The price small wireless players pay when their customers roam on their competitors' larger networks has emerged as a central issue in the debate over sustainable competition in the industry, and with a federal election on the horizon, it's one Ottawa is likely to pay close attention to.
Quebecor Inc. recently mused publicly about expanding its cellular business outside of Quebec. In an announcement observers say was clearly intended to lobby the federal government, the company emphasized much of its decision will turn on whether it can count on "fair" domestic roaming rates.
Quebecor's comments come as the Conservative government looks ahead to next year's election and tries to prove its wireless policy of a viable fourth player in every region is not a failure, says Barclays Capital Inc. analyst Phillip Huang.
"We believe the government continues to view Quebecor as the best made-in-Canada solution to their four-player policy," he said in a research note Monday, adding that while the Canadian Radio-television and Telecommunications Commission is launching a hearing on wholesale roaming rates on Sept. 29, Ottawa's stance will hold great sway.
Ottawa has introduced legislation on the rates wireless players charge each other for domestic wholesale roaming, capping them at no more than what they charge their retail clients. The bill, which the government said would implement the caps on an interim basis pending the CRTC review, received royal assent on June 19 with an effective date still to be set.
"While the government has assigned pricing regulation to the CRTC, it ultimately has the final say on policy direction," Mr. Huang wrote.
He recalled a 2009 spat between the telecom regulator and Industry Canada, when the federal department stepped in to overrule the CRTC's decision on Wind Mobile's Canadian ownership status and clear the way for the startup carrier to begin operating in Canada. However, leadership has since changed at the CRTC and the commission has moved in a pro-consumer direction under Jean-Pierre Blais.
"Under the current CRTC chairman, we believe such disagreements with the government are less likely," Mr. Huang said.
Quebecor's wireless division, Vidéotron Télécom Ltée, won licences for cellular airwaves in the recent public spectrum auction and the company is eyeing the spectrum holdings of startups Wind and Mobilicity. Vidéotron operates a traditional cellular network in Quebec and CEO Pierre Dion insists the company would continue to invest in its own networks if it expands. But analysts say the company would also rely heavily on roaming on the incumbent players' networks – the reason it places so much importance on the guarantee of favourable rates.
If Quebecor decides not to operate its own network across the country, some analysts say Ottawa could still spur competition through what is known as a mobile virtual network operator or MVNO model, which is based primarily on reselling network access rather than making large capital investments in spectrum and cell towers.
Greg MacDonald, head of research at Macquarie Capital Markets Canada Ltd., said last week that while the MVNO model is likely not the government's preferred option, it is a possibility.
Orange SA, a multinational carrier based in France, met with CRTC and government officials last year to discuss the Canadian wireless market and Mr. MacDonald noted Orange recently made a filing in the CRTC's domestic roaming consultation, requesting more favourable rules for access to Canadian incumbent networks.
"The government could very likely consider [the MVNO model] if a facilities-based scenario does not pan out," Mr. MacDonald said.
Others industry watchers suggest Ottawa might not be keen to pursue more competition at all costs, noting that some European markets that had four carriers are now questioning their viability, and consolidation is taking hold. Some also question whether the incumbents – Rogers Communications Inc., Telus Corp. and BCE Inc. – would continue to invest heavily in their own networks under an MVNO scenario.
"Politics and regulatory are fickle games, and what is good today may not be tomorrow," Dvai Ghose, head of research at Canaccord Genuity wrote in a recent research note.