On a spring day in 2004, executives from Verizon Communications Inc. politely informed a board meeting of Telus Corp. in Vancouver that they’d had a change of heart: Their company was done with Canada.
As corporate breakups go, it was an amicable one. The American giant’s 20-per-cent ownership stake in Telus had served both companies well. The CEOs were allies; then-Verizon boss Ivan Seidenberg was known to join Telus’s Darren Entwistle on conference calls with analysts, just to show his support.
But Mr. Seidenberg had better things to do with the money that was locked up in his friend’s company. The Canadian telecom market was getting bigger, with the rollout of faster networks and new smartphones, but the U.S was growing more quickly and was more lucrative. For Verizon, home was where the action was and where investment was needed. Months later, it completed its sale of Telus shares for $2.2-billion.
Nine years later, Verizon is looking hard at Canada again – and the circumstances couldn’t be any more different.
If the U.S. company returns to the market, it would be as a potential aggressor – a threat to the dominance, or at least the profits, of Canada’s three wireless giants: Telus, BCE Inc. and Rogers Communications Inc.
Verizon’s overtures to buy up small and struggling wireless companies like Wind Mobile and Mobilicity take advantage of a new rule that allows foreigners to acquire telcos with less than 10-per-cent market share. If the deals come to fruition, it could mark one of the biggest shifts Canadian telecom has seen in decades.
With a $700-million (Canadian) preliminary bid to buy Wind, exploratory talks with Mobilicity, and an opening to bid in an upcoming auction of wireless spectrum, Verizon is angling to be more than just a passive investor this time around. It wants to be a player.
Two crucial things have happened in order to attract the company’s interest. The U.S. market has reached a saturation point, with cellphone adoption at more than 100 per cent, meaning there is more than one handset for every adult in the country. Canada, at about 80 per cent, still has some growth left.
The bigger change has come in Ottawa, where the Conservative government has bet political capital on a policy of bringing new competition into the wireless sector, and has gradually warmed to the idea of allowing a large foreign telecom company set up shop.
Having opened up the wireless sector to new competition about five years ago, only to see ambitious upstart companies like Wind, Mobilicity and Public Mobile fail miserably against the Big Three, the government wants to see a viable fourth player in every region more than ever.
If Verizon does set up shop in Canada, it will disrupt the wireless sector like never before – adding the most deep-pocketed competitor the sector has ever seen. But Ottawa may not necessarily get the outcome it so desperately covets: lower prices for consumers. Because as Canada’s phone companies know well, and as Verizon has shown in the U.S., you don’t get to the top of your industry by engaging in price wars, and by giving away the service at bargain-basement rates. In wireless, profits are a long-term game.
Trojan horse or white knight?
Based in New York, Verizon is a product of the wave of consolidation that swept through the U.S. telecom sector in the late 1990s.
Formed through a merger between two of the oldest and largest American phone companies, Bell Atlantic Corp and GTE Corp., Verizon made its debut in mid-2000 as the main rival to AT&T and Sprint in the battle for U.S. cellphone subscribers.
The name itself means nothing – it is a linguistic mash-up dreamed up by marketers who wanted to combine the optimism conjured by the word “horizon” with the reliability implied by the word “veritas,” the Latin word for truth.
Inside the industry though, Verizon is known simply as Big Red, a nod to the colour of its logo and its sheer size. At last count, Verizon Wireless had nearly 99 million wireless subscribers, which is roughly a 34-per-cent share of the U.S. market, ahead of AT&T and Sprint.
Verizon Wireless – a joint operation that is 55 per cent owned by the parent company and 45 per cent by Vodafone Group PLC of Britain – is the jewel of an operation that also sells Internet, television and home phone service. The wireless business operates the largest 4G LTE network (which stands for fourth-generation, long-term evolution) in the U.S., putting it at the forefront of the smartphone revolution.
The company has expanded through acquisitions in the U.S. and has built its name on the reliability of its wireless services.
Last year, it rolled out a “Share Everything Plan,” a strategy that has since been copied by Canadian carriers. The idea is to allow subscribers to share large amounts of data among multiple devices, including smartphones and tablets. For example, a family with two smartphones and one tablet can eat up four gigabytes of data a month, and talk as long as they want, for $160 a month before taxes and other surcharges. The strategy is not necessarily revolutionary, but it is aggressive, and it has resulted in lower customer turnover – something every wireless company fights for.