A Wind Mobile store.Sarah Dea/The Globe and Mail
The big wireless carriers are daring the government of Stephen Harper to do something drastic to save a dream of more competition in the cellphone business.
History suggests the Conservative government will react, and strongly.
BCE Inc. and Telus Corp. essentially dared the government to stop income trusts by threatening to become one. So the government killed trusts.
BHP Billiton dared the government to stop a huge foreign takeover of a resource company. So the government blocked the deal.
Is this a government you want to poke with a stick? In this case, the pokes are coming pretty quickly.
First, Rogers Communications Inc. struck an option deal to buy Shaw Communications' spectrum as soon as the restrictions on the airwaves being sold to an incumbent come off next year. Then Telus entered exclusive talks with one of the three small, independent wireless companies, Mobilicity (which is legally known as Data & Audio-Visual Enterprises Wireless Inc.). Given what is going on, with backers of smaller entrants basically giving up, analyst Greg MacDonald of Macquarie opined that "the market is likely pricing in the effective death of the 4th carrier." All of this is going to sit badly in the federal cabinet.
When the government started getting word of all these deals to lock up spectrum that had been set aside for new wireless competitors, Industry Minister Christian Paradis launched a review. He signalled Monday which way he is leaning, telling reporters that "the intent of the policy was not to have this set-aside spectrum to end in the hands of incumbents."
So what are the options for Mr. Paradis? And how likely is he to try levers ranging from simply pushing harder on such small but important issues such as tower sharing to using the nuclear option of – at last – moving to end ownership restrictions on the big telecom companies such as Telus? Here, thanks to Streetwise's proprietary prediction model (i.e. my best educated guess) are some of the main options and the likelihood that they come to pass.
1. Push harder on tower sharing and roaming.
The incumbents have been notoriously recalcitrant to share their networks, and their tactics may sound awfully familiar to anyone who ever booked a service call to get their phone fixed. There are tales of technicians from incumbents agreeing to meet new entrants at a tower so the competitor can put up gear to improve a network. Then nobody shows. The government can be much more aggressive on forcing access to infrastructure. Where's the downside?
Odds: two in three.
2. Say no to Rogers Communications Inc.'s planned purchase of spectrum from Shaw Communications, and to Telus's attempt to buy Mobilicity to get its spectrum.There are people at the companies who believe they have found a way to do something the government clearly does not want done, through Rogers structuring its deal as an "option." Don't bet on that logic holding up, especially in light of Mr. Paradis's comments Monday. "If Shaw cannot sell its spectrum to Rogers, perhaps it will be forced to sell to new entrants at a cheaper price, which would again make a consolidated new entrant scenario more likely," Mr. MacDonald has written. "This is the most impactful policy lever the government has remaining to promote the existence of a fourth carrier – we conclude the outcome of the consultation is likely to be negative for incumbents."
Odds: Even.
3. Mandate mobile virtual network operator (MVNO) access to incumbent networks.
Ever seen a 7-Eleven or Petro-Canada cellphone? Then you know what MVNOs do. Wireless companies sometimes choose to sell excess capacity on their networks to other companies, which then sell it to consumers. When done on their own terms, it can be profitable for wireless companies to allow someone else to spend all the marketing bucks and just take a network rental fee. The government could go a step further by forcing network owners such as BCE Inc. and Rogers to open their systems at bigger discounts to larger, meaner competitors. That could force down prices and open a new route for competition. The cons, as pointed out by Canaccord analyst Dvai Ghose, are incumbents are less likely to invest in networks if they know they are going to be forced to share networks unprofitably. And it hasn't always worked in other markets.
Odds: outside shot.
4. Allow the big companies to be bought.
Even some of the potential targets are open to this. Telus head Darren Entwistle recently called on the government to lay out a map to ending the restrictions on foreign ownership of telecom companies.
The problem with this is it does not necessarily get the government its fourth player. It just brings in potential new owners for the top three, who might well be content to sit back and enjoy the oligopoly profits rather than competing as hard as Ottawa wants. The risk is the federal government simply transfers a Canadian-owned money machine to a foreign-owned one, with little benefit to consumers.
Odds: Slim as they come.
(Boyd Erman is a Globe and Mail Reporter & Streetwise Columnist.)
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