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Thursday, August 1, 2013

Flares in Canada at the Thought of Verizon

OTTAWA â€" While it remains far from certain that Verizon will enter the Canadian wireless market, just the idea has set off a near panic in Canada’s wireless industry.

Prominent ads have appeared across the country over the last few weeks denouncing any incursion by Verizon as a threat to Canada’s sovereignty and economic well being.

“How does losing thousands of jobs in the cellphone industry help Canada? It doesn’t,” one ad said.

In an “open letter to all Canadians,” George Cope, the president and chief executive of Bell Canada, one of the three major wireless carriers in the country, wrote that “we would like to ensure Canadians clearly understand a critical situation impacting their world-leading wireless industry.”

The loud actions from Bell Canada and the country’s two other major carriers, Telus and Rogers Communications, might suggest that Verizon is hoping to buy one them. But that would be prohibited under foreign ownership laws. Instead, there are rumblings that Verizon may enter Canada by buying two start-up carriers, one of which is nearly insolvent and the other is already Russian-owned and also struggling.

“We’re having a national battle about an American company buying a Russian company that was once an Egyptian company,” said Iain Grant, an analyst with the Seaboard Group, a telecommunications consulting firm based in Montreal. “Where else can that happen?”

Verizon has declined to comment about the Canadian industry reaction. But when asked about the company’s plans for Canada during a conference call with analysts on July 18, Francis J. Shammo, the company’s chief financial officer, appeared far from committed to a northern expansion.

“Let me emphasize this is really an exploratory exercise for us,” he said. “Obviously some of the cautions here are the regulatory environment, a foreign investor coming into the Canadian market and what does that mean?”

Perhaps tellingly, the Canadian government’s index of lobbyists does not include anyone representing Verizon, although it can take up to 60 days for new listings to appear.

If Verizon does decide to purchase Wind Mobile, which is owned by VimpelCom, a Russian company based in the Netherlands, and Mobilicity, which is mired in debt and losing about $30 million a month, it can expect a warm reception from Prime Minister Stephen Harper. His Conservative government has sided with a widespread sentiment among Canadians that wireless service is excessively expensive and has introduced a series of measures meant to create a strong fourth national carrier.

The idea that Canadians pay too much and get too little was initially stoked by a 2009 report from the Organization for Economic Co-operation and Development that ranked Canada the third most expensive country in the developed world for “medium usage” cellphone plans, after the United States and Spain. Rates have dropped substantially since then. But a study released this year by Canada’s telecommunications regulator concluded that prices in two of the three categories into which it divides wireless services “fall on the high side of the average” in an international comparison.

Aside from posting a petition demanding better cellphone service terms on his Facebook page, Mr. Harper has introduced measures to help turn start-up carriers from also-rans into market leaders. First, he has barred the three big carriers from buying Wind or Mobilicity. The big three companies must also sell service on their networks at wholesale rates to start-ups to enable them to offer nationwide roaming. And start-ups can acquire more radio spectrum at a government auction scheduled for January than the established players can buy.

Although Verizon had $75.9 billion in revenue last year, Canada would treat it as a start-up if it bought Wind or Mobilicity. And that treatment, said Mirko Bibic, the chief legal and regulatory officer at Bell Canada, is behind the complaints from the established carriers.

“We have absolutely no issues with competition or more competition or vigorous competition,” Mr. Bibic said. “But it has to be a level playing field.”

Telus, which is based in British Columbia, has asked the Federal Court of Canada for a judicial review of some of the government’s concessions to start-ups. So far, the government has been unmoved. James Moore, the industry minister, said on Wednesday that it would not change its policies.

It is unclear whether Verizon would be a force for lower cellphone prices in Canada. But the company could conceivably deal with one major complaint from Canadians: even brief trips to the United States with a Canadian smartphone can produce hundreds of dollars in data roaming charges.

Dvai Ghose, a telecommunications analyst with Canaccord Genuity, cautions that coming to Canada might not make sense for Verizon. Both Wind and Mobility are “subprime assets,” he said, with customers that Verizon probably would not want to retain. And buying the two companies along with the radio spectrum and other investments would most likely involve at least $3 billion, by his estimate.

While that is a relatively small amount for Verizon, Mr. Ghose noted that Canada has only 26.8 million wireless subscribers compared with Verizon’s 100 million subscribers. Mr. Ghose estimates that Verizon would attract about five million Canadian customers.

“I think Verizon is going to come,” Mr. Ghose said. “But I also think it’s going to be tougher than Verizon expects.”