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Harper Stands Firm on Telecom Policy

Prime Minister Harper addressed the campaign by the Bell, Rogers, and Telus to change current Canadian wireless policy in response to the possible entry of Verizon into the market on Friday (media coverage on the issue from the Star and Globe). Harper’s complete comments:

“On the telecommunications issues, let me just say the following. Look, I understand full well where some of these big companies are coming from. They’re important parts of the Canadian economy, and they have a responsibility to protect their profits and to protect their bottom lines for their shareholders, for the people who work for them, and I understand that, and I fully appreciate that. At the same time, the government has a responsibility towards a wider public interest. And Canadians are very clear about what that wider public interest is to us. They want to see enhanced competition, lower prices, better services in this area. Our government has pursued extremely consistently and extremely clearly a policy of fostering greater competition in this industry for the benefit of Canadian consumers over the past several years. We have seen some results already from that policy. We have every intention of continuing that policy in the interests of Canadian consumers and broad Canadian public, including proceeding with the auction as we have laid out for some time. So we think this is the right direction, and as I say, while I appreciate that some companies may have their own interests that are very important, our government’s first priority is the wider Canadian public and Canadian consumers, and we are convinced that this is where they want to see us go.”

25 Comments

  1. It is both encouraging and disquieting to have this government act in such a populist manner in contrast to courting its corporate base.

    From the reaction of the ‘Big 3′, and those with vested stock/pension interests, you’d think the apocalypse was on nigh.

    Either the government does not think the economic fallout from a verizon entry will have a long lasting impact, or their political credit with the public is so low that that it seems like an good investment regardless.

    I suspect it’s some of both.

  2. sad
    The sad part is that if Rogers would have cut a deal with wind a year or two ago for network sharing, they would probably not be for sale and the big three would have a lightweight as competition. Instead they thought they would just crush the competition and it would end there. So shortsighted.

    They deserve a heavyweight competitor.

  3. We all remember how the government screwed up our steel industry. They blocked the mergers that would allow our Cdn companies to build the heft required to expand globally then we watched as they got picked off one by one. The remaining “branch plants” have seen waves of layoffs and shutdowns with no say in the matter. That’s the future we have to look forward to in Canada. It’s too bad because it doesn’t need to be that way.

    The government’s approach to the telecom sector has been the same. It’s very uncharacteristic of a supposed Conservative government.

    This government is only interested in “being popular” and couldn’t care less about consumers or industry.

  4. Cynic, if the Canadian Telcos had paid a little more attention to ‘being popular’ (aka providing good value & customer service) then perhaps there would not be massive public support for increased competition.

    It is painfully amusing to see most people’s response to the telcos ‘it’s just not fair’ whining. The shelves are bare of tiny violins.

    You can’t have it both ways. If you want to continue gouging and ignoring your customers, all the while depending on government regulation (or lack thereof) to maintain your control, you’d best get used to disappointment.

  5. @Crockett

    You don’t need to do a survey to find out if people want lower gas prices, housing prices or cell phone prices. The answer will always be a resounding yes. But the question is what will consumers do about it?

    What is interesting is that despite having 10 differnt network operators that offer a range of plans from $10/mo pre-paid plains to $80/mo all-you-can-eat plans, Canadians still won’t budge from the big 3.

    The 3 newest network operators that Harper created with the last spectrum auction are all failing and trying to bail out. Why? Because despite all the complaining, Canadians refuse to leave the big 3. The 3 newest player’s prices aren’t included in the OECD study, but if they were, they would be amongst the lowest prices offered by any country in the OECD – yet Canadians still won’t sign up with them. Wind had only half the number of new subscriptions this quarter compared to a year ago. Why?

    And what has been the net benefit to Canadians for this failed experiment?

    Fortunately the first failed attempt by the government only cost taxpayers around $1 billion for the discounts on the AWS spectrum.

    This next attempt by the government is likely going to cost taxpayers a couple $billion for discounts on the spectrum because it is much more valuable and there are only 4 blocks available for 10 network operators to buy. When you add the evaporation of market capitalization of the big 3, which is mostly held by Canadian pension plans and investment funds, the numbers get much bigger, potentially into the $25B to $50B range.

