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Wireless incumbents losing war of words with Ottawa

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The impending Canadian wireless auction has elicited the passions of the executive class. Leaders of Canada's big three wireless carriers are throwing mud at the federal government, which is throwing it back, over the possible entry of U.S. giant Verizon Communications Inc. into the market thanks to Ottawa's policy machinations. This week BCE Inc. director and long-time Conservative Tony Fell accused the government of "political populis[m]", while Industry Minister James Moore called the wireless firms' lobbying campaign "dishonest." But while the incumbents have legitimate gripes, none of it matters if they can't explain to Canadians how blocking Verizon would benefit consumers.

There's no question that the government has gerrymandered the rules to favour Verizon. The company can bid for two of the four prime blocks of spectrum up for grabs in January, while BCE, Telus and Rogers must fight over two others and buy no more than one each. Verizon can piggyback on their networks, cherrypick the best customers in big cities, and likely handle back office functions in the U.S. This will force the incumbents to cut spending and jobs, which Verizon probably won't replace in Canada. It is unseemly to give so many advantages to a U.S. giant.

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Even with all those benefits, there's no guarantee Verizon will come – or succeed. It will not aim to undercut the big three; in the U.S., it charges premium prices. (Consumer discontent is hardly unique to Canada – Americans feel that they pay too much, and hate their wireless carriers, too.) And Verizon would have to build its franchise from scratch. It could offer better U.S. roaming to Canadians and probably better-priced handsets, but it doesn't offer television, home phone or Internet, so it would be challenged to steal bundled customers from the incumbents. Even if it captures 20 per cent of industry operating profits, it would have a business worth around $10-billion. Verizon's market value is about sixteen times that level. That's a big bother for such marginal upside.

At any rate, the incumbents' message is D.O.A. . The problem with their public campaign is that it's all about what's good for them, but doesn't address how consumers would be better off if they get their way. Most Canadians couldn't care less if Verizon hurts the big three wireless providers.

Letting Verizon in doesn't guarantee more dynamic competition or lower prices. But Ottawa doesn't even need it to, given how the telcos have bungled their lobbying. For voters, watching the incumbents squirm is satisfying enough.

Disclosure: I own a small number of Verizon shares.

Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Sean on Twitter at @seansilcoff.

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