Verizon, the Big Three, and what the heck is spectrum? - Macleans.ca

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

A breakdown of the arguments in the wireless industry battle

by
Shutterstock

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.