Canadian Wireless Wars: Boon or Boondoggle?

Rogers-Bell-Telus-iPhoneLord knows I am decidedly NOT a big fan of the Canadian “big 3” wireless companies (Rogers, Bell and Telus). I am a Rogers customer and have been for years, but really my loyalty is more about inertia to change all of my services (cable, internet, wireless and home phone) to another carrier rather than any dedication to the company per se.

Based on their service, I don’t think they have any loyalty to me either, only to my wallet.

Those who know me also know that I am also a very big critic of the current Prime Minister and the so-called “Harper Government”, especially given the tight rein Stephen Harper keeps over his puppets in the Cabinet and caucus (but that’s another story…).

So, when you get a situation that pits the wireless telcos against the Federal Government, for me this is akin to a race to the bottom – a battle of the losers. But some of the current market meddling of the Feds has me coming down firmly in favour of the telcos, a position in which I rarely find myself.

Let me explain….

If you are like me, you don’t pay a whole lot of attention to the wrangling that goes on in Industry-Government relationships, unless you are one of the wranglers. If you are like me, you gripe and complain about cell phone contracts, high prices, terrible service, and on and on. And if you are like me you didn’t really take a lot of notice when the Canadian Federal Government changed some of the rules a few years ago to encourage more competition by creating some considerable incentives for small start-ups, incentives that saw at least two new players enter the fray – Wind Mobile and Mobilicity.

However, since nether of these new entrants, nor any others, has really made any appreciable difference to any of us on a day-to-day basis, it was more of a big yawn than any earth shattering move on the government’s part. Indeed, Mobilicity is, by all accounts debt-ridden and losing money on a daily basis.

And that’s when, to my untrained eye, things really started heating up. Telus made a bid (reported to be about $380 Million) for Mobilicity, largely I suspect to scoop up the wireless frequency “spectrum licenses” that Mobilicity had acquired in 2008 when the start-up rules were changed and they were given preferential access to acquire those licenses.

However, the Feds quashed that deal, sending a clear signal that they were not going to let any one of the Big 3 gain any more wireless spectrum outside of the next scheduled auction.

There was some speculation, as I understand it, that perhaps Wind Mobile (which has enjoyed more success than Mobilicity since 2008) might be the one to acquire Mobilicity, and presumably that would be allowed since Wind was one of the start-ups that had been protected and incentivized by the new rules.

verizon-wireless-logoEnter big, bad (to some) Verizon, a US based behemoth in that country’s wireless world. Verizon is larger (in terms of subscribers – about 100 million) than ALL of the existing Canadian Wireless companies put  together (last time I looked we did not have anywhere near 100 million inhabitants to be subscribers).

However, despite its size, since it does not have at least 10% of the current Canadian market, Verizon is able to be considered, under the current rules, as a START-UP, at least as far as Canada is concerned.

Unless that rule is changed before the next auction bids are scheduled next month, it is my understanding that Verizon could:

  • Successfully bid for and acquire one of the current smaller players (Mobilicity is the touted current target) and presumably at a discount to boot since the Canadian Big 3 are forbidden to bid;
  • Get Mobilicity’s current spectrum licences as part of that acquisition;
  • Get preferred and protected treatment in the next scheduled spectrum auction by being able to purchase 2 blocks for every 1 that the current Big 3 could buy; and
  • Get to use or piggyback on the existing and established infrastructure and networks nationwide.

Well, that certainly got everyone’s attention, especially the Big 3. To say that a sort of panic has broken out would likely be an understatement. If you live in Canada you cannot have escaped the full-page ads, the all-out media full-court blitz and the impassioned exhortations to the Federal Government to close the “loophole” that would allow a huge foreign company like Verizon to play by rules that presumably were never intended to incentivize a company of the size and maturity and clout of a Verizon.

Verizon, for its part, would be foolish not to at least TRY to take advantage of such preferential largesse at the hands of the Feds. Can’t blame them….

