Fresh off predictions that the CRTC would not eliminate three-year contracts and that a Verizon entry into Canada was “highly unlikely“, Scotiabank’s Jeff Fan is apparently back with another report that claims it is a myth that Verizon’s entry would lead to lower costs for consumers (I say apparently because Scotiabank declined my request for a copy of the report). The claim mirrors the talking points of the incumbent carriers, who have argued that Verizon is a high-cost carrier that will not enter the market with lower prices.
While no one knows what Verizon’s business model will be (or even if they will come), the arguments that they will not result in lower prices requires you to believe that a major new competitor will simply enter with high prices that keep the current incumbent-friendly situation largely intact. One does not need a doctorate in economics to recognize this is highly unlikely. Whether Verizon offers North America-wide roaming or other incentives to attract customers, a new entrant such as Verizon will obviously shake things up and consumers will benefit.
What might this mean for Canada? Credit Suisse says that if Verizon comes to Canada it will “be both a fourth carrier and to have the financial capacity to be a successful ‘maverick’ in the market.” In response, it says the incumbents can be expected to reduce their prices:
In most markets, if the new entrant was successful at gaining subscriber share, incumbents eventually use pricing levers to defend. Even if Verizon does not come to the market with aggressive price discounts, any subscriber momentum it gained would likely eventually lead incumbents to defend with price declines. Additionally, with a more unbalanced market, long-term discipline becomes harder to achieve.
The ultimate impact is likely higher churn of customers (aided by the CRTC’s wireless code that limits contracts to two years), reduced roaming costs, and lower pricing. That may be bad for the stock price of the incumbents (which explains why they are going to war to keep the competition out), but it will be welcome news for Canadian consumers.