Watch: Bernard Lord, President of the Canadian Wireless Telecommunications Association, doesn’t want government to interfere in wireless marketplace
Shares in the country’s major wireless providers spiked Tuesday — restoring billions in lost market value shed in recent weeks – following news that U.S. behemoth Verizon has no intentions of coming to Canada.
Lowell McAdam, the chief of the largest U.S. carrier, told analysts on a conference call his company can’t generate the profits it would require to justify entering the market here.
“So we never really seriously looked at this. I mean we looked at it but we never seriously considered the move,” he said. “And it’s off the table at this point.”
With the comments, McAdam brings to an abrupt halt weeks of rampant speculation that Verizon—which is roughly four times the size of Rogers Communications, BCE Inc, and Telus Corp combined—had designs to acquire struggling startups Wind Mobile and Mobilicity and establish a beachhead to take on the Canadian incumbents.
But the executive downplayed Verizon’s interest all along, calling Canadian media attention paid to comments from chief financial officer Fran Shammo in June about Verizon’s interest “way overblown.”
Analysts with clients who have watched shares in Rogers, Bell and Telus beaten up by the rumours had a unanimous message for them Tuesday: Buy.
“Given this clear indication from the highest position at the company, we expect wireless incumbents to react positively today,” Maher Yaghi at Desjardins Securities said in a note to clients before the Toronto Stock Exchange opened.
Read more: Is Verizon’s interest in Canada legit?
What’s changed Verizon’s mind about Canada, or rather eliminated the low probability of the company coming altogether is the blockbuster deal Verizon struck with Vodafone over the weekend to take 100 per cent ownership of the pair’s U.S. wireless business, Verizon Wireless.
The transaction – at $130-billion, it’s the second-biggest deal on paper ever by at least one estimate – means Verizon has nothing to spare financially on a Canadian campaign, Jeff Fan at Scotia Capital said in a note.
Analysts estimate it would have cost Verizon as much as $3-billion to acquire and merge Wind and Mobilicity and then build out the merged entity’s retail and network presence.
With Verizon removed from the picture, the outlook for consumers—and the fate of the feds’ combative policy to pursue a viable fourth carrier to compete against the Big Three—is even more unclear.
As Wind and Mobilicity’s competitive intensity has diminished, average revenue collected per subscriber at Rogers, Bell and Telus, called ARPU by the industry, has ticked steadily higher in recent quarters.
There’s been speculation that the spectre of Verizon’s entry nudged rates lower on some plans, but a trend that is now likely to reverse itself, some said.
Many analysts revised their profit forecasts for Canada’s big three carriers upward on Verizon’s pronouncement. Dvai Ghose at Canaccord Genuity said he expects total profits among the three companies to be between 3 per cent and 8 per cent higher through 2015 as a result.
“Incumbent ARPU is creeping up,” Iain Grant, principal at researcher SeaBoard Group said. “That is the focus of government and the reason we have seen [Prime Minister Stephen] Harper and [Industry Minister James] Moore so steadfast in defence of the current wireless policies.”
But experts now suggest the three “loopholes” the government has in place to attract a fourth carrier may no longer be enough. To start, interested parties would have to submit a deposit to Ottawa by Sept. 17 to take part in an auction for airwaves next year.
The spectrum sale allows “new entrants” like Verizon, Wind or any non-incumbent to buy double the amount allowed by Rogers, Bell or Telus – a move aimed at letting the newcomer acquire enough to launch mobile data services comparable to what the three can offer.
But in a note to clients, Ghose said: “We doubt there is enough time for another foreign wireless carrier to show up for the spectrum auction.”
The struggles at Wind, which is owned by European giant VimpelCom, as well as Verizon’s pass on the market, might well discourage others, he said.
“Given Verizon and VimpelCom’s assessments of the Canadian market, we wonder if any foreign carriers are interested.”
That could leave Ottawa to perhaps wade into direct price fixing in areas like roaming, the analyst suggested, citing comments made by regulators.
How much impact setting prices for subscribers abroad can have on average monthly bills remains to be seen – revenue generated by roaming among the big three amounts to less than 5 per cent of their combined total.
“Consequently, we conclude that the Canadian carriers may have come out of the ‘Verizon episode’ even stronger than they went in,” Ghose said.