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Verizon, the Big Three, and what the heck is spectrum?

A breakdown of the arguments in the wireless industry battle


 

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There’s a battle brewing within Canada’s mobile industry—one that has the potential to dramatically alter the wireless sector, and even, some argue, the potential to cut your phone bill.

The sides break down like this:

In one corner: the big three. Bell, Rogers (the parent company of Maclean’s) and Telus—owners of 95 per cent of Canada’s wireless market. Fierce competitors, except when their collective turf is threatened. In the other corner: consumer advocacy groups, the federal government, and Verizon Communications Inc.

The American wireless heavyweight (it has 100 million customers in the United States and is that country’s second-largest carrier) wants in. On July 18, the company confirmed rumours that it was eying the Canadian market. Specifically, it’s reportedly looking at buying two small carriers: Mobilicity and Wind Mobile. Verizon’s mildly-termed “exploration” has propelled Bell, Rogers and Telus into full-fledged campaign mode, taking out full-page newspaper ads that defend the industry’s pricing, publishing press releases attacking the move and pressuring the government. Rogers vice-president Philip Lind has charged the government with aggressively wooing Verizon. “Our federal government is unintentionally underwriting the success of US companies in Canada,” argues Bell’s president and CEO George Cope.

So, what’s the fuss all about?

It all starts with Industry Canada, the federal department that regulates the wireless industry. The government has been changing policies to encourage competition in the sector, with the end goal of promoting “at least four wireless providers in every region of the country so that Canadian consumers benefit from competition,” in the words of the former Industry Minister Christian Paradis. That is—the government’s not sold on the big three staying that way.

In 2012, it opened the industry to allow foreign ownership of “new entrants”—or companies with less than 10 per cent of the market. That built on a move in 2008 to set aside some on the vital radio waves used by cellphones and mobile devices—called spectrum—for new players in the market.

What is “spectrum”, and why does it matter?

Spectrum is short for electromagnetic spectrum. The frequencies are owned by the government, numbered (think of your radio dial) and licensed off. The government’s goal is to protect any two companies from operating on the same frequency, in the same area, and jamming the signal. It auctions off the spectrum in geographic blocks, and restricts how much of the spectrum the large carriers can control. In June, it announced new plans to review proposed deals to transfer those spectrum licenses between wireless carriers, and it has turned down a bid by Telus to take over Mobilicity’s spectrum licenses. It has also forced the large carriers to provide roaming to competitors and share their cell towers.

So what’s Verizon actually looking at buying?

The company is reportedly interested in Wind Mobile and Mobilicity, two small carriers with about 600,000 subscribers and 250,000 respectively, or about 3 per cent of the national market (the big three, on the other hand, collectively account for 24,751,075, or as stated, pretty much everyone). Verizon is reportedly offering $700 million for Wind Mobile, and is “in talks” with Mobilicity. It’s also considering entering an upcoming government auction for new spectrum. The next auction, set for January, is particularly important for telecom companies because of the kind of frequency that’s up for sale: 700 MHz. With the ballooning number of mobile devices taking up increasingly large amounts of spectrum, companies are keen to beef up their holdings. The 700 MHz frequency is particularly valuable because it gives carriers a wider reach, which means they need less of those expensive cell towers.

Why are the big three arguing Verizon’s getting an unfair advantage?

The telecoms are making a few points here. One: they argue that Verizon, if it does purchase Wind Mobile or Mobilicity, will get those companies at “bargain” prices. Because government restrictions prevent established Canadian companies from buying small carriers, the big telecoms believe lack of competition among buyers will push down the price of the smaller companies. Two: they argue that Verizon, if it does purchase Wind Mobile or Mobilicity and then enters the upcoming auction, will get access to chunks of the spectrum set aside for small players. This is what Cope at Bell is calling a “loophole,” because government efforts to help the little guy could actually help a very big American company. Verizon would also be able to roam and share towers run by the big three, Cope says (as part of the government’s policies to increase competition, explained above).

Will Verizon be any better?

As Macleans tech blogger Jesse Brown puts it, Canada’s current system offers “confusing illusions of choice.” There are more than two dozen mobile carriers across the country, and many of the smaller ones, like Fido, are owned by the big ones (in that case, Rogers). So, consumer groups see much to cheer in Verizon’s potential bids. They argue average Canadians will be the big winners in the deal: more competition will mean lower rates. Plus, a big company like Verizon has the ability to offer cheaper phone bills or better services, or both, and survive where others have struggled.

Not everyone is convinced, though. Greg O’Brien, editor the telecom industry news site cartt.ca, told the CBC that he doesn’t think much will change. “Verizon is a premium carrier in the United States, they’re not a low-cost carrier,” he said. Thus, it’s unlikely to offer bargain prices.

There’s also the belief held by some that Americans pay less than Canadians for cell phone plans, which leads to the belief that Verizon’s move could mean cheaper prices. But a series of studies have found that Canadians, while not enjoying the best wireless rates or services, aren’t getting the worst, either—and they’re getting better deals that Americans. A study commissioned by the CRTC and released in July found people in the U.S. pay more—in some cases, considerably more—than those in Canada (or the U.K., Australia, France or Japan). An Organization for Economic Cooperation and Development (OECD) study published that same month found that while Canada ranks among the top third most expensive countries for a range of wireless plans, it does better than the U.S. on most data plans (Canada tops out at $170.56/month, for the U.S., it was $282.82/month).

Where does the government stand on all this?

