Bell and Telus have threatened the CRTC of major investment cuts should there be regulatory changes by mandating MVNOs. Industry analysts say it’s a page from the “playbook” and carriers will adjust their businesses to please investors.
The Canadian Radio-television and Telecommunications Commission (CRTC) is currently undergoing a regulatory hearing on whether to mandate Mobile Virtual Network Operators (MVNOs), wholesale service providers, which started on February 18.
On February 19, Bell’s CEO Mirko Bibic said if regulatory conditions change there will be an impact on capital expenditure or on expenses (salaries, advertising, retail experience) in order to “deliver to shareholders who provide us with $4 billion in capital.”
“They expect a return,” Bibic said. “We need to grow that dividend, if we don’t deliver those dividends then we are not going to get the $4 billion the next year, and the year after that.”
On February 20, based on a board resolution, Telus’ CEO Darren Entwistle told the CRTC that it would cut 5,000 jobs and $1 billion in investment over the next five years.
The company’s executive also said that it would reduce philanthropic spending.
Rogers is set to appear on February 26, but during its Q4 2019 earnings call, the company’s CEO Joe Natale said “this capital and this investment is at risk” if the right regulations are not put in place.
“We do not have the right regulation. As we enter the world of 5G, regulatory certainty is critical to investment. We need regulation that encourages investment and fuels innovation. Punitive regulation will slow, or worse, stall 5G deployment,” Natale said.
Dave Heger, an analyst at Raymond James, said in an interview that the carriers will “do whatever possible to maintain their dividend” to pay back shareholders.
“There has been precedent when there have been unfavourable regulatory decisions that they will make cuts in investment in their network to offset it,” he said. “It’s also to send a message of ‘hey we’re out here making huge investments and if you’re going to dramatically cut what we can give... there is a return on investment decision that has to be made.’”
Heger offered an example: Bell announced it would reduce its broadband internet buildout for smaller towns and rural communities by 20 per cent after the CRTC decided final rates in August that smaller players could pay to access the high-speed networks of larger telecom companies.
Threats have been uttered before
Anthony Lacavera, the founder of Wind Mobile and Globalive Capital, believes the carriers could slow down 5G rollout and could make investment cuts, but said the rhetoric isn’t new compared to what’s been said before.
“You could go to the transcripts of the hearings with respect to my wireless carrier [Wind Mobile], the exact same arguments were being made,” Lacavera said.
“In fact... the next time I see [Bibic], I’m going to joke with him and say ‘did you just dust off the old speech? It sounds familiar,’” Lacavera said.
Michael Geist, a law professor at the University of Ottawa, said in an interview that historically, threats from telecom companies are “very common” and, typically “pretty empty.”
He added that the companies will probably have to adjust if there is new competition in the marketplace.
Geist said companies are always laying employees off and that isn’t driven by CRTC policies.
“The company responds to any number of market developments. There’s no question to that, but threats to investment, threats to employment, threats to dividends are more playbook,” he said. “And these companies have proven themselves willing to go back to the playbook, again and again.”
Geist explained a similar scenario was played out when U.S.-based telecom carrier Verizon tried to enter the Canadian market in 2013. He said the major incumbent carriers went on an “immediate war footing” to put out op-eds, lobby the government and “engage in widespread attempts to convince the public that [Verizon] was a threat to investment and to the economic well-being of Canadian companies.”
In the end, Geist said Verizon “took a look at the noise” and felt it wasn’t worth entering the market. Yahoo Canada has been owned by Verizon Media since 2017.
Foreign investors get nervous when major regulatory changes get made
During his testimony, Bibic also said foreign investors were concerned about investing in Canada.
“[An investor asked me] ‘why should we invest in your country?’ That’s kind of scary. That’s why I’ve said over and over again that these decisions inevitably affect investment,” Bibic said.
Heger said foreign investors typically found Canadian telecom attractive for investments because there are three stable carriers that have a “premium valuation” in terms of their growth profile.
“Investors are worried that if things change dramatically if the regulatory regime gets more restrictive or MVNOs come in, it could change that nature,” he said.