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A Closer Look at How Bell “Welcomes any Competitor” to the Canadian Wireless Market

Bell was in full lobby mode yesterday with major advertisements and a new website arguing against a spectrum set-aside that could open the door to Verizon entering the Canadian market. CEO George Cope’s starting point is that “Bell welcomes any competitor, but they should compete on a level playing field.” Both aspects of this statement merit closer scrutiny.

Of all the incumbent telcos, Bell has been the most persistent in trying to limit or delay the removal of foreign investment restrictions that would open the door to new competitors. For example, Bell Canada’s July 2010 submission to the government’s consultation on changes to the foreign investment rules for telecommunications argued that no changes were needed since there were no problems in the Canadian market:

As Canada is among the world leaders in terms of recognized network infrastructure, the introduction of innovative products and services and price indicators, and since Canadian firms continue to have access to financing from foreign investors, it is not clear what problem this Consultation is intended to solve. Accordingly, the Government should not implement fundamental changes to foreign ownership rules based on ill-defined problems, particularly changes such as those embodied in Reform Options 2 and 3, which as explained below, will harm the Canadian companies providing the bulk of the investment, innovation and jobs in the Canadian communications industry and ultimately undermine the Government’s goal of eliminating the rural-urban digital and ICT divide in the medium and longer term.

Five years earlier, Bell also argued for delays in changes to Canada’s foreign investment rules as part of the Telecom Policy Review Panel. The Bell submission sought a full regulatory overhaul before the government tried to address foreign ownership:

The liberalization of ownership restrictions is likely to be inevitable given the globalization of world economies. That being said, Bell Canada believes that any change to current rules must only be enacted after the government has updated the overall policy and regulatory framework for the telecommunications industry.

Bell’s opposition to competition has not been limited to foreign operators. During the 2007 spectrum auction consultation, it also argued against any set-aside that many believed was essential to the entry of new competitors, stating:

It is Bell Canada’s firm belief that a spectrum auction should not be used as a vehicle to make artificial adjustments to the level of competition in the market.

Part of Bell’s argument has focused on the size of Verizon, with CEO George Cope claiming that the policy was intended for small players and that Verizon’s use of the provisions would somehow constitute a “loophole.” Yet there is no public record to suggest that the set-aside was intended solely for small players. In fact, during the 2007 spectrum auction consultation, Bell argued that the new entrants would be big companies:

it is likely that any new entrants would be well-financed firms currently well positioned in the industry with strong economic bases that would allow them to move into the wireless market without government assistance.

But what is particularly rich is the second part of Cope’s statement, namely Bell’s insistence that all it wants is a level playing field. As the company with a 133-year head start on a new foreign entrant surely knows, the playing field is not level for any new entrant. Bell and the other incumbents would have big advantages over a company like Verizon that include restrictions on foreign ownership for broadcast distribution, its extensive broadcast assets that Verizon could not touch, millions of subscribers locked into long term contracts, far more spectrum than Verizon would own, and its shared network with Telus that has saved both companies millions of dollars. If the government is planning to provide an entry point for a foreign operator (and Rogers says that it is actively courting Verizon), it is only because the Canadian market is already so heavily tilted toward the incumbents and limited competition.

15 Comments

  1. Its about policy everyone, not technicalities!
    My comments are in support of the above and are also aimed at the commenters here over the last couple weeks who have brought overly technical and one-sided arguments in support of Canadian telcos to the table. I am happy to be contributing here as an excited Canadian, as this blog is one of the best well-kept secrets in this debate, as its read by government, media, and executives at BCE, RCI, and T. Hi everyone :)

    In my opinion, the behavior of Rogers, TELUS and Bell since June should be embarrassing to those respective companies’ shareholders, employees, and even customers. Business enterprises all over the western world operate in a fluid, ever changing environment. Threats to existing business practices come from all over, be it new technologies, cut-throat competition, or regulatory policies. No shareholder, stock analyst, executive, or other stakeholder in the Big 3 has ever believed otherwise; there is always risk and its not easily predicted.

    Sure, Big 3 built their thousands of wireless towers expecting a market condition of X, and sure, contracts were offered and phones subsidized running a financial model of Y, but guess what Mr. Entwhistle, Mr. Cope, and Mr. Mohamed, things are shifting out of your direct favour.