And, the stock market has already punished the Big 3 since all of this transpired, on the presumption that however this turns out, the Big 3 are going to fall from their perch at least somewhat.

Last week, as reported in the Globe and Mail we learned that Ottawa stands firm against lobbying over plan to spur wireless competition. James Moore, the brand new Federal Industry Minister was resolute and will maintain the non-level playing field. No closing of the loophole.

It would be fair to say that he did not feel this was a loophole at all, but that it was the logical expression of the government’s long-ago stated goal to see more competition in the wireless industry. As reported in the Globe article, Mr. Moore said

“Our policy has been clear and remains unchanged: Greater competition and liberalized investment has meant more choices at lower prices for Canadian families.”

“We will continue to stay the course by ensuring Canadians benefit from a competitive telecommunications industry.”

Personally, I think the government is making a big mistake. But there are as many people on the other side of that argument and who are delighted at this turn of events. The pro-Verizon sentiment was summarized very well by Konrad Yakabuski in his Globe and Mail column last week. He said, in part:

“Canada’s Big Three cellphone companies are running scared, and it’s pathetic to watch. The mere hint of foreign competition has corporate Canada circling the wagons in an effort to keep U.S. giant Verizon from moving north. But what else would you expect from the Canadian Council of Chief Executives, whose CEO sits on the board of Telus, the No. 3 wireless provider, whose CEO sits on the board of the CCCE? Cozy corporate Canada still takes care of its own…

… That’s rich coming from some of the world’s most protected telecommunications companies. Long-standing foreign-ownership restrictions have left Canada with firms that, while big at home, are global nobodies. While global wireless providers have become the norm – think Orange, Vodafone or T-Mobile – Canada’s coddled players have no international presence.

One result is that Canadians have historically paid more for wireless services and gained access to new services and technologies later than consumers in other countries. Prices have come down since Ottawa’s last attempt to inject competition into the sector (it set aside airwaves for new entrants in 2008). But an independent report done for the federal government this month showed that, for most users, rates still “fall on the high side of the [developed world] average.”

I want to leave aside the price and rate argument since I am not an expert but I can tell you that I did look at many of the reports on where Canada stands in relation to other countries and to my mind the data is equivocal. Some reports suggest we are high, others that we are about average and still others suggest we are actually very competitively priced.

Regardless of which of these is accurate, there is no doubt that the average Canadian feels we pay too much. The average Canadian no doubt welcomes competition and hopes that will result in better product, more reliable and consumer-focused services and of course cheaper prices. I know I certainly do!

That’s what competition is all about, right?

Whether or not Verizon is the answer to those prayers might well be one of those “be careful what you wish for” scenarios. I’m sure there are as many Verizon-haters south of the 49th as there are Rogers/Bell/Telus haters in Canada. Verizon is historically not a cut-rate provider either – it is not the Wal-Mart of the phone business so who knows what happens to prices? And we have no way to say that having a big 4 is any better than having a Big 3.

Let’s leave aside all of these uncertainties and return to why I think this is a mistake.

Let me be very clear, however. I WANT to see more competition. I actually welcome Verizon, or T-Mobile, or Vodaphone or whomever. Despite being a long-standing Rogers customer, I feel no allegiance to them and will gladly move my business if there is a good incentive to do so.

But the way the Federal government is approaching this goal is to me at least, ass-backwards. How many other countries do you think would actually encourage a huge foreign company to set up shop by handcuffing the domestic players and not letting them play by the same rules?

I don’t like protectionism but at least I understand it. But this seems to me to be the exact OPPOSITE – it is a sort of anti-protectionism, whereby the Feds are actively disadvantaging the domestic companies in order to induce a foreign company to enter the Canadian marketplace. Can you imagine the uproar if, for example, the United States were to do something similar?

If you want more competition, great. That’s what the free market is all about. Then create a truly free market and let any company, foreign or domestic, compete. Let the best companies win. A free and open market does NOT result from government meddling and interference and by artificially and arbitrarily handicapping some of the players while rewarding others. And we are doing it in the reverse of what almost any other country would do!

