Quebecor is sending strong signals that it will indeed be expanding its wireless service to the rest of Canada, but reaction from incumbents could cause government’s plan to backfire.
In the ongoing guessing game of “will they or won’t they,” Montreal’s Quebecor has taken a strong step toward becoming Canada’s fourth “national” cellphone provider. In a speech last week, new chief executive Pierre Dion said the company is “ready, willing and able” to fill the role *if* government and regulators provide key concessions on domestic roaming rates. In a nutshell, Quebecor wants to be able to connect to the networks of Bell, Rogers and Telus cheaply so that its customers don’t have to pay high fees to use their phones outside of the company’s own coverage footprint.
“If this barrier can be brought into line on a competitive level playing field that is fair to all service providers, we will be standing at the dawn of a new era of wireless competition and expansion in Canada,” Dion said.
The will-they-or-won’t-they question has been circulating since February, when it was revealed the company had spent $233 million on spectrum licenses in Quebec, Ontario, Alberta and British Columbia. Bay Street analysts speculated that Quebecor might merely park the assets for reselling later, a possibility that executives themselves acknowledged, but realistically a national expansion out of Quebec – where the company provides wireless service through its Videotron unit – was always the likeliest outcome.
With the federal government rigging the previous two spectrum auctions specifically to generate new competitors to Bell, Rogers and Telus, it would be the height of folly for any company to have gamed the auction system in order to make a quick buck on an asset flip.
The government and the Canadian Radio-television and Telecommunications Commission are already working on reining in those roaming rates so the Vegas odds on Quebecor getting what it wants look strong, which explains why the company has gone ahead and launched a new website, AffordableWireless.ca, designed to once again stoke anti-Big-Three sentiment.
Proclaiming that “there has never been a better time for a mobile revolution in Canada,” the site highlights numbers that most Canadians are probably familiar with by now, such as the disparity in prices between provinces and between Canada and other countries:
With the question of “will they” looking like it now has an inevitable answer, attention will inevitably turn to “how” and “when.” The “how” is especially interesting, with Dion signalling that the company is “contemplating the possibility of consolidation with one or two of the undercapitalized new wireless entrants,” meaning Wind and Mobilicity.
The government has so far steadfastly refused the sale of struggling Mobilicity to one of the Big Three – namely Telus – so it looks like a purchase by Quebecor is inevitable, and it could happen soon. In order to continue getting a stay from creditor execution – its latest extension expires June 30 – Mobilicity will need to convince a court that it has viable options on the table, meaning that an offer from the Montreal-based company could become public by then. A purchase of Mobilicity and its 200,000 customers, all of whom are outside of Quebec, would certainly jumpstart Quebecor’s expansion plans quickly.
The better question is what happens with Wind? The company has more than 700,000 customers and is aiming to be profitable by next year. As Dion put it, acquiring both startup companies would triple Quebecor’s customer base to about 1.4 million, but if things are looking up for Wind, will the company be sold – or will its price tag go up?
Probably not, because Wind still faces several problems, not the least of which is a shortage of potential buyers. Foreign companies are already wary of Canada because of its tough competitive climate. Not only are Bell, Rogers and Telus entrenched and well-capitalized wireless companies, they’re also full-service bundle providers and, in the case of Bell and Rogers, thoroughly vertically integrated media companies as well. Competing against these companies with just cellphones is like bringing a knife to a bazooka fight.
Quebecor appears to be the only company either brave or dumb enough, depending on your perspective, that is willing to get into such a battle.
On the other hand, the company is also in a better position to compete with those giants than Wind is. Not only is Quebecor better capitalized, wireless could also be the tip of its veritable spear, with the TV, internet, home phone and other services it currently provides in Quebec following to the rest of Canada.
On a technical level, the company also has the high-quality 700 Megahertz spectrum licenses in Ontario, Alberta and British Columbia that it bought in this year’s auction. Wind sat that key auction out because of a financial crunch. If Quebecor acquires Mobilicity, it will have superior spectrum holdings and be positioned to offer a better network experience in several major cities – including data speeds, coverage and penetration – than Wind.
When it comes to negotiations, Quebecor holds the better cards. Now might be the best possible time for Wind’s owner, Russia’s Vimpelcom, to get out of Canada by selling to the only realistic buyer out there.
Another interesting question is what happens with Canada’s other regional wireless companies – namely MTS in Manitoba and SaskTel in Saskatchewan, and perhaps even Eastlink in the Maritimes? If Quebecor really wants to be a national player, does that mean it will attempt to consolidate those providers too? Customers in the prairie provinces already enjoy some of the lowest wireless prices in the country by virtue of having four major providers to choose from. Could they ultimately get a fifth well-financed option, or will the status quo persist?
And on that note, there is the billion-dollar question of what Quebecor’s national expansion would mean to consumers across Canada. While some mistrust the company’s intentions and expect it will merely expand the Big Three club to the Big Four, with the high prices to match, that outcome is unlikely, at least for the forseeable future. Not only does Videotron generally offer lower prices in Quebec, a national wireless provider would still face many of the same disadvantages that have plagued Wind and Mobilicity, meaning that price will continue to be its main advantage.
Dion said as much in his speech: “Our vision is to provide Canadians with a new high quality, low cost wireless choice and real wireless competition.”
So, lower prices means everyone – government, regulators and consumers – will be happy, right?
Maybe not, because the government’s quest to establish four strong wireless providers in every part of the country can easily backfire because of the inevitable reaction from the Big Three. One potential outcome: a renewed push by Bell and Telus to merge.
With few overlapping services and an existing shared wireless network, there aren’t many arguments to be made for the companies continuing to operate independently of each other, especially if another big wireless player is eating into their bread-and-butter profits. Moreoever, Bell and Telus have virtually identical wireless prices now, so would eliminating one of them from the market really make any difference on pricing?
Industry Minister James Moore has repeatedly said he would deny any spectrum deals that lessen competition, but could the government really justify refusing such a merger? The grounds for doing so are shaky at best. And if such a union were to go through, that magical number of four wireless providers that the government has been seeking for so long would go right back down to three.