    Instead of being true business leaders, these gentlemen are pounding the pavement trying to sway public and government opinion and threaten services with non-stop press releases, media interviews, and aggressive advertising campaigns. How well do they expect these activities to go over with a recorded population that is overwhelmingly anti-Big 3? Furthermore, these companies are trying to reach government and bureaucratic leaders with their expensive and flashy campaigns aimed at slowing down or changing the upcoming spectrum auction to tilt back in their favour.

    The Government of Canada has the absolute right to set policies and laws as they wish to govern the country — the only practical limitation on particular changes is that they must be constitutional. We have elected leaders to theoretically represent our best interests, and they are given wide powers to protect us. The policy choices pertaining to foreign ownership of small wireless telcos, and those associated with the upcoming spectrum auction, are well within Industry Canada’s perogative. The developments and rumors of a well financed foreign player entering the Canadian market is not scary news to the government, it is more akin to a dream come true. Does the Big 3 really think that the Government put together their foreign ownership rules and spectrum auction procedures so that another start up or private equity backed provider would emerge from the ground up? Mr. Entwhistle, Mr. Cope, and Mr. Mohamed, you need to take a step back and recognize that the rumors (if true) about Verizon, or AT&T, or Vodafone, or otherwise are exactly what the policy makers want.

  2. Its about policy everyone, not technicalities! (continued)
    Yes, the Big 3 complain about how “new entrant” should mean a start up company, but they are very misguided on this point. Mr. Entwhistle, Mr. Cope, and Mr. Mohamed know damn well that Canadian capital, start up and technical prowess in wireless communications is far behind that of the U.S., the UK and Asia, so of course they would want new market players to be Canadian and weaker. It is because Big 3 only feels comfortable competing where their options include buying out an emerging competitor or using their government sway to decimate the business creativity and options of anyone new.

    It is in Canadians’ interests to see a “new entrant” emerge that is well established, financed, and capable at delivering to a majority of Canadians a outside approach. It’s not about bringing in a provider that will offer bankruptcy-inducing prices or a flashy marketing campaign, but its about bringing in a corporation that doesn’t play ball with the copy-cat business practices of TELUS, Rogers and Bell. Yes, TELUS, Rogers and Bell will get a smaller slice of the market, and yes, their margins will suffer, but guess what, that is what happens when your industry treats your customers so poorly that the Government invisions an easy win coming down on you.

    When all the dust settles, and if I was in the position as a significant shareholder of RCI, BCE or T, I would attempt to have Mr. Entwhistle, Mr. Cope, and Mr. Mohamed all turfed for the way in which they handled their respective companies through this – gentlemen, look internally, be creative with your flexible businesses, and position yourself better for next go-around. You’ve already lost this battle, and shouldn’t expect the Government to give up such a great win for Canadians. To Industry Canada, stick to your guns, help a real competitor show Bell, Rogers, and Telus how its done.

    For those who may wish to attack my intentions: I am a lawyer and I do not work indirectly or directly for the government or any telco. I am a techie and citizen who is upset at how the three companies who offer virtually the same overpriced garbage have treated Canadians over the last 7-10 years. I also am upset at how such powerful executive leadership in this country is behaving — business school (and practice) should have taught them to be better prepared from a strategy and execution standpoint. Guys, its too much whining and not enough thinking and strategizing on your business models.

  3. “Fair” is a subjective term.
    It’s not “fair” our stock price might be affected
    It’s not “fair” we might have to charge less for our products
    it’s not “fair” to adjust our roaming tariffs
    It’s not “fair” to have to compete with another company
    It’s not “fair” our bonuses might decrease …

  4. A question
    Could someone explain how the Bell/Telus shared network works?

    Do they only share towers but use their own gear, or are they literally the same network, the difference being that Joe’s iPhone lists Bell as the network while Mary’s says Telus?

    Thanks.

  5. @af

    Nice speech, you certainly seem to have some passionate opinions even though some of your facts are wrong. You don’t appear to be aware that Canada is the only country in the world where there are 3 competing carriers operating 4G LTE networks – I believe you called those networks “over-priced garbage.” Notwithstanding the fact that the technology is readily available and Canadians have been enjoying it for the past two years, most of Europe has little to no 4G at all, and Vodaphone won’t be deploying 4G in London until 2014 at the earliest. Think about it, there is already a 4G LTE network in Corner Brook, Newfoundland but Vodaphone won’t put it into the financial capital of the world (London) until next year.

