Verizon No Longer on the Canadian Wireless Horizon

Verizon CFO, Fran Shammo, set off a firestorm of speculation in June this year when he mentioned that Verizon was “looking at the opportunity” to enter the Canadian wireless market.


In response to this statement BCE, Rogers, and Telus (the “Big Three” Canadian telecommunication companies) launched a public opinion campaign. They argued that the rules intended to support new entrants into the Canadian wireless market would actually allow large foreign corporations like Verizon to squeeze out Canadian companies and jobs.

 

Verizon CEO, Lowel McAdam, now says that Verizon will not enter the Canadian market. In an interview with Bloomberg news service, he said that the speculation of a Verizon entry into the Canadian market was “way overblown.” Nevertheless, Verizon managed to spark a polemic discussion about the new spectrum auction and rules introduced by the government to encourage the introduction of a fourth major telecom competitor into Canada.

 

In 2012, the government changed telecommunication rules to allow foreign companies to enter the market with some limitations. Companies with less than 10% share in the marketplace are now open to foreign investment, while large carriers are still restricted to one-third foreign ownership. In 2014, the Government plans to auction off four blocks of the 700-megahertz wireless spectrum to carry voice and data services. As a part of the government’s ongoing attempts to develop competition in the wireless market, the “Big Three” carriers will be restricted to bidding on only one block. The Government further prohibited the “Big Three” from purchasing either Wind or Mobilicity – the current small providers in Canada.

 

The “Big Three” argue that the rules will favour foreign carriers who enter the market because they would be able to bid on more than one block since they are not incumbents. Two of the four blocks are set aside for new entrants and current speculation is that these blocks will therefore sell for a lower price since the big three cannot bid, making them attractive to a foreign competitor. Verizon is currently four times larger than the “Big Three” combined, which does not seem to be the underdog the government had in mind when it implemented the policy to encourage competition.

 

The withdrawal of Verizon has not put an end to the protest from the “Big Three”. Rogers CEO, Roger Nadir, claims that while Rogers welcomes competition, the current policy in place do not provide a level playing field. Bell laid out three loopholes in the rules that still need to be closed. A spokesman for Telus said, “It’s never been about Verizon coming to Canada. It has been and continues to be about fair access to the spectrum.” The “Big Three” maintain that the rules provide an unfair bidding advantage to new entrants at their expense.

 

In late August, members of the country’s largest private sector union protested outside of Industry Canada offices, citing their disapproval of the new rules that will open telecom to foreign investment. They fear that the introduction of another provider will result in Canadian job losses as a result of corporate streamlining to remain competitive. The union is also concerned with privacy and security if an American corporation enters the market, especially in light of Verizon’s involvement in recent NSA controversies.

 

In my opinion, the concern from the “Big Three” may be unwarranted at this point. After all, despite government attempts to diversify the market over the last few years, 90% of Canadian mobile consumers remain with the “Big Three”. The introduction of Wind and Mobilicity has already resulted in an nearly 20% drop in plan rates in the last few years; however, Canadian carriers still have comparatively high revenue per user. Moreover, Canada has among the most expensive wireless plans according to the CRTC and the OECD. Canada is a relatively small and rural market, which presents a huge undertaking of development of infrastructure to enter competitively in all areas. Thus, even under the new relaxed rules, one does not simply walk into the Canadian market.

 

According to digital public affairs analyst Mark Belvis, one poll indicates that 57% of Canadians would support entry of Verizon into Canada as they believe it would lead to better service and lower rates. Consumers already feel they have little choice and the attempt by the “Big Three” to gain sympathy did not gain much traction with frustrated consumers who used this campaign to air their grievances against their providers. Continued opposition from the “Big Three” to changes in the Canadian wireless market may prove to be a consumer-alienating strategy in the long run.

 

Even without the entry of Verizon, Industry Minister James Moore feels that “the way we’ve designed our policies, we are going to have more competition in the marketplace from other players.”  The government does not seem to have changed its position and still wants a fourth major competitor despite the media frenzy caused by the Verizon inquiry.  The auction remains set for January and companies wishing to bid still must submit their applications by September 17th.

 

Allison McLean is an IPilogue Editor and a JD candidate at Osgoode Hall Law School. 

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