    And there are no guarantees that this next attempt will make Canadians happy either – Verizon isn’t a discount service provider and they are definitely no angel when it comes to customer service.

    Maybe screwing up the steel industry and the telcom industry will be Harper’s infamous legacy just as the gun register was for the Liberals.

  6. Devil's Advocate says:

    “10 different network operators” ??!?
    To what part of the world are you referring to??

  7. @Devil

    Right here in Canada. Wind, Public Mobile, Mobilicity, Eastlink, SaskTel, MTS, Telus, Bell, Rogers and Videotron.

    It’s ironic that the government’s current policy is going to squeeze some of the discount carriers out of existence.

  8. I agree, ’10 different network operators’, that’s disingenuous? Each of those small carriers are regional or sub contractors to the major ISPs. I have exactly two choices: Telus and Koodo. Both of which are part of the ‘Big 3′.

    A major carrier such as Verizon has the ability to compete nationally.

    And please give up the bogeyman $50billion losses, if you are that sure of how the market is going to go short the stock and retire in ease.

  9. Actually …
    @Cynic “Verizon isn’t a discount service provider and they are definitely no angel when it comes to customer service.”

    Actually, verizon is #1 for customer service in the USA earning a 9.08/10.

    http://cell-phone-providers-review.toptenreviews.com/verizon-review.html

    “Verizon Wireless has the plans, coverage, phones and customer service to keep you satisfied. With its outstanding customer service and many plan options and features, this cell phone service is hard to beat.”

    How many Bell or Rogers customers would say the same?

  10. @Crockett

    Your assertion that some of the 10 network operators are sub-contractors to the big 3 is totally incorrect. They are independent companies with their own Boards, Articles, employees and networks.

    Even though some of them are regional doesn’t make them irrelevant. MTS and SaskTel have dominant market share in the regions they serve making with the big 3 the “new entrants” in those regions.

    If you live somewhere that only has Telus service you are not going to get any help from Verizon. If Rogers isn’t interested in serving your community there is no way the folks from Verizon are going to be out your way anytime soon.

    SaskTel, Koodo and Telus have the higest customer satisfaction ratings in Canada per JD Power. And just like Canadians, the Americans hate their cell phone companies just as much as we do. http://verizarape.com/

  11. Well, sort of.
    @Cynic “Your assertion that some of the 10 network operators are sub-contractors to the big 3 is totally incorrect. They are independent companies”

    Well I suppose that depends on your definition of independent … according to Wikipedia Koodo is “a subsidiary of Telus”.

    They were started by and are currently owned by parent company Telus. They use the same towers and infrastructure as Telus.

    So yes they are ‘independent’ companies in how they function internally, but still ultimately answerable to the owner. It is interesting that the Big 3 had to start these other brands to compete with themselves. Providing an appearance of true competition without loss of ultimate control.

  12. Cynic, you will always have complaint sites like the one you mentioned above. Put ten people in a room with free cake; half will complain about the flavor, the others will want pie.

    For a more balanced appraisal I look to professional sites like http://www.consumerreports.org. Here is their rating of the top US cell carriers with Verizon again _consistently_ taking the #1 spot – http://www.engadget.com/2012/11/29/consumer-reports-verizon-ranked-the-best-major-us-carrier-this/

    I’m not sure if there is a way to compare say Verizon with Rogers, but it would sure be an interesting read.

  13. The 10 biggest independent network operators in Canada are: Wind, Public Mobile, Mobilicity, Eastlink, SaskTel, MTS, Telus, Bell, Rogers and Videotron. They each own and operate their own independent networks. You are correct in that Koodo is not an independent network operator, they are a discount brand offered by Telus.

    If you want to count all the brands you will have to include Virgin, Fido, 7-Eleven, PC Mobile, Roam, Chatr, Koodo, Sears, Primus, etc. There are more than 30 different brands operating in Canada.

    Just as Ford (Jaguar, Lincoln, Ford) and Toyota (Lexus, Toyota, Scion) distribute their products under several different brands, telecom companies also market their products under different brands. The reason for this is basic Marketing 101 stuff – to target different market segments. Virtually every consumer goods maker creates different brands to target different market segments because it works very well. It is not, as you suggest, to create the “illusion” of competition.