    I strongly disagree with you on one very important point. Our government has a responsibility to create conditions for Canadian businesses to operate and grow for the benefit of all Canadians. Unlike you, I do not consider enticing a US giant like Verizon to Canada with economic incentives or special favors which are designed to disadvantage Canadian companies, employers and shareholders to be a win at all. I consider it to be akin to an act of treason. I would love to see Verizon come to Canada and compete toe-to-toe with our Canadian carriers but only on equal terms.

    It was only a few years ago that a cocky Egyptian billionaire (Orascom) came to Canada promising to pound our Canadian carriers into the dirt because he “knows how to compete.” He got his ass handed back to him and then whined that our government didn’t grant him enough favours, so he sold his company to the Russians and now they are trying to bail out. He built a somewhat decent network and slashed his prices but he still couldn’t convince enough Canadians to buy his cell phones! I take great pride in watching our Canadian companies show that they can compete with the best in the world and win whether it be our energy industry, airlines, banks or telecoms. It’s a testament to our character, persistence and ingenuity. I do not enjoy seeing Canadian companies fail, especially if that failure is engineered by our own government.

  6. Re: Cynic
    @Cynic:

    The problem is, as Geist pointed out, that Verizon still wouldn’t get to compete on a completely fair basis. It wouldn’t have the full range of spectrum and would still have limits on ownership and reach.

    Besides, positives in the current market don’t excuse the negatives. We have LTE on three major carriers… and an oligopoly, where a new price hike or service restriction is guaranteed to reach all three carriers within weeks. If the Canadian networks fail because one American provider gets a limited presence in the market, that would be a testament to how little those Canadian carriers would stand on their own merits.

    Think of this the way you would BlackBerry. Would you buy a BlackBerry Z10 simply because it was designed in Canada, even if you knew an iPhone or Android phone might do a better job? Canadian companies deserve a chance at being in the market; they do not deserve to be sheltered from outside competition.

    Also, the UK market is a bad example, because the auctions and widened spectrum permissions came relatively late. That’s a question of the government not moving quickly enough, not proof that Canadian carriers are divine presences that deserve unquestioning loyalty.

  7. @JonF

    Many of the so called “competitive advantages” that Geist uses in his arguments are red-herrings, and are actually quite silly. Sure, Canada has restrictions on foreign ownership of broadcast distribution but that argument is irrelevant since we are talking about cell phone competition and not cable TV competition. Geist also suggests Bell has a 133 year head start on Verizon – c’mon, let’s try to be a list less sensationalistic and a little more honest. Cell phones have only been around for about 25 years and today’s networks go through a fairly major technology overhaul roughly every 18 months. Verizon can build themselves a physical network in Canada, but it will take a few years and lots of $$billions. That’s a lot of money by Canadian standards but it’s not even lunch money to a company with Verizon’s financial resources. And let’s not forget that Verizon can access every single Canadian cell phone user anywhere in Canada with network roaming agreements, heck, they could start retailing their services in Canada next week by using their existing roaming agreements with Canadian carriers or operating as an MVNO. There is no question that Verizon will start out with much lower total spectrum holdings than the other guys but don’t forget that they don’t need much spectrum until they build up a substantial subscriber base and their traffic starts to grow – that could be 10 or 20 years away. And hopefully our government will release more spectrum along the way – if not, everybody’s networks will run out of capacity.

    You suggest we have a three-way oligopoly in Canada that results in prices being matched within weeks. Can you explain to me how that’s different from Safeway, Loblaws and Sobeys all selling cans of tomatoe soup at similar prices? Or why a certain model of TV costs the same at the Bay, Best Buy, and the Brick? It’s a normal characteristic of competitive markets to see prices for similar products clustered in the market. Have you ever gone into a store and told the salesperson that you want to buy a certain product but you want them to match or beat the lower price offered by a competing store? If the salesperson agrees, is that a sign of healthy competition or an oligopoly? You might want to also consider that most developed countries typically have 3 and a few have 4 cell phone companies – does that mean the whole world is made up of cell phone company oligopolies?

    Ok, so you don’t like the UK example. So why don’t we broaden that out to the entire EU – per the following link to last week’s EU news release, there is hardly any 4G in the EU at all. http://europa.eu/rapid/press-release_IP-13-742_en.htm?locale=en.

    Don’t get me wrong, I don’t believe our Canadian companies should be protected from outside competition. If Verizon wants to come play, let them come play. But they should not be granted any special favours or economic incentives that aren’t equally available to Canadian companies. That would be reprehensible.

