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With Telus buying Mobilicity, everyone loses

Peter Nowak
Fin - Dashboard - CA

With the news that Telus is buying small cellphone carrier Mobilicity for $380 million, it’s hard to figure out who’s going to be worse off: consumers, the government or the big carriers themselves.

One less wireless company – especially one that specializes in offering rock-bottom prices – obviously means there will be less competition and choice for customers. The removal of such a particularly scrappy player will bring Canada one step closer back to the status quo of Bell, Rogers, Telus, a trio that already currently enjoy some of the highest profits and per-user revenues in the world.

At $60.79, Canada leads the world in the all-important industry measure of average monthly revenue per user, according to figures from the Bank of America Merrill Lynch Global Wireless Matrix. That’s a third higher than the developed world average of $43.79 and 16 per cent higher than the United States, at $51.61. Canadian carriers are also fifth highest among advanced nations in profitability, with a margin of 45.9 per cent, and are third in profit growth.

There are no two ways about it: bills are already high – and they’re getting worse. According to a recent J.D. power report, the average cellphone bill climbed 13 per cent higher this year over last. Even Mobilicity’s fellow small carrier Wind Mobile saw its per-user revenue increase 16 per cent year over year in its most recent quarter.

Wind and the third new carrier, Public Mobile, are similarly cash strapped and reportedly for sale too. With their own reckonings quickly approaching, a return to the status quo looms large.

The government is thus up a certain creek. Back in 2008, it acknowledged the competitive problem of this status quo and tried to fix it with an auction of wireless airwaves that was designed to introduce new players to the market. By setting aside 40 per cent of the licenses sold, the auction did indeed net the likes of Mobilicity, Wind and Public and spurred existing cable players Videotron and Eastlink to launch networks in Quebec and the Maritimes, respectively.

But the government made one major mistake with the auction. It went ahead despite the Telecommunications Act forbidding foreign telecom companies from having majority ownership and control of network operators in Canada. It didn’t take long for the Canadian Radio-television and Telecommunications Commission to try and enforce those rules by blocking Wind, backed by Egyptian billionaire Naguib Sawiris, from starting up.

Both Telus and Mobilicity are framing their arrangement as the only way for the smaller company’s 250,000 customers to continue getting service, and it certainly is one way for existing investors to finally put an end to their bleeding. But in the bigger picture, no one wins with this deal.