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How Ottawa's plan to foster wireless competition sank Add to ...

‘Today marks a new chapter for wireless in Canada.”

That was Anthony Lacavera’s bold declaration as he launched Wind Mobile on a chilly day in December, 2009. There was a buzz in the air as hundreds of people packed Toronto’s waterfront to watch the 35-year-old chairman unveil a six-metre statue of “Joe,” a tribute to the average Canadian consumer. Joe was a symbol for the millions of Canadians who would, presumably, soon be reaping the benefits – a lower cellphone bill – of increased wireless competition.

It was billed as a “historic day” for the cellular industry – and, in a sense, it was. Wind’s launch was the end result of a deliberate strategy by the government of Stephen Harper to deal with a burning issue for consumers: the high cost of wireless service in a country where three players dominate the telecommunications market.

In 2008, the government came up with a plan to set aside a portion of publicly owned radio waves – the means by which cellphone and other signals fly through the air – for new entrants to the wireless market. Three new companies – Wind Mobile, Mobilicity and Public Mobile were among those newcomers who took part in the auction.

There appeared to be pent-up demand for the new challengers. Tens of thousands of Canadians had flooded Wind’s “Wireless Soapbox” website with tales of high prices and poor service. Although the company, which was backed by Egyptian billionaire Naguib Sawiris, briefly stumbled on a hurdle when the CRTC questioned its ownership structure, the government eventually cleared Wind for launch.

Mr. Lacavera had every reason to be optimistic.

Three years later, the future is looking less friendly for Joe Canuck. Wireless prices have come down, but the government’s goal of creating viable alternatives to the Big Three in a $19-billion industry is teetering toward collapse. Wind is up for sale, and has struggled to gain a foothold. Its two upstart peers also face uncertain futures. Public Mobile has hired investment bankers to explore strategic options, after one of its main investors decided to cut its losses. And Mobilicity, after months of beating the bushes for a buyer, found a white knight in Telus Corp., which announced a $380-million deal to buy the company this week. If that deal does not get government approval, Telus says, Mobilicity is bound for “bankruptcy.”

The Telus-Mobilicity announcement was a powerful signal that the current government’s wireless strategy is on life support. If the deal goes ahead, it is just a matter of time before Wind and Public Mobile are also swallowed up by major carriers, while a big block of unused wireless licences currently held by Shaw Communications Inc. would likely fall into the hands of Rogers Communications Inc.

The political costs of a failed policy could be significant. The Conservative government has invested political capital in making life better for wireless consumers, tapping into public sentiment over long-term contracts and hidden fees. The deep financial problems of the new players are putting pressure on Industry Minister Christian Paradis to either help the new entrants with more regulation or admit defeat and allow the upstarts to fail or get swallowed up by Telus, Rogers or BCE Inc. – leaving the market in much of Canada exactly where it was in 2008.

How did it go so wrong?

“Look, obviously expectations were one thing and the reality has been something else – I think no one is going to deny that,” Mobilicity’s president and chief operating officer Stewart Lyons said in an interview.

“All of the new entrants are in a relatively tough spot. You know, [it is] different for each one of us, but our spot, I would argue, is particularly tough. We obviously had high expectations, high aspirations when we launched the business three years ago, and some of those have not come to fruition.”

Roadblocks to success

“We will make pain, and they will suffer,” Egyptian telecom magnate and Wind backer Naguib Sawiris told The Globe and Mail in 2010.

A little more than a year later, he returned to say he regretted his decision to invest in Canada. “They take our money and they leave us to the dogs,” Mr. Sawiris said, suggesting the government’s wireless policy had really set up the new entrants to fail.

The three small upstarts have many gripes. While Ottawa reserved wireless licenses for new players in 2008, it stopped short of making other changes to ensure the upstarts’ long-term success.

Anxious to protect their market share, incumbents were allowed to launch more discount brands, such as Rogers’ Chatr and Telus’s Koodo, to compete with the still-wobbly trio of upstarts.

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