    If you want to give your money away to an American company instead of a Canadian company that is certainly your choice. But when you do that, you forfeit your right to complain about the cost of goods and services in Canada, the shrinking GDP, and fewer job options for you or your children in the future. You have to live with your choices.

    I would encourage you to do your own research to confirm if some of the international pricing data presented by Mr. Geist and OpenMedia is truly representative of how Canada stacks up against the rest of the world. It’s my nature to be a bit cynical and when I looked around at a few other studies I discovered some very different perspectives. Studies such as the recent CRTC study and the Bank of America Merrill Lynch Global Wireless Matrix indicate Canadian cell phone pricing is actually about middle average and when you consider the vastly superior state of Canada’s networks things really aren’t as bad as some people would like you to believe.

  8. @Cynic
    Cynic I really wish you would stop spinning the arguments of others into a polarizing debate on these issues with your broken record Big 3 arguments. How can you compare Tomato Soup with cell phones? Consumers aren’t locked into contracts to purchase Tomato Soup, and they obviously have the option to buy any other type of soup or food they wish as a substitute. Please let me know what the substitutes are for smartphone services? Rogers, Bell and TELUS provide a practically essential service to connecting and promoting our country’s interests and the bottom line is that they are taking too big of a slice of the pie (margins). And you keep highlighting that Canadian pricing is “reasonable” or middle average. Why on this earth would you (as an individual and a seeming capitalist) want higher rates for these services? Capitalism is all about pushing for efficiencies in the market, and if TELUS, Rogers or Bell needs to cut costs, staff, etc. to be competitive then so be it. Why should my contracted services be supporting these unnecessary expenditures and justifying my excessively high bills?

    The Big 3 got their start in the 80s and 90s because the government created conditions favourable to their business models (i.e. gave them spectrum and tax subsidies). This is exactly what should happen here with a new entrant – there needs to be sufficient incentive to enter our market. You say that Verizon has the money to build out a network here as big as the incumbents, but you fail to consider that deep pockets does not mean unlimited pockets. The case to come to Canada ought to include reasonable returns, and this can be attained by discounting spectrum.

    As JonF points out, if the Canadian carriers cannot stand on their own merits and are resorting to PR (as you so happily cite and support in your posts) and protective policies, then they shouldn’t be assisted any further to exploit Canadians on such a vital service to our international competitiveness. I am personally in support of deregulation with respect to foreign ownership, but I only wish this because I want to see Verizon, AT&T, Vodafone, SingTel, whoever come in and take out Rogers, Bell and TELUS’ cell businesses.

    As with many industries, international scale and reach is worth far more than national protectionism. I am thankful that the government recognizes the failures of our wireless industry and are proactively trying to entice true leaders to this country. Canadians will be better off for it without question, that is, if the government can withstand the barrage of corporate pressure to protect our inefficient and poorly run wireless businesses.

  9. @af

    I’m not the one comparing smart phones to tomato soup, you are. If you go back and reread my comment you will see that I provided several examples of price clustering in competitive markets – and it happens in every product category you can think of from groceries, to electronics, to cars. It’s basic market theory.

    Since you raised the issue I think it is important to point out that nobody is ever locked into a contract and can exit per the terms they agreed to at the time they entered into the contract. Also, nobody is ever forced to enter into a contract, they choose to enter into a contract of their own free will. If you don’t like the terms of a contract you shouldn’t enter into it – that principle applies whether you are buying a smartphone, getting repairs done on your car, or signing up for a gym membership.

    It makes me sad that you would like to see foreign companies come to Canada to `take out` some of our home grown companies. That you would wish to put tens of thousands of Canadian`s out of work, reduce our country’s GDP, and lower the standard of living for all Canadians makes me wonder just how deep your hatred of our country really goes … wow!

    Please don`t misconstrue my comments as `protectionist` because that is not accurate at all. I would love to see Verizon come to Canada but it would be fundamentally wrong for them to be given any taxpayer funded incentives or special favours that disadvantage our domestic firms.


  10. @Cynic It’s simple, I argue for reduced pricing and more effective competition given the importance of wireless service to a well functioning society. You argue for a hands off approach and a social license for Bell, Rogers and TELUS to continue their unfair business practices and bloated business models. The Big 3 have relied for years on regulatory barriers to foreign competition, and are panicking in light of a potential legitimate threat.

