Scaring off Verizon Communications Inc. from Canada’s wireless market could be no more than a small battle victory in a losing war for the country’s big three telecommunications giants, according to one Toronto competition lawyer.
Verizon confirmed that Canada was off its agenda in early September. The move followed a co-ordinated attack by Telus Communications Co., Rogers Communications Inc., and Bell Canada on the “unfair advantage” they said the U.S. company would get in the upcoming spectrum auction if it were to enter the wireless market here.
Prime Minister Stephen Harper’s government answered back with a public relations campaign of its own to rebut the claims led by its new industry minister, James Moore. The federal government has publicly stated its desire for a fourth wireless carrier in every market across the country and was reportedly keen to entice Verizon to bid in the auction slated for January 2014.
Jeremy Richler, who practises competition law in Toronto, believes the big three companies attracted few friends in the process among Canadian consumers who already feel overcharged and underserved by the domestic giants that between them control more than 90 per cent of the telecommunications market.
“I think in the short term, it leaves the federal government in a bit of a bind but down the road not much has changed,” says Richler.
“Verizon is not a buyer, but that just means someone else will pick up the slack later. Bell, Telus, and Rogers might have done well for now but they’re only fuelling resentment in the long run. The Conservatives are finding they can be bullish about them and not lose out in the polls.”
Competition lawyer Steve Szentesi, who runs the Canadian Competition and Regulatory Law blog, says he expects the Conservatives to continue encouraging foreign investment in the Canadian wireless market.
“The government seems too intent on having a fourth carrier. They’ve sent very strong signals on that. That’s got to be a new entrant. Whether it’s Verizon or another one, they really want a fourth player,” he says.
In news releases and open letters released on Aug. 1, Telus, Rogers, and Bell each said they welcomed competition but only on a “level playing field.” All three objected to the rules of the upcoming auction for blocks of 700-megahertz spectrum that would have allowed Verizon or any other new entrant to buy two of the four prime blocks and would have left the big three companies to fight it out over the remaining two blocks.
Verizon could also have purchased existing smaller players to boost its entry into Canada and had reportedly explored a $700-million bid for one of them, Wind Mobile. The big three companies said this was unfair because the rules barred them from doing the same thing. Earlier this year, the government blocked Telus from taking over Mobilicity, another small player once apparently on the radar of Verizon. All of this activity followed the lifting of foreign-ownership restrictions on wireless carriers with a market share smaller than 10 per cent by former industry minister Christian Paradis.
Paradis’ successor, Moore, dismissed the campaign as “misleading” and “dishonest” while insisting in a statement that “protecting consumers and increasing competition in the wireless market are priorities for Canadians and our Conservative government.”
But in early September, Verizon chief executive officer Lowell McAdam changed the game by telling Bloomberg News: “Verizon is not coming to Canada.”
Speculation about its imminent arrival was “overblown,” he added. The news came as the U.S. company announced its US$130-billion buyout of the 45-per-cent stake British carrier Vodafone Group PLC held in its wireless business.
Richler says Verizon’s swift retreat shows foreign companies need sweeteners in order to compete in the Canadian market.
“The market share of the big three is so dominant that nobody else can compete at the scale the government and consumers want or need,” he says. “It may be a good thing that Verizon has left since it didn’t seem so much that people wanted Verizon as they wanted competition.”
Michael Osborne, a partner with Affleck Greene McMurtry LLP in Toronto, says he would have welcomed the entry of Verizon.
“Most competition lawyers are going to take the view that entry by a large, well-funded competitor is a good thing,” he says. “The idea that Verizon would get a sweet deal strikes me as unlikely. They would be paying market value.”
Richler says he foresees even looser restrictions on foreign entrants to the wireless market in the future as the government attempts to bring in more carriers but warns it to proceed with caution.
“You don’t want to give away the store,” he says. “But if you don’t make certain changes, it’s going to be damaging to consumers.”
Szentesi says he’s not so squeamish about opening up the telecommunications market to foreign players.
“If you want genuine competition, open the door, deregulate the market, and let it decide. The sort of tinkering the government is doing is never going to achieve anything like market forces,” he says.