Verizon in Canada: Will a new carrier lower your wireless bill?

If the reports are to be believed, U.S. wireless giant Verizon is gunning for Canada with a $700 million bid for local startup Wind Mobile and similar takeover discussions with Mobilicity, another new entrant.

While none of the principals are talking publicly, The Globe and Mail reports that the U.S. company is looking to take advantage of the Canadian government’s desire for four wireless carriers. Verizon coming in and taking over the smaller, distressed carriers would actually fulfill Ottawa’s dream of having an additional, well-resourced player in a market that sorely needs more competition. Canadians pay the highest cellphone bills in the world – an average of $60.79 per month - according to the Bank of America Merrill Lynch Global Wireless Matrix.

Bay Street analysts have been questioning the logic of a Canadian venture by Verizon ever since rumours started circulating a few weeks ago. Most estimates expect the company will need to spend between $1 billion and $2 billion to become competitive, not just through acquiring smaller players but also by buying necessary wireless licenses in next year’s spectrum auction.

Verizon would also have to spend to expand its network and acquire customers. Wind and Mobilicity are believed to have fewer than 900,000 customers between them, a far cry from the seven to nine million held by each of Rogers, Bell and Telus. Many are wondering whether Verizon really wants to go to all that trouble just to snag an equal share of Canada’s $19 billion wireless market. That would represent a proverbial drop in the bucket for a company that reported $76 billion in revenue alone in 2012.

The better question for consumers, though, is whether Verizon’s presence would do anything to budge those sky-high bills. For one thing, the company has some technological hurdles to clear. They’re mind-numbingly dull to anyone but a very small group of wireless spectrum aficionados, but they’re important nonetheless.

Both Wind and Moblicity are currently using a chunk of spectrum known as Advanced Wireless Services (AWS), which runs on microwave frequencies mainly in the 1700 Megahertz band. Verizon, meanwhile, is using spectrum in the 700 MHz range to provide fourth-generation Long-Term Evolution services to Americans. As it stands, those two are incompatible, so customers of the Canadian companies can’t roam onto Verizon’s network or vice-versa, unless their phones are specially made to do so.

There’s good news in that department, on two fronts. Firstly, Verizon has been buying up AWS spectrum in the United States and is incorporating it into its LTE network. Up to 5,000 of its U.S. cell towers will be equipped with AWS by the end of this year, meaning that existing Wind and Mobilicity customers would theoretically be able to roam when down south.

Secondly, the next Canadian spectrum auction – now scheduled for January – will be selling off licenses for the 700 MHz band, or the same frequency that Verizon is mainly using for LTE in the United States. Assuming the carrier bids aggressively for those licenses, any future Canadian network would likely be doubly compatible with what it has down south.

Another problem is that wireless carriers so far haven’t really been offering voice calls – pretty much the core function of a cellphone – over LTE networks, opting instead to split those off onto older networks. Again, that’s an issue Verizon is fixing starting next year, meaning that both calls and data will be going over a singular LTE network. That also aligns with Canada.

All told, experts don’t believe there will be any technological compatibility issues for Verizon customers crossing the border in either direction.

“I cannot imagine there will be any changes,” says Amir Keyvan Khandani, the Canada Research Chair in Wireless Systems at the University of Waterloo. “There might be small modifications to the equipment, if any.”

That could – and probably will – be a major selling point for Verizon service on both sides of the border, but probably more so in Canada. Americans currently enjoy no domestic roaming charges – it costs the same for someone in New York to call across the street as it does to California. The company would in the unique position of offering a single North American package, which could inevitably force Bell, Rogers and Telus to slash or eliminate roaming and long-distance charges.

“That’s likely,” Khandani says.

The question then is just how competitive will Verizon want to be? In the United States, where it is the market leader with 98 million customers, the company is very much the defender. Critics say the U.S. market is as uncompetitive, if not more so, than Canada’s, with carriers using technological incompatibilities as ways to keep customers locked up.

If a subscriber who buys an iPhone from Verizon, for example, wants to switch to another carrier such as AT&T, they currently have to buy a new phone. Although those two carriers technically operate on the same 700 MHz spectrum, they use differing blocks of it. Critics such as the Rural Cellular Association say they’re doing this on purpose to keep customers locked up, while the carriers say it’s merely a reality of the differing spectrum.

Whichever the case, Verizon is likely to want any Canadian network to be as compatible with rivals’ as possible. Some observers and analysts believe the company will offer more of the high-bill status quo in Canada, but the reality is it will be entering the market in a challenger position. It’s more likely to do whatever it can to attract customers quickly to justify the big expenditure of entry, which will include offering compatible phones and networks as well as lower prices.