    I want to touch on one point you made: just because a contract is signed by a consumer does not mean its fair on a globally competitive basis. In fact, contracts have been used to this past decade to abuse consumers given their lack of alternative options to obtaining wireless service and lack of legal understanding. Remember, just one year ago, many cell phone plans were unavailable to would-be customers unless they were willing to sign 3 year contracts (recall, when the iPhone first came to Canada, Rogers only offered the $30 6GB on 3 year contracts — this in itself was insane, but I digress). Only recently have most service plans become available on a month to month basis. All in all, total cost of ownership of a smart phone in Canada is far above many other developed markets, and there is no excuse for this rip-off.

    I’m not going to reply to all your other points since my position is clear — it’s time for a competent foreign player to knock Bell, Rogers and TELUS off their pedestals. The incumbents should only be so lucky to have savvy employees and allies on comment threads, newspapers and TV channels owned by their parent companies, and CEO friends in other top Canadian firms who are screaming and shouting at the changes. I seriously hope the governments resolve is stronger than this nonsense.

  11. @ArnF
    No, you are arguing for the Canadian taxpayers to provide economic incentives and special favours to advantage a US corporation so it can take business away from Canadian companies. You only “hope” that might lead to lower prices but there is no evidence to support that outcome. Today, Verizon charges its US customers more than Canadian carriers charge for similar plans. So you only “hope” they will offer something to Canadians that they don’t offer to their US customers. Perhaps the good folks at Verizon have really big hearts and will do as you “hope” but what if they treat their Canadian customers the same way they treat their US customers? Prices might actually go up instead of down.

    I’m not sure you got the mistaken impression that you have to have a contract to have a good cell phone plan in Canada. I’ve had two cell phones for at least the past 10 years and neither one of them has ever been under a contract – I usually upgrade them every 3 to 4 years just because they start getting pretty beat up but never had a contract and never will. But that’s just me, I prefer not to owe anybody anything if I don’t have to.

  12. Hmmmm
    I am no lawyer. I have no degree in economics or on the market. What I do know is my pay cheque bottom line. I have sat back and watched basic prices for the lowest possible tiered services increase exponentially over the last decade. Cost of living goes up, everything else goes up, wages stay the same. Jobs leave this country weekly. That is the price of globalization. I hear all this talk of “home grown”, “support Canadian Business”. Why? Do they support Canadians? When was the last time you called one of the big 3 on got someone in say Burlington? Or Vancouver? I always get India when I need support, or need to know what was wrong with my bill. When they send a technician out, the vans are all decked out with Rogers or Bell logo’s with advertisements for their latest deals but there’s always the fine print on the door. A smaller logo with the technicians company name and the all telling “under contract by:”. Seems in order for a small “home grown” company to work in the field their required to advertise the company that calls them instead of themselves. Are they getting benefits, job security… no. Its piece work. That goes for Rogers and Bell. Look at their trucks. Is that these big companies supporting anyone but themselves. No. They contract out to the lowest bidder. If you want to look at me and say “Well that’s how capitalism and the markets work. Its how we got to where we are.” I say exactly. Let Verizon in under the same argument. If Bell and Rogers had so called “favours” granted with taxpayer money during start up, why can’t the next company? Its all smoke and mirrors across the board. Doctors get a premium for having patients signed up for their little networked “family health team”. Ask them the next time you see them. Is it unfair for the next energetic young doctor to get the same benefit? No. There’s a distinct difference between being patriotic and ignorant.

  13. Since Bell Telus and Rogers employ over 100,000 canadians directly I find it hard to believe that they only employ contractors with no benefits. Two of my neighbors are Telus employees, they receive full medical, dental, and pension benefits. The last time I phone Telus for an issue I was talking to a tech in Toronto … not India.

  14. Aristobulous says:

    Say that again…
    @Cynic

    “So you only “hope” they will offer something to Canadians that they don’t offer to their US customers. Perhaps the good folks at Verizon have really big hearts and will do as you “hope” but what if they treat their Canadian customers the same way they treat their US customers? Prices might actually go up instead of down.”

    You don’t seem terribly bright. If Verizon entered the market place and charged more than what the big 3 currently do then this whole debate is moot, no customer in their right mind would sign a contract where they were paying more. Simple as that. Things would be the same or they’d be better.

  15. gym membership
    that principle applies whether you are buying a smartphone, getting repairs done on your car, or signing up for a gym membership. that principle applies whether you are buying a smartphone, getting repairs done on your car, or signing up for a gym membership.