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How Quebecor’s unit attained wireless success

Quebecor headquarters in Montreal.

Robert J. Galbraith/The Globe and Mail

If there is one newcomer to the Canadian wireless scene who is happy with his market position, it is Quebecor Inc.'s controlling shareholder Pierre Karl Péladeau. His Vidéotron Ltée unit now counts more than 400,000 wireless subscribers in Quebec less than three years after its September, 2010, launch.

Of course, it would be hard for Mr. Péladeau to feel otherwise, given that he got everything he wanted when Ottawa set the rules for the 2008 spectrum auction that enabled his company to enter the wireless market.

In late 2006, as consultations were under way in Ottawa to determine the rules for the spectrum auction, Mr. Péladeau turned to long-time adviser Luc Lavoie – an influential communications strategist and a former spokesman for prime minister Brian Mulroney – to charge up Quebecor's efforts. The company was looking for three things: a set-aside of 40 of the 100 megahertz of available spectrum that only newcomers to the wireless business could bid for; mandatory roaming on the network of the incumbents; and sharing use of their communications towers.

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Mr. Lavoie crafted a full-on campaign that included full-page advertisements, speeches, studies and extensive lobbying, pushing on the lever that he knew would work with government: That the incumbents, left to their own devices, had kept prices too high, hadn't invested enough in the networks, and were using dated technology.

The incumbents argued that a set-aside was effectively a subsidy. Quebecor countered with a powerful image of a smartphone bound and squeezed in chains, implying that Canadians were prisoners of wireless giants that denied them better wireless service. Mr. Péladeau's key speech to the Canadian Club of Ottawa in April, 2007 – in which he said "there is a flagrant lack of competition in this sector" – so incensed the late Ted Rogers that he accused Mr. Péladeau of shaking the government down for "favours."

"That speech was full of holes," said one senior Ottawa telecom policy observer who is not associated with Mr. Péladeau. "But it defined the debate. Everything after that by the incumbents was catch-up."

The spectrum that Quebecor eventually purchased cost more than $500-million – an amount that Martin Masse, a former policy adviser to Maxime Bernier when he was industry minister in 2006 and 2007, feels was far lower than the company should have paid. "The set-aside was just a subsidy for Quebecor," he said, arguing that the company wanted the spectrum so badly it should have been willing to compete in an open auction against the incumbents.

But Quebecor had something else going for it: Unlike other upstarts, it was able to bundle its wireless offering together with cable, Internet and home telephone services, putting it on equal footing with rival Bell. It also had an established capital markets presence and solid cash flows from its other businesses, primarily Vidéotron, to help fund its entry into the market.

Eastlink, a subsidiary of Bragg Communications Inc., is also looking to make a go of a wireless business in its Atlantic Canada market with the spectrum it purchased in 2008. While it only launched its service this year, CEO Lee Bragg says the company deliberately took its time and learned valuable lessons from the struggles of the wireless-only upstarts. Like Quebecor, the company has the benefit of other businesses it can bundle with wireless – though as Mr. Bragg put it in an interview in February, "we have something to lose if we screw that relationship up."

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About the Author

Sean Silcoff joined The Globe and Mail in January, 2012, following an 18-year-career in journalism and communications. He previously worked as a columnist and Montreal correspondent for the National Post and as a staff writer at Canadian Business Magazine, where he was project co-ordinator of the magazine's inaugural Rich 100 list. More

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