Speculation is one of the great freedoms reporters engage in, marshaling a fact here and a fact there to signal to readers what might be coming.
We’re not the only ones who do it for a living: So do financial analysts. Among Canadian telecom analysts the latest game is to figure out what’s going to happen in the wireless industry. With an increasing number of employees wanting enterprises to pick up the tab for their wireless use, it’s a topic CIOs are paying attention to because if competition increases the likelihood of prices dropping also goes up.
With the exception of Quebec, where Videotron is putting up a big fight, wireless startups have failed to make a significant dent so far in the market share of the three biggest incumbent carriers — Bell Mobility, Rogers Communications and Telus Corp. So observers are wondering whether Videotron, supported by its cable revenues, is serious about becoming a wireless provider outside its home province.
Earlier today shares of the big three dropped a couple of points, prompting Canaccord Genuity’s respected (and outspoken) director of research Dvai Ghose to issue a note to the company’s investors not to take notice. The drop, he speculated, was in part due to an unnamed competitor’s speculation that Videotron parent Quebecor could indeed be serious about expansion. As a result that analyst dropped target stock prices for the trio.
Quebecor, you may recall, just bought 700 MHz spectrum in Ontario and Alberta as well as its home province, and has been making statements about becoming a fourth national carrier — if Ottawa makes changes to certain rules like the price of roaming Bell, Rogers and Telus charge for subscribers to use their networks.
The argument that Quebecor would expand Videotron wireless goes like this: It already has unused AWS spectrum covering Toronto bought in the 2008 spectrum auction, it has lots of money from cable, it can afford to buy the Caiasse de depot’s 25 per cent of Quebecor, it has lots of money from cable, it can afford to buy Wind Mobile (with networks and some 730,000 subscribers in B.C., Alberta and Ontario), and it can afford to buy financially troubled Mobilicity, which also has networks in B.C., Alberta and Ontario.
Risky? Yes. Despite the fact that mobile is the future, subscriber growth has been slow here in the past two years because essentially this is now a mature market.
Ghose has consistently dismissed the possibility that Videotron Wireless will grow beyond Quebec for that reason and others he laid out in his note. For one thing, he pointed out, few countries have been able to support four facilities-based carriers. Now smaller players are giving up.
Think about Ontario, which used to have six carriers — Bell, Rogers, Telus, Wind, Mobilicity and Public Mobile. Then Telus bought Public Mobile. Mobilicity is in protection from creditors and Wind’s main financial backer, VimpelCom, wants out of Canada. The only thing preventing Telus from buying Mobilicity is the Harper government’s insistence that startup carriers owning AWS spectrum — like Mobilicity — won’t be allowed to move their spectrum to the big three.
The U.S. has four national carriers, he acknowledged, but is dominated by two (Verizon and AT&T).
Then there’s domestic roaming, which new entrants need because their new networks are small. Quebecor is counting on Ottawa to order incumbent carriers to charge much cheaper rates for domestic roaming than they currently have to pay. There’s an interim rate in the federal budget, but the CRTC is supposed to hold hearings starting in September on the issue. If it goes ahead, Ghose says, a decision on roaming won’t be made until next year — unless Ottawa steps in. That means, Ghose says, that there’s no imminent threat from Videotron and therefore no need for Bell/Rogers/Telus shares to move.
Ghose also notes that for all its spending Videotron only has 10 per cent of the Quebec market, and that’s with the advantage — unlike Wind and Mobilicity — of being able to offer cable and Internet bundles. Outside of Quebec it can’t do that.
Finally, Quebecor has said it will only expand outside the province if it can find equity partners. Given all the above, he wonders, who would put up the money?
I am constantly reminded of the remarks of a former Mobilicity exec, who told a newspaper that while Canadians talk big about wanting wireless competition, when it came to switching carriers it was all talk and little act.
Quebecor won’t move beyond its home base. And any CIO betting on increased competition bringing down wireless rates is just engaging in speculation.