Verizon’s out: It’s 5 minutes to wireless midnight

So now what? Where does Canada go?

So Verizon is officially “not going to Canada.” Chief executive Lowell McAdam made the comments after announcing the huge, $130 billion buyout of Vodafone’s 45-per-cent stake in his company on Monday. Those gale-force winds you may be feeling right about now are the collective gasps of relief from Bell, Rogers and Telus executives across the land (either that, or it’s the jet stream caused by their companies’ share prices zooming upward).

So what now? Where does Canada go after Verizon, hailed as the white knight saviour that would lower cellphone prices and provide better service, has bowed out?

Incumbent executives are still beating the same drum – that the rules for the upcoming spectrum auction need to be changed. And of course they are. Verizon may be out, but another big, rich, international player – perhaps T-Mobile or Orange or, hey, how about a newly engorged Vodafone – could be slinking around in the shadows, ready to take advantage of rules that supposedly favour them over local concerns. We’ll likely find out if that’s the case around Sept. 17, when bidders for the January auction must put down deposits.

Will the U.S. giant’s retreat cause the government to pause and perhaps rethink the auction, like the Big Three are begging it to? Not likely. When I met with him a few weeks ago, Industry Minister James Moore certainly gave the impression that he doesn’t care who jumps into the auction – whether it’s Verizon, foreign or domestic private equity, big companies or small. He was also quite adamant that the government wasn’t wooing any specific company, as the incumbents have alleged.

Moore, his predecessors and Prime Minister Stephen Harper have been pretty consistent in their position – they believe they have the right rules in place to encourage more wireless competition. The specifics of how that comes about is up to the market to decide.

Anyone who doubts the Industry Minister’s resolve may want to recall the copyright battle from a few years ago. The situation was a little different, but similar, in that it was consumers who vocally objected to rules the minister – then in charge of the Heritage portfolio – was trying to usher in, specifically in regards to penalties for breaking digital locks on content and devices. He stubbornly opposed such views, going so far as to refer to dissenters as “radical extremists.”

The government stuck to its figurative guns and included the controversial clause in its final legislation, so… uh… the spectrum auction date and rules? Yeah, those aren’t going to change any time soon, no matter how loudly the Big Three complain.

What will be most interesting to watch in the near term – and by that, I mean the next two weeks – is what happens to Wind and Mobilicity. Will Russia’s Vimpelcom go with its Plan B and sell Wind to Anthony Lacavera and Naguib Sawiris, the two men who initially started it? Or will it sell to Rogers-backed Birch Hill or some other private equity firm? And what of Mobilicity – does it merge with Wind or get sold to someone else?

Both firms absolutely need to participate in the upcoming auction in order to stand any chance of remaining relevant, which means their respective fates are literally down to the 11th hour. They can’t conceivably go ahead and register for the auction without having some idea of where they’ll find the money they need to buy spectrum.

It’s been exciting to watch the drama unfold and even fun to speculate on it all, but it will also be a relief to finally see how this all ends up. The next two weeks should decide that.

It’s not too early, however, for the government to start thinking about its Plan B. Although their official stance on Verizon was neutral, Harper and Moore would probably have been quite pleased to see a large, well-resourced competitor come in and light a fire under the industry. It would have to be a disappointment if the smaller wireless players end up continuing on as cash-strapped competitors, or in the hands of investors whose only interest is an eventual sale to the incumbents. Those aren’t desirable outcomes to a government that has made a huge deal out of engineering more competition and lower prices for the voting public.

A few weeks ago I suggested several possible courses of action that the government could take, including additional regulations, the formation of a Crown wireless corporation or the splitting up of incumbents from their networks. How the next two weeks go will determine whether Moore and company need to seriously entertain any of those ideas.




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Verizon’s out: It’s 5 minutes to wireless midnight

  1. The incumbents set up new companies like chatr taht directly attacked the new entrants, which was expressly forbidden, but of course, they did the damage before any sanction was made. The government failed on this a long time ago.

    As Jesse Brown said it here at Macleans:

    -
    But the biggest issue might be with our reputation. Verizon was not the first global telecom company Ottawa courted. Our first date was with Orascom CEO Naguib Sawiris, who was talked into launching WIND Mobile here in 2008. It’s a decision he came to regret:

    “They take our money and they leave us to the dogs … Anybody who asks me, I tell him, ‘Look, we are the stupid investors that poured a billion dollars into Canada here and created 1,000 new jobs, please don’t do this mistake. Don’t come here.”

    -

    Orascom has HUGE pockets. But there was no pathway to prosperity.

    • The problem with Jesse Brown’s quote of Sawiris, was that it was taken before Ottawa fixed those problems. Since then, Ottawa has allowed foreign ownership of smaller companies, as well as reserved spectrum in the upcoming auction strictly to smaller or foreign entrants (out of the hands of the Big 3).

      I find it hard to blame Ottawa at this point. They did just about everything the smaller companies had asked, while constantly rebuffing the demands of the Big 3. The problem you describe is simply the Big 3 trying to stay one step ahead of the game with some “creative” ideas (like backing Birch Hill financially to buy new spectrum) and Ottawa putting out the fires wherever they appear. The problem is simply that our market is relatively small, already saturated, and the payoffs for any new entrant are just too risky or small to seriously consider.

      • To quote you, it’s “simply the Big 3 trying to stay one step ahead of the game”

        Exactly, and the feds are always one step behind. And so Sawiris’ quote is actually still completely valid.

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