In a series of announcements and interviews over the last few years, Industry Canada hasn’t changed its tune. The government is keen to structure the wireless sector in a way that will support a new carrier who could take a bit out of the big three’s market. But it hasn’t completely shut out the arguments from Bell, Rogers and Telus. The new Industry Minister, James Moore, has reportedly met with executives to hear their concerns. There is somewhat of a deadline looming for all involved, and that’s Sept. 17, the deadline for application to participate in next year’s spectrum auction. If Verizon doesn’t close a deal or sign up by then, the depth to which it could expand north shrinks significantly. If the government leaves its policies as they are, it won’t be able to stop Verizon. And the big three have until then to plead their case—and their market share.


 

Verizon, the Big Three, and what the heck is spectrum?

  1. We need Ting.

  2. I am waiting for an explanation from the Harper government as to why Canadian federal taxpayers should transfer money to Verizon shareholders – because that is what failure to hold an open auction amounts to. Verizon is a well-established company, not a start-up; if it wants to enter new markets, it is capable of finding the capital itself: cut costs, issue debt, cut dividends to shareholders. And what is at stake – “more competition” – is not cheaper essential telecommunications, but merely cheaper downloads of banal videos and all the other pointless trivia of people’s lives that they are obsessed with sharing. Why not a subsidy for overpowered and over-equipped pickup trucks as well?

    • I’m sorry, but the big three and all of you posters that work for them, just don’t get it. It isn’t just about price. A lot of us just can’t stand the big three, and we want the chance to jump ship just so we don’t have to deal wityh them any more. If we get a price discount, that’s a bonus.
      The big three have treated Canadians as sheep to be sheared for a long time. They got most of their spectrrum for free, and then gave us one of the most expensive wireless markets in the world. It just adds insult to injury when they come to us now, wrapped in a flag, asking for support so they can maintain their hight priced monopoly.
      I’ll go to Verizon, even at the same price I’m paying now, just to put a tiny pin prick in their smug, greedy arrogance.

      • They don’t even treat their employees well. How many jobs have been shipped overseas? How many TFWs do they employ? And they have the audacity to claim to be acting in our national interest? Please.

      • I don’t care whether Verizon comes to Canada or not, and I don’t care whether you jump ship if Verizon does. Fill your boots. I support open and level competition. I do care whether your cost break comes at my expense as a taxpayer. Your greed is irrelevant to public policy.

        • And yet you somehow think the oligopoly currently in Canada doesn’t come at your expense?

          The problem isn’t our government spending our tax dollars now.. it was our government spending tax dollars for years protecting the big three from actually having to have an open auction.

          They’ve done it for so long that now there simply isn’t any chance of an open auction occurring because the big three have such economies of scale on their side here.

          Hell, if Verizon wanted to do this below board, the easy way to do it would be to agree to back Mobilcity or Wind’s auction bids in exchange for an option on a majority shareholder’s stake in the company after the auction. Which I expect is what the big three are going to argue will happen so that they can put pressure on the government to end any chance of *any* company, foreign, or domestic, of challenging their monopoly.

          • I’m sure well-established companies in Canada reaped unfair advantages in the past, and the same for companies in the US. But it’s beside the point. Everyone has to compete in the market as it is now, not as it was then.

    • And I am waiting for a solid explanation from the Big 3 on why they deserve continued protection. We’ve protected the Big 3 for decades from foreign competition. Today, they have the highest average revenue per user (ARPU) in the developed world and the third highest margins in the OECD. On top of that, they’ve exported thousands of jobs to India, the Phillipines and Africa, while hiring Temporary Foreign Workers (TFWs) at home.

      Every time the spectre of competition shows up, they resort to shenanigans and starve them out. Clearnet and Microcell/Fido in the last decade. And now Wind and Mobilicity. The Big 3 love dirty tricks. Clearnet and Microcell failed because the Big 3 gave them no network access which never allowed them to gain market share and scale up. So now the government mandates network access and tower sharing. The Big 3 put up inactive antennas and claim the towers are full or allocate poor positioned antenna emplacements to Wind and Mobilicity.

      What’s at stake isn’t endless youtube cat videos. It’s billion in GDP and thousands of jobs. A study by Videotron (a near Big 3 telco), estimated that a more competitive telecom marketplace would have added anywhere from $14 billion up to 5% of our GDP. How much is that is jobs and impact to our quality of life? Our uncompetitive telecom sector is impacting every other aspect of our economy. It’s unacceptable.

      I, and many other Canadians, fully support the government on this. If I had my way, the government would completely lock the Big 3 out of the next spectrum auction. After all, they have 85% of all wireless spectrum already allocated. What have they done with that? Unfortunately, this government still treats the Big 3 with kid gloves. So be it. I’m glad they are at least opening up the sector to competition. And doing so by creating a regulatory regime that gives a new entrant a fighting chance.

      • You’re addressing issues that don’t exist. The big 3 aren’t asking for protection; they’re asking for one set of conditions under which all participants must compete. Citing figures for wireless only, when the big 3 have responsibilities and mandates that go beyond wireless, is misleading and does not allow anyone to draw any informed conclusion – you need to assess all aspects of the industry. A hypothetical study by Videotron is worthless – we can all hypothesize anything we want about the economy and many people do. It’s another dead air argument that fails to address any real issue in concrete terms. As for what is “unacceptable” – what is unacceptable is the federal government forgoing revenue while it runs deficit, merely on the basis of “hope”.

  3. I didn’t even read this article. I’ll just say this:

    Bell, Rogers and Telus… and every other Canadian service provide is complete trash, con-artist TRASH. I’m tired of this monopolized trash. Bring in the ACTUAL competition.

  4. You would think Rogers bell and Telus by now get an idea that people have figured out how ripped off they are. It’s not a competition when everyone has the same plans, contracts and wireless features. They big 3 has never ever even tried to compete against each other!

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