Don Cayo in the Vancouver Sun, in his article last month “U.S. telco no better than Canadian three” was exactly right when he said:

But for competition to work over the long term, it has to be real. And I don’t see how it can be real if another new player – this time a huge global one – gets a toe in the door only because the government has slammed this door in the face of homegrown competitors.

I agree that even if you want to incent the Verizons of the world, creating bigger barriers for the domestic companies is not the answer.

Why not just remove the barriers for the foreign companies in the first place?

I think the real culprit here is the one that is NOT being addressed – the fact that Canada continues to have stringent and restrictive rules about foreign ownership. That is where we do still have our “protectionism” going full blast. It is the protection afforded by the foreign ownership rules that have prevented the Verizons of the world from encroaching on Canadian soil in the first place. It is the restrictive foreign ownership rules that have effectively given the Big 3 the oligopoly we now rail against. And as long as the restrictive foreign ownership rules remain in place even after Verizon gets its foothold, how will we handle the next Verizon or the next Vodaphone? Will we give artificial incentives and create artificial barriers again? How much more meddling do we think this industry (or any industry) can take in the name of creating a free market and increased competition?

It seems to me the way we are going about trying to create competition is in fact the very antithesis of competition.

Let me share with you a “thought-picture” that I just can’t get out of my head. Intruders come up to a house and find the front door fortified, locked and barred. No entry possible. But under the welcome mat they find a set of instructions on how to unlock a back window and gain entry into the house. And the note gives them assurances that when they enter, they will find the inhabitants have all been bound and gagged to allow the intruders an easier mugging!

For me, the editorial yesterday entitled Knock down the barriers to foreign mobile ownership from Tom Flanagan of the School of Public Policy at the University of Calgary speaks exactly as I feel. Mr. Flanagan maintains, as do I, that removing the foreign ownership restrictions is the real way to gain a truly competitive marketplace, especially in an area, as he argues, where there is arguably no Canadian “culture” to protect. He says, in part:

“What makes a market competitive is not the number of sellers but openness to entry…

… If we want the benefits of full-scale competition in the mobile industry, we won’t get them by incrementally adjusting the number of competitors. We will have to repeal the barriers to entry set up by the Telecommunications Act, and that means abandoning the shibboleth of Canadian ownership where there is no need for it. It’s a leap of principle, not just an incremental step.”

In other words, as so often happens with Mr. Harper and his band of ideologues, the ultimate goal is a good one – more competition – but the strategy to get there, sadly to me at least, seems to be all wrong.

So why are we not attacking the problem at its root (foreign ownership restrictions) instead of tinkering at the edges (arbitrary rules that create temporary uneven playing fields)?

I think it is more about politics than economics. Changing the foreign ownership rules will no doubt be lengthy, and fraught with even bigger debates since it will transcend the wireless industry into all areas of Canadian business and commerce and that is not likely an elephant in the room Mr. Harper wants to tackle.

I think this as a blatant attempt to curry votes in the much shorter term by playing on the “wireless discontent” “most of us already have. When election night next rolls around, I think Mr. Harper is banking on the idea that we will remember that it was his government that stood up for the little guy against the big bad wireless monopoly and brought it to its knees.

But I don’t see Mr. Harper and now Mr. Moore as heroes in this piece. Only time will tell if  the few dollars we might save on our monthly bill really means more than the thousands of jobs that might well get shipped stateside. Or if it the reduction from a 3-year to a 2-year contract really was worth it when Verizon might be turn out to be a bigger problem for us than a solution. Or when Verizon might even REPLACE the Big 3 …

Only time will tell if Mr. Harper’s strategy is good for us as Canadians, or if it has sold us out big time.

I know where my bet is getting placed…..

 
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Canadian Wireless Wars: Boon or Boondoggle? — 1 Comment

  1. Pingback: What if Canada Threw a Wireless Party and No One Came? - Michael's Random Musings

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