The gift of Verizon

Yesterday, the Honourable James Moore, Minister of Industry, posted on his website that the Harper government “will continue to stay the course by ensuring Canadians benefit from a competitive telecommunications industry.” The post signals that the government appears to have ignored the serious concerns raised by a broad range of voices. Rather, the government seems intent on following through on its misguided attempt to rig the rules as much as possible to entice a massive foreign telecom carrier to enter the Canadian market despite the very real damage this will cause Canada.

All speculation suggests that our government’s carrier of choice is Verizon. As the second-largest telecommunications company in the U.S., Verizon has a market value of approximately $140 billion – nearly twice that of TELUS, BCE and Rogers combined, and 99 million wireless customers – almost four times as many as Canada’s three national competitors.

The government claims that their policies will protect consumers and result in lower prices for Canadian families. However, Dvai Ghose, head of research at Canaccord Genuity believes the government has taken a populist approach to the wireless file and its policies may backfire if Verizon enters the market and only competes in already competitive urban centres, as it has indicated it would.

If Mr. Harper and Mr. Moore are intent on rolling out the red carpet to welcome Verizon to Canada, they should be careful what they wish for – there could be dire, yet foreseeable, consequences that are not in the best interest of Canadians.

Consequence one: wireless prices go up, not down

As noted in a Globe and Mail article, Verizon’s entry into the Canadian market could be as a “white knight” – as the government hopes, or as a “Trojan horse” – a possibility that the government and our industry’s critics neglect to talk about.

Verizon is not a discount brand. In fact, their American customers pay prices that are higher than what TELUS customers pay.

For customers who want a top-tier smartphone (like an iPhone 5 or Samsung Galaxy S4), Verizon’s minimum monthly spend is $80 (U.S.), while TELUS’ is $70 (CAN) for a comparable plan. For a plan that includes unlimited nationwide talk and text plus 1 GB of data – the most popular option with our customers – Verizon customers pay $90 while TELUS customers pay $85. Even before prices are adjusted for exchange rates, TELUS’ customers are already paying lower prices than Verizon’s.

For those who have been misled into believing that Canadians pay the highest wireless prices in the world and want to verify this for themselves, go online and take a look at Verizon’s Share Everything plans and compare them with our new SharePlus plans.

For customers (and politicians) who think that Verizon is going to cross the border and slash prices, think again. Verizon is not in the business of losing money. CBC reported this week that Verizon is unlikely to lower prices, noting that the “U.S. giant is a premium carrier, not a low-cost competitor.”

If Verizon enters the Canadian market, it will still have analyst expectations to meet, investors to answer to, and brand value to protect. Its actions will be driven by profitability, revenue growth and return on investment – not becoming Canada’s national discount brand.

Consequence two: Canada’s regional carriers become uncompetitive

One fact that often gets overlooked in debates about Canada’s wireless industry is that in half of Canadian provinces there is already a well-established fourth carrier. These are not fledgling start-ups; SaskTel, MTS, Videotron and Eastlink are well-established regional carriers with cutting-edge networks, the ability to compete with bundled wireless and wireline services, and reputations for excellent customer service.

If the government proceeds with the current 700 MHz auction rules, these smaller Canadian companies stand a good chance of being shut out of the next generation of wireless services. Verizon – which interestingly has publically stated that it opposes special rules for well-funded bidders in their home market – would be treated as a “new entrant” and therefore could bid against Canada’s three incumbent national carriers for three blocks of spectrum, and against real new entrants and regional carriers for the remaining block. The auction would become a battle of the deepest pockets with Verizon easily outbidding all new entrants and regional carriers for as much of the enormously important 700 MHz spectrum it can get, along with potentially shutting out one of the national carriers. As the National Post reported, “If Verizon participates in the auction for spectrum in the 700-megahertz frequency band, as a new entrant it will be permitted to bid on up to two out of four blocks of the radio waves, while the incumbents will be limited to just one block. In Quebec or other provinces where a fourth player already exists, the regional player could get squeezed out entirely.“

No new spectrum for a Canadian carrier means network congestion, more dropped calls and slower wireless data speeds. Additionally, 700 MHz spectrum gives carriers the capacity to offer next-generation wireless speeds. If regional carriers like Videotron and Eastlink are unable to acquire this spectrum, they will eventually be unable to offer a competitive level of service – putting their futures, along with those of their employees and investors, at risk. It makes you wonder why our government would sacrifice these Canadian enterprises’ futures by helping out an American company that clearly doesn’t need the help.

