Verizon megadeal challenges Ottawa’s quest for wireless competition

Forget being left at the wireless altar. Verizon CEO Lowell McAdam’s announcement that his company is “not going to Canada” confirmed the competition-seeking Harper government’s worst fears: that it was never even invited to the wedding.

McAdam’s remarks during an interview with Bloomberg Sunday came just after the company announced it was buying out the 45 per cent of Verizon Wireless it didn’t already own from its partner, Vodafone. While the $130 billion U.S. megabuyout comes in the wake of intense speculation that Verizon was considering a move into the Canadian market via possible acquisitions of Mobilicity and/or WIND Mobile, McAdam called such speculation “way overblown”.

“It has nothing to do with the Vodafone deal, it has to do with our view of what kind of value we could get for shareholders,” said McAdam. “If we thought it had great value creation we would do it.”

Frost & Sullivan Director of Emerging Telecoms Ronald Gruia begs to differ. “Even though Verizon is claiming this had nothing to do with the Vodafone stake Verizon Wireless buyout, I am sure that did play a factor as a possible Canadian expansion would become too much of a distraction in the aftermath of a transaction of that magnitude.”

Verizon deal historically huge

The deal, the third largest in corporate history behind the Vodafone AirTouch $183 billion U.S. acquisition of Mannesmann AG in 2000 and the ill-fated $164 billion AOL Time Warner hookup that same year, throws a wrench into the Canadian government’s goal of encouraging additional wireless competition. With the landmark auction for 700 MHz spectrum looming next January, Industry Canada now lacks a deep-pocketed American dance partner.

“This is obviously a major blow to the government's plans,” said Michael Geist, University of Ottawa law professor and internationally syndicated technology law columnist. “Unless a new major player emerges - which seems very unlikely - the goal of a major new fourth player either won't happen in this auction or will require consolidation of a series of existing players. The government has set as its goal ‘more choice, lower prices, better service’. Meeting that goal will be an enormous challenge.”

Time to revisit Canada's wireless policy

Mark Goldberg, a Thornhill, Ont., telecom consultant and founder of the annual Canadian Telecom Summit, says after spending the past year-and-a-half liberalizing foreign ownership regulations, implementing a stringent code of conduct for wireless providers, adding new mandatory roaming and tower sharing rules, and changing the conditions for transfer of spectrum licenses, perhaps it’s time for the government to pause and reflect on its telecommunications policy.

“None of these changes have been in place long enough to have yet had a significant effect,” said Goldberg “The government may wish to consider whether the spectrum auction rules and the other policy and regulatory changes are appropriate for encouraging capital investment and sufficient to ensure consumer protection in a competitive market.”

Goldberg, who last month wrote about the close connections between regulatory posture and competitiveness, says now is the time for another look at a national digital strategy.

Fight for competition far from over

For the three incumbent wireless carriers, who had lobbied hard against a possible Verizon expansion into Canada, Verizon’s deal is something of a victory. Geist calls it a “big win in the short term” for Bell, Rogers, and Telus, but warns the battle will continue to intensify.

“Their share price will no doubt jump up to reflect the premium the market gives to the lack of Canadian competition,” he said. “Longer term, the battle lines are clearly drawn, however, and any hesitation the government may have had to directly confront the carriers on policy is long gone.”

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca