, Verizon will be able to purchase Wind and Mobilicity for less than fair market value since the incumbents aren’t allowed to make competing bids. It could also be permitted to use the wireless networks the big three spent billions building up, discouraging it from making investments in less profitable infrastructure to serve rural Canadians. And, in an upcoming auction set for January, it could conceivably purchase half of the available 700-megahertz spectrum (needed to build ultra-fast wireless data services) thanks to rules meant to prevent the industry’s biggest players from buying and hoarding airwaves. “We’ve had a series of government decisions that may have all made sense individually,” says Ken Engelhart, senior vice-president of regulatory affairs at Rogers. “But at some point you have to stop and take a look at where you’re at.” Verizon, he continues, is not some fledgling wireless company trying to scrape together enough cash to buy spectrum: “It has all the financial resources in the world—it’s swimming in dough.”
If its appeals are unsuccessful, Rogers is reportedly exploring the idea of funding a private equity firm’s purchase of Wind, but would not hold voting control—a move analysts believe is a long shot given the government’s desire to prevent the country’s smaller wireless players from being vacuumed up by their larger rivals, which is what happened a decade ago when Rogers bought Microcell and Telus bought Clearnet. Engelhart declined to comment on the reports.
The industry, though, has found a sympathetic ear in some unlikely places. The normally pro-competition Canadian Council of Chief Executives wrote a letter to the Prime Minister that questioned the wisdom of favouring foreign companies at the expense of Canadian ones, and Perrin Beatty, the president of the Canadian Chamber of Commerce, encouraged minister Moore to think long and hard before committing himself to a profound policy shift. Canadians, Beatty wrote in a blog post, “want low prices and powerful networks. But they also want fairness in the marketplace.” Even the consumer-focused Toronto Star said in an editorial that Ottawa “should not manipulate the rules to give a huge foreign competitor an unfair advantage in this market.”
Others say Ottawa is justified in its quest to ensure there are four strong wireless carriers—not including flanker brands like Koodo (Telus) or Chatr (Rogers)—in every Canadian market. Michael Geist, a law professor at the University of Ottawa, argued in a blog post that a recent study by the Organisation for Economic Co-operation and Development proved that Canada remains “among the 10 most expensive countries within the OECD in virtually every category and among the three most expensive countries for several standard data-only plans.”
However, given the plethora of options and plans available, comparing wireless prices between different carriers can be enormously challenging, let alone across several countries. Telus referred to the very same OECD report as evidence that “Canadian wireless pricing is extremely competitive internationally” given the country’s huge geographic footprint and relatively sparse population. Telus CEO Darren Entwistle said in a statement that “U.S. prices are about six per cent higher in the most relevant usage basket.” Josh Blair, Telus’s chief corporate officer, defended the remarks by arguing that Canadians receive good value because they have access to high-quality, high-bandwidth 4G networks that subscribers in some other countries do not. In fact, the European Commission recently lamented a lack of investment in 4G infrastructure and warned the “EU is teetering on the edge of network collapse.” Blair also noted that the trend in the U.S., where Verizon and three other carriers control more than 90 per cent of the market, is toward industry consolidation—not the other way around.
Yet another study by consulting firm Wall Communications, on behalf of Industry Canada and the Canadian Radio-television Telecommunications Commission, found that mobile voice and text prices fell significantly in Canada this year compared to 2012—by as much as 13 per cent. However, the same study also found that Canadian prices were either in the middle or on “the high side” when compared to five other countries— Australia, France, Japan, the U.K. and the U.S. “Canadian prices have actually become much better,” says the Seaboard Group’s Grant. “We are no longer saying Canadians are paying some of the highest prices in the world. We’re saying, by and large, that Canadians are getting a pretty good deal. But what concerns us is what happens when that competition disappears. Do we go back to our old ways?”
Bell, Rogers and Telus say that won’t happen for a variety of reasons, including technology’s tendency to fall in cost over time. But Canadians are understandably skeptical given years of enduring industry practices that many have argued are less than consumer-friendly, including three-year contracts (recently done away with by a new CRTC wireless code of conduct) and “system access” fees. “Canadians just don’t feel like they’re getting a good deal,” Lacavera insists.
Of course, there’s no guarantee Verizon will be any better—indeed, many Americans would attest otherwise—but one can hardly blame weary Canucks for wondering if the grass might be greener. One thing is certain: the cell business isn’t about to get any simpler, or any less political.
Maclean's August 19, 2013