We are not by any means proposing Verizon be barred from the auction – only that they be required to play by the same rules we are.

Consequence three: Canada’s rural communities suffer from diverted investment

Fran Shammo, Verizon’s Chief Financial Officer, has indicated that Verizon’s interest could be limited to the big cities in southern Ontario and Quebec. Even if Verizon looks outside those two provinces, to maximize the return on their investment they would almost certainly focus on Canada’s urban centers. In order to remain competitive this would force TELUS and other carriers to focus their competitive efforts (including network investment and marketing) in Canada’s most densely populated areas and not on rural areas, where TELUS is proud to provide world-class wireless service today.

Additionally, if Verizon is able to bid on two blocks of 700 MHz spectrum, intense bidding will drive prices sky-high, as no incumbent will be willing to lose out on an asset that is absolutely crucial to meeting their customers’ ever-growing needs in the future. This will unnecessarily suck money out of the industry that would otherwise go towards technology and infrastructure, particularly outside the biggest cities.

Increasing competitive efforts in urban centers and overpaying for spectrum would ultimately divert investment from Canada’s rural communities; investment that would provide vital economic, healthcare, safety, and education benefits across rural Canada.

Consequence four: Putting Canadians’ privacy at risk

Verizon’s “Share Everything” plans have recently taken on a whole new meaning in light of reports that the carrier has been providing the U.S. government with information about calls placed between millions of their customers, a scandal the New Yorker has deemed “an outrageous breach of the privacy and rights of American citizens.” As a U.S. company, Verizon is bound to comply with the Foreign Intelligence Surveillance Act and the Patriot Act. It’s entry into the Canadian market would require significant oversight by our government to protect the privacy of Canadians.

TELUS, on the other hand, is well known for its strong protection of our customers’ privacy, having gone to court to defend our customers’ interests several times. In March of this year, the Supreme Court of Canada sided with TELUS in ruling that Canadians’ digital communications should get the same privacy protection as voice conversations during police investigations.

A level playing field is in the best interest of Canadians

TELUS will always welcome healthy competition, but the federal government’s current policy framework would hand unfair advantages to a massive foreign organization. All we are seeking is a level playing field from our government that provides us:

  • An equal opportunity to purchase spectrum, rather than allowing far bigger foreign companies inexplicably to buy double the prime spectrum that TELUS would be allowed to bid on;
  • An equal opportunity to compete to acquire Canadian-based companies, such as Mobilicity, that we are currently barred from purchasing today; and
  • Fair government regulations that require foreign companies to deploy their own network infrastructure instead of piggybacking on the backs of our investments. Clearly, foreign organisations such as Verizon have deep resources and can afford to build their own networks, just as we had to do. This approach would increase economic investments and foster jobs across Canada.

The government would like us to believe that providing special incentives and benefits to a deep-pocketed foreign carrier will lower prices for Canadians – it’s a great taking point in a short-sighted electoral strategy, but it’s a poor strategy for the long-term health of Canada’s wireless industry. There’s no guarantee the government’s policies will lower prices for Canadians, yet the government seems willing to bet on it at the expense of  Canadian jobs and investments, regional carriers, rural communities and the privacy of Canadian citizens. These are real concerns that should be shared by all Canadians.

Tilting the playing field in Verizon’s favor could cause irreparable harm to Canada’s wireless industry that will take more than one election to fix – it’s a bad call for Canada.