  14. @Cynic: “Wind had only half the number of new subscriptions this quarter compared to a year ago. Why? ”

    Because their coverage is pitiful. Even in a tiny city like Ottawa you can’t be sure to maintain a connection with Wind as you move around the city.

  15. @kt”Because their coverage is pitiful. Even in a tiny city like Ottawa you can’t be sure to maintain a connection with Wind as you move around the city.”

    So it’s not, as Cynic suggests, Canadian’s patriotic love for the big 3 that holds them to their bosom … but poor coverage?

    That begs the question if a serious well funded entrant like Verizon will be able to install a sufficiently robust network to be a contender. If the answer is yes, well that solves the failing start-up problem. If the answer is no then the big 3 will have fretted for nothing. They might even pick up that expensively auctioned spectrum at fire sale prices!

    Makes you wonder what all the fuss is about then?

  16. @kt

    Companies in all industries compete on product quality, customer service, distribution, selection, etc., not just on price. Wind’s prices are lower but so is the quality of their product. Cell phone companies compete on other different service attributes such as coverage, network performance and network reliability. That is why they are not pleased about Harper expropriating their networks and forcing them to allow Verizon to piggyback on the networks they have been trying to perfect for 30 years.

    Some people naively suggest those networks were built using tax dollars but that is not true at all. They were built 100% by shareholder equity.

  17. Is the third time the charm?
    This isn’t an issue of the second time that the government tried to introduce competition. They tried before. Remember Fido and Clearnet? Both those got bought out, and many of the reasons are the same.

    It isn’t some great patriotic love of the big three, it’s simply that they have better coverage, handset lineups, bundling and other ‘features’ than the newer entrants. Yes, they could all improve on customer service, but the simple fact is that it costs close to $1M to build a new cell site, and so building networks costs a lot of money. Small startups simply haven’t been able to afford it. The spectrum auction rules have also worked against the Govt. plans in the past. Shaw bought spectrum in the last auction, but had to spend so much on the spectrum that they couldn’t afford to build an actual network. Even MTS had to hold off for a while. I’m not sure that having Verizon able to bid would actually help the other smaller carriers. They have very deep pockets and could leave anyone they don’t buy with no new spectrum by winning all the set aside spectrum.

    In most urban areas there are at least 4 providers. Bell, Roger, Telus, and usually Wind, Public Mobile, and Mobilicity – or MTS, Videotron, Sasktel and others in their respective regional markets. (Let’s leave the ‘flanker brands’ like Koodo and Fido out of this for now…) The issue is getting ‘new entrants’ to those markets that don’t have competition already. Growth in these areas and lower prices are not necessarily complimentary objectives. In Toronto there are thousands that will use any given cell site – in rural areas, not so many. This is why none of the new entrants built out in the rural areas. They could barely make a go of it in the cities, let alone having to build up north or anything.

    I’m not suggesting that all the big three have built everywhere either, but it seems to me that if Verizon is to enter the market, they have deep pockets and will be inheriting at least one network that they can build on. They should be forced to invest in rural development as well so that all markets have multiple carriers, not just be allowed to stay in the cities.

    As for the larger public good… Anyone remember the 407? We as Canadians payed for it, it got bought, now most of the money that is generated by it goes out of the country. Yes, there are some jobs created, but the money that is generated by that company has been used to build/buy other infrastructure in other countries. Not sure that many people around the GTA really think that was value for our money. Are we heading the same way?

    And before people jump on the “more is better” bandwagon, let’s look at some other countries. England has close to 150 carriers. The result is that non of them can justify the business cases to introduce 4G and other services at the same rate. They only introduced their first LTE network last year. I was there last year, and the coverage of any one carrier is so bad that my phone kept jumping networks every time I passed a building. I couldn’t keep a call going even when I locked onto one provider unless I was stationary. 4 is a lot less than 150, but we have a lot more area to cover.

    So I guess I’d tell people to think that the “national interest” isn’t just the “big city interest”, but the whole country. If we want to have 4 ‘national’ carriers, then perhaps we should have rules that a certain percentage of the spectrum has to be in rural markets and have targets for building infrastructure there.

