Lowered expectations for wireless auction
The Canadian PressSunday, January 12, 2014
TORONTO - The lack of new foreign players means Tuesday's wireless auction likely won't bring in as much revenue as expected to federal coffers — or the increased competition that Canadian consumers want, experts say.
The previous auction in 2008 raised $4.3 billion and ushered in a host of new players: Wind Mobile, Mobilicity, Public Mobile, Videotron and Eastlink.
But the Canadian wireless market continues to be dominated by Bell (TSX:BCE), Rogers (TSX:RCI.B) and Telus (TSX:T), with a total of about 25 million subscribers.
Since then, Mobilicity and Wind Mobile have gone up for sale. Public Mobile has been sold to Telus.
There were hopes of foreign competition to shake up the country's wireless industry, but they died last September when U.S. giant Verizon dropped its plans for expansion north.
If the federal Conservatives want more competition in the future, they'll have to drop all restrictions to foreign investment, even if it means going up against the country's dominant players, said Michael Geist, a law professor at the University of Ottawa.
"I think Canada is seen as a place where there is some money to be made," he said.
"There's always the prospect of another entrant, but part of that may well require government involvement to create the necessary conditions to make that easier."
The federal Conservatives say they want a fourth national player in every region of the country to give consumers more choice as small startups struggle to attract customers.
The government had tried to encourage more competition by relaxing foreign investment restrictions for carriers with a market share of less than 10 per cent.
Bell, Rogers and Telus waged a publicity battle against the new rules, arguing they gave the advantage for prime-spectrum bidding to new entrants.
But those "scare tactics" actually helped the Tories look like the champion for consumers, said Geist.
"One gets the sense that the big three played into their hands by creating that clear division between those standing on the side of consumers and those on the other side," he said.
"And I think the government feels that it's positioned itself clearly on the side of consumers and in favour of more competition."
The Tories, who initially resisted regulation in favour of an open market, learned that a strong "hands-off" approach had detrimental effects, with consumers and businesses paying higher prices, Geist said.
They've seen the political benefit of adding more regulation, especially in the area where people feel they're being gouged, said Richard Smith of Vancouver's Centre for Digital Media.
"What they have to think about is, put in enough regulation that people feel that they're doing something and don't put in so much regulation that the companies feel that they're being overwhelmed or constrained or bottled up," he said. "It's kind of a balancing act on everyone's part."
The Tories have promised to make legislative changes so big wireless providers will have to renegotiate roaming rates they charge small rivals for using their networks.
It would stop them from charging smaller players more than they charge their own customers for domestic roaming, which is applied when they use cellphones outside their provider's coverage area.
Rogers, Bell and Telus have large national networks, but smaller providers have to negotiate agreements with them to give their customers service when they travel.
A total of 11 Canadian participants — including the big three — are bidding on the coveted 700-megahertz radio waves.
Regional players include Quebecor's Videotron (TSX:QBR.B) in Quebec, MTS Inc. (TSX:MBT) in Manitoba, Saskatchewan Telecommunications, and Bragg Communications, which operates EastLink in Atlantic Canada. Wind Mobile's parent, Globalive Communications, is also still in the game.
Both Wind Mobile and Mobilicity were reportedly to be under consideration for purchase last year by Verizon before it announced it dropped its interest in Canada.
Two private-equity firms in Toronto have pulled out of the auction: a subsidiary of Birch Hill Equity Partners and Catalyst Capital, a major debt holder for Mobilicity.
They could have sold any spectrum they obtained, or licensed it to other players, rather than working to get a new wireless carrier off the ground.
The 700 megahertz waves allow cellphone signals to reach into elevators, deep into underground parking lots, traffic tunnels and basements where calls are often dropped, and help meet consumers' growing use of smartphones and tablets.
The signal can also travel greater distances and will require fewer cellphone towers to provide coverage in rural areas.