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Verizon in Canada: The why and the why not

Shane Schick
Fin - Dashboard - CA

Verizon has a spectrum problem.”

That was the immediate reaction from Iain Grant, an analyst with The Seaboard Group in Montreal, to a news story quoting the chief financial officer from Verizon Communications about the U.S. telecommunications giant possibly entering the Canadian market.

And by “entering the Canadian market,” we are most likely talking about purchasing Wind Mobile, the strongest of the underperforming group of new entrants to the wireless phone space following the 2008 spectrum auction.

Grant said that even if Verizon were to buy Wind and bid in the next auction, it likely wouldn’t end up with enough of the 700 MHz band to become a real contender for a fourth national carrier offering service across the country, which is the federal government’s hope.

Industry Canada’s decision to block the sale of Mobilicity to Telus a few weeks ago was widely seen as a reminder that foreign entrants are seen as the last great hope to changing the dynamic of oligarchic incumbents that we have in place today. To be clear, Verizon’s CFO only said the firm is “just dipping our toe in the water,” but that’s enough to keep the entire sector buzzing for months.

Spectrum wouldn’t be Verizon’s only challenge, of course. It would represent its first real foray outside the United States, into a country where it is probably only known through commercials that Canadians may have occasionally seen while watching American TV.

There could be some value to its existing customers by offering increased roaming capabilities, but not if they’re going far outside of Toronto. Then there’s the fact that Wind Mobile, if that’s Verizon’s target, simply isn’t the stepping stone it seems to be. “Even if (Wind) was 10 times the size it is today, it wouldn’t really move the needle” for Verizon’s stock price, Grant added.

Speculating about Verizon would be even more ludicrous if there weren’t such an absence of other possibilities. To get at least fourth player status in the rest of Canada, according to Frost & Sullivan analyst Ronald Gruia, “One would need about $1.5 billion to buy the new entrants, buy spectrum and invest in network upgrades.” Verizon has that kind of money, but if the company doesn’t make a move, Industry Canada’s decision to push back the spectrum auction by two months will seem like a wasted effort.

Ultimately we’ll know more about Verizon’s intentions before the end of the year, but in the meantime, here’s a more relevant question for investors and everyday Canadians alike.

Is having another industry behemoth enter the market really going to improve the service, prices and choices around wireless technology, or will we just have another giant incumbent to complain about?

The dream of creating new competition from the ground up may not have worked out the first time around, but it’s a dream worth salvaging. Verizon has a slogan that goes, “We never stop working for you.” Industry Canada should think about adopting it.