    But if we simply allow new entrants just to build in the cities, then there is no public good, and ultimately not likely to be better lasting competition.

  18. Maynard Krebs says:

    Give new entrants the same breaks the incumbents had
    Simple solutions:

    1) Take back spectrum (before the end of this year) from incumbents who didn’t roll rural connectivity out in sufficient density/speed.

    2) In an accounting exercise,
    – a) notionally give the existing new entrants back ALL the money they spent on spectrum*,
    – b) then charge them a low per user/per month ‘fee’ since actual launch dates (like the feds did for the incumbents in the 1980-90′s**), ***
    – c) and finally refund the difference back to the new entrants (Wind/Mobilicity for sure – Public Mobile maybe) on the proviso that they merge and continue operating.
    This effectively recapitalizes these companies (probably to the tune of about 50% of what they spent on spectrum), & ensures that they have cash (I’d guess they have about $600MM or so) for 700MHz auction & viability going forward.

    3) Amend the takeover clause to prohibit any EXISTING cellular provider (or wholly/partially owned subsidiary) operating anywhere in the world from taking over a ‘new entrant’ for a further 5 years, or obtaining convertible debt/equity. This does not prevent cash injections from non-cellular operator/holding co. investors.

    * Initially, (1980′s) telco’s didn’t pay anything for spectrum

    ** Rogers got an even better sweetheart deal from the feds in the 1980/90′s – telco’s were forbidden from doing certain anti-competitive things which would have made it impossible/difficult for Rogers to build/launch their own network. These restrictions were lifted once Rogers was on its feet (ie. several years later).

    *** Feds could do this in ‘procedural fairness’ ruling – give the new guys what the incumbents got.

    Background:
    In 1984, the government allocated its first block of spectrum for wireless services, specifically reserving spectrum for Cantel (later Rogers). In 1995, the government again adopted a regulated approach to the allocation of spectrum for PCS services, setting aside spectrum for the two new entrants – Microcell and Clearnet – that today are owned by Rogers and Telus. — Michael Geist »www.thestar.com/news/2007/06/18/···ine.html

  19. @Jaded “If we want to have 4 ‘national’ carriers, then perhaps we should have rules that a certain percentage of the spectrum has to be in rural markets and have targets for building infrastructure there.”

    Absolutely, I have one carrier (two flavors) where I live, Telus & Koodo. I wanted to get a pay-as-you-go phone for a drop-in center in our community, in case of emergencies. 7-eleven seems to have the best product for that but the service will not work in my area.

    If we are going to expect/demand that new entrants build out to rural areas then we should put the same onus on the major Canadian incumbents.

  20. We supposedly have 6 national carriers right now and 3 of them are going broke. The 3 that are going broke all got the special favours from the feds back in 2008 and not one of them has made any attempt to serve rural Canadians. Verizon’s CFO made the comment at their investor call a month ago that their primary interest in Canada was going to be the province of “Toronto” and maybe up towards Montreal.

    Expanding service to rural Canadians is a massive hole in Harper’s strategy. To get Verizon to come to Canada he has been enticing them with some pretty rich incentives, and they have already indicated they have no interest in rural Canada. If the incumbents face market share erosion in the major urban markets they are going to lose the ability to cross-subsidize rural service expansion. You can’t force a company to spend money it doesn’t have.

    It will be very interesting to see how much interest there is in rural licenses in the upcoming spectrum auction – they might be giving them away.

  21. @Cynic
    Don’t forget that Wind, Mobilicity, and Public Mobile are all discount brands so if Verizon buys them all of Canada’s independent discount brands will be replaced by yet another independent premium brand under Verizon. How that will help with the goal of reducing consumers prices for cell service defies logic. I agree that our governments telecom policy management is a total gong show

  22. How about this for fair?
    Instead of letting the incumbents keep all the various chunks of spectrum they have acquired over the years it makes sense to me that this spectrum be reauctioned from time to time, say every 20 years on a rolling basis. This would allow the opportunity for new entrants and allocating spectrum where it is most needed.

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