Verizon Communications, owner of one of the largest cellphone providers in the United States, has reportedly made an offer to buy Wind Mobile and possibly Mobilicity, two newcomers to the Canadian market who have each struggled to compete against the big mobile providers Rogers, Bell and Telus.
If true, the entry of Verizon to Canada could significantly alter the landscape and secure four long-term competitors in every region coast to coast, and in some areas like Quebec, five. Below are five key questions that address why U.S. cellular giant may be coming to Canada, and how that could affect your wireless bill.
Why is Verizon considering coming to Canada?
Ottawa has attempted to establish multiple new carriers across the country in recent years to nurture more competition in a mobile marketplace that by late 2009, when Wind Mobile first launched services, had seen prices creep to among the highest in the developed world.
Though Wind and rival Mobilicity initially drove down prices industry wide, each has struggled to meaningfully win over enough consumers to be viable long term. Weaker networks and minimal brand recognition haven’t helped. Telus offered to buy Mobilicity earlier this year, but the government rejected the proposal, electing to instead continue to pursue a plan to see four viable competitors in each region of the country.
With both Wind and Mobilicity losing money and up for sale – and incumbents blocked by Ottawa from buying them — Verizon appears to see an opening to acquire one or both and re-launch a stronger service backed by its formidable expertise and deep pockets.
How will a Verizon entry affect the current incumbent operators, Rogers, Bell and Telus?
Negatively. The stock prices of Rogers, Bell and Telus all fell sharply Wednesday in response to the threat. Rogers may have the most to lose however, according to analyst Dvai Ghose, who said in a note Verizon may concentrate early efforts on Toronto, the country’s biggest and most lucrative wireless market and Rogers’ home turf.
Verizon will also likely be an aggressive bidder in an upcoming auction for airwave spectrum Ottawa plans to hold next year. While Telus and Bell are expected to share the spectrum each can secure at the auction, Rogers could be challenged to secure its share of the airwaves.
“While all three national incumbents may suffer from a Verizon Wireless entry, Rogers may have the most to lose,” Ghose said.
How would it affect wireless prices?
Verizon is a top-tier carrier south of the border that prides itself on a superior level of service compared to less expensive competition.
If it takes the same brand approach to Canada, it may look to lift rates here. That will require plenty of money, however, to beef up Wind’s network, which currently is far smaller and less robust than those of Rogers, and the other two large Canadian carriers.
More spectrum will be mandatory as well, if Verizon is to offer comparable mobile Internet services. Wind customers can probably kiss unlimited usage good-bye if the U.S. carrier tries to position itself as a superior service instead of a scrappy newcomer looking to cut customers a better deal than what the “big guys” offer.
The alternative is that Verizon sticks with Wind’s approach as the lower-priced alternative, perhaps pitching a message that consumers have been charged too much for too long for the kind of quality service Verizon can provide.
Roaming rates for Canadian Verizon customers in the U.S. could be eliminated, too, something that might appeal to business customers.
“Are they going to be competitive and try to dislodge the Big Three – or be a high-value carrier?” Ronald Gruia, analyst at Frost and Sullivan said. “There’s more money in the latter, but it’s harder. They have to invest more, come up with new creative services.”
Aren’t foreign cellphone providers blocked from entering Canada?
No longer. Ottawa lifted that prohibition last year as part of its bid to introduce more competition to the market. The major caveat however was the condition that a foreign-owned company cannot hold more than 10 per cent market share across not just wireless but all telecommunications services, combined (including home phone, television, fixed-line Internet). Under that framework, Verizon is eligible to purchase both Wind and Mobilicity and still remain under that threshold. The rule also serves as a de facto block of any foreign takeover of one the major Canadian-owned providers.
What are the big incumbents saying?
“Bell is always ready to compete,” a spokesperson for the country’s largest telecommunications company said in an e-mail.
Still, Bell says allowing a foreign firm with a market capitalization greater than all there wireless incumbents combined to come in an compete with each is an “unintended consequence” of Ottawa’s pro-competition agenda. Verizon would indeed be deemed a “new entrant” at the upcoming auction for key airwaves, allowing it to buy up more than incumbents are allowed to. “It’s an advantage that Canadian carriers like Bell would never get in the US or anywhere else,” the company said.
“Favouring big foreign companies was clearly not the intention, and the government needs to address the issue as soon as possible.”
Verizon hasn’t substantiated the report.