Verizon Communications Inc. may have lost interest in Canada, but the country's Big Three carriers are moving ahead with their battle to get Ottawa to rewrite its wireless policy.
Instead of declaring victory as their respective stocks rallied on Tuesday, Telus Corp., BCE Inc. and Rogers Communications Inc. renewed their call for Ottawa to close so-called "loopholes" in its wireless rules. The incumbents argue there is still time for the government to take action before a Sept. 17 application deadline for the upcoming spectrum auction.
The Big Three are concerned that another big foreign wireless carrier could make a last-minute move to take advantage of what they say are unfair inducements in the auction rules. A number of foreign carriers had explored a Canadian investment this year. The fear is that one of them could take a second look – especially now that they no longer have to bid against deep-pocketed U.S. giant Verizon.
"Verizon was just a focal point for the fact that ... the regulations regarding the auction need to be updated," said Stockwell Day, a director for Telus.
"In the broader marketplace, nobody can be exactly certain of the strategy or intent of another player," he added. "And there could always be, depending on any company and their board, there can be an 11th-hour resolution to make a swift move on something. So, that always leaves that element of unpredictability there."
AT&T Corp., T-Mobile, Vodafone Group PLC, Telenor Group and NTT Docomo have taken a look at the Canadian market, sources say.
AT&T, Verizon's chief rival in the U.S., eventually determined that there was no opportunity to win meaningful market share from incumbents although it was among the companies that took a look at acquiring start-up carriers such as Wind Mobile and Mobilicity. Among its chief concerns, was that Canada's wireless market would not be able to support a fourth carrier over the long-term.
Senior officials in Ottawa declined to say how long the federal government has known that Verizon had cooled on entering the Canadian market. They expect incumbent telecom firms will continue to lobby for changes to the auction rules.
Ottawa, however, remains confident a fourth player will emerge. Senior officials still anticipate a non-incumbent investor will step forward to bid on spectrum for key regional markets such as Ontario, for instance. They expect that any new players that obtain spectrum will likely find themselves considering a network-sharing deal with Rogers because that carrier's future needs for spectrum are so great.
The government is preparing for turbulence in the wireless sector. Officials anticipate Mobilicity could find itself in creditor protection during the auction period, when merger and acquisition activity is prohibited. Ottawa will be watching to see if VimpelCom Ltd. bids on new spectrum or sells Wind Mobile.
Separately, Industry Minister James Moore said it is up to the market to sort out what happens as the September deadline for spectrum bidders approaches. "Firms will react to this news and we'll see what happens on Sept. 17 and in January," Mr. Moore said. The auction is in January, 2014.
Telus's chief corporate officer, Josh Blair, said Tuesday his company remains interested in acquiring assets from struggling new-entrant carriers, if given the opportunity to bid. Currently, carriers like Wind and Mobilicity remain off-limits to incumbents before a federal prohibition on such deals expires next year. New foreign entrants are clear to purchase those assets – making it one of the three "loopholes" that incumbents want closed.
Additionally, the Big Three take issue with other rules that allow new-entrants to "piggyback" on their networks at commercially negotiated rates, while giving those newcomers the ability to purchase double the "prime" 700 megahertz spectrum up for auction in January.
Mirko Bibic, BCE's chief legal and regulatory officer, said an overhaul of the rules is necessary because it could also set the tone for future auctions such as one planned for the 2.5 GHz band.
Even without Verizon, Greg MacDonald, a telecom analyst with Macquarie Capital Markets Canada Ltd., said the federal government "will not roll over" on its wireless strategy which has a stated goal of ensuring at least four viable competitors in every regional market.
"Note that the government remains very firm on its plans to: 1) block new entrants spectrum transfers to incumbents, 2) maintain the current spectrum auction rules, which guarantee at least one premium spectrum block for new entrants in each market, and 3) as our recently published newsletter describes, analyze retail and wholesale roaming rates, which opens the possibility of tariffed roaming for new entrants on incumbent networks. At the least, the market must consider what this risk means for stocks," he wrote in a note to clients.
A spokesman for Catalyst Capital Group Inc., meanwhile, said the private-equity firm "remains open to continue to offering our restructuring and telecommunications industry expertise to the right player, provided the policy and regulatory environments are favourable." Catalyst has previously said it owns roughly 30 per cent of Mobilicity's senior secured notes and "will continue to explore the potential for a viable made-in-Canada fourth national carrier, as we protect our rights as a secured lender to Mobilicity."
Earlier in the day, Verizon chief executive officer Lowell McAdam said that a Canadian expansion is no longer in the cards: "We never really seriously looked at this – I mean, we looked at it but we never seriously considered the move. And it's off the table at this point."