There is something rotten in the Canadian telecom world (6)
Last week, two contenders dropped out of the Canadian wireless spectrum auction. MTS Allstream, a Manitoba-based telecom company, announced that its partnership with private equity firms Canada Pension Plan Investment Board and Blackstone Capital Partners was dissolved, making its chances to win the wanted spectrum unlikely. Just a few days ago, a joint venture which was initially led by Novacap, a Montreal-based private equity firm, also withdrew from the race. It was announced that the proposal didn’t meet federal laws concerning foreign ownership in a holding, capped at 46% in Canada.
The story behind the last flop is of course much more complicated than that; Novacap teamed up originally with US VC firms Columbia Equity Partners and M/C Venture Partners. One month later though, the venture’s capitalization changed, with 3 other investors magically appearing, Rho Canada Partners, Cyntech Holdings Ltd., and BMO Capital Corp; and this is where they didn’t comply anymore with federal regulatory laws.
I have no comments about all this backstage action; but I hate to see the direction where the auctions are going. The only serious companies left are Shaw Communication, Québecor, and Globalive Wireless. [see initial list]
When you go through the list, the amount of deposit required just to participate in the auctions are staggering. Contenders to nation-wide licenses are putting in hundreds of millions of dollars, and we haven’t started the auctions yet.
It occurs to me that these auctions are going to worsen the state of the Canadian mobile telecom industry. We are currently in a state of oligopoly, with 3 big carriers running the market and charging the highest prices in the world to their customers. As a result, Canada is lagging behind every other developed country now [except broadband Internet avalaibility]. With these auctions, where the price of entry is well beyond the means of most firms in this country, new players, if we’ll have any, are going to protect that investment; with even higher prices.
This isn’t any good for anybody. We reached the point where mobile phone and mobile data accessibility is essential to any developed country, as essential to economic developmnent as basic infrastructure such as roads or higher education.
As such, I think all barriers to entry to entry should be removed; by beginning with these auctions. Of course, there is the argument that frequencies are scarce, and to decide who is going to own it, the most natural thing to do is auction them off. But the Canadian telecom space is not the US’s, or Japan’s, and does not have the luxury of behaving the same way. If it wants to get back in the race, it must:
- kill off the wireless auctions,
- in exchange, add a clause that any new mobile company must allow open access to their network; so that any other company can become an operator very easily,
- find a way to let small players in, even if they do not have the resources to launch a nation or province-wide mobile network,
- enable quick & total number portability for users, between different companies,
- forbid early termination fees,
- also separate network services from content, and prevent carriers from locking their users to a pre-constrained set of applications and websites on their handsets.
The model will essentially free the current mobile market; will stop a telco to lock down a customer for years; remove all barriers of entry; ultimately driving prices down but also driving mobile usage up, making it a win for everybody, customers and companies alike. And in my opinion, that’t the only way we’ll close the gap.
Picture: Freedom by Almighty_Fotografie
Heri,
Your frustration is understandable. You have some good, very reasonable ideas about how to improve the market.
The biggest problem with the Canadian market is that it is too small to induce an effective level of competition on its own. Making any meaningful impact on any telecom service market requires a hefty investment, even without the cost of participation in spectrum auctions.
The “capital-light” MVNO model with all its potential for market differentiated content and services has not been able to change much.
My sense is that Canada really only has two options - heavy regulation on rates (we pay far too much for wireless services), or open up/merge the market with the U.S. to bring the necessary scale competitors in on a level playing field. Or both.
Sadly, I think nothing short of this will drive any long term improvement in competition and benefit to consumers.
M
Michael,
Bring on the Americans. Open up the market. (Let’s try it for air travel too.)
-A
You seem motivated.
The only question, given no preconceptions, is, what can we do to change it?
We do have a unique situation given our very low population density. I live in somewhat rural Southwestern Ontario (ie: the cable line is 1km away) and can’t even get highspeed internet (dsl/cable/wireless). And I’m 20 minutes from a pretty major collection of cities (Kitchener-Waterloo-Cambridge).
What’s disturbing is that even the larger metropoli (Greater Toronto Area, Vancouver Delta, Montreal) don’t have the rates or services of other countries.
So what can we possibly do? Any ideas? :)
Ario
It is really sad to read about your access challenges.
When I lived in New Jersey, the most densely populated state in the US, we had the same problem. No cable TV, no high speed Internet, no satellite alternatives. Huh?
All I can say is, it felt weird being in the most advanced country in the world struggling to get an email out.
Our options in Canada are relatively limited for the reasons you point out. The options depend mostly on how much action you are willing and able to take.
If you want to make change happen at the industry level (lower rates through regulation or opening the market to competition) then you have to go after the CRTC and your local politicians. Having done a quick tour in regulatory affairs, I can honestly say the CRTC listens very carefully to individual consumer voices. In public hearings I was amazed at how much pressure a farmer from rural Ontario was able to put on telecom executives.
There are also advocacy groups that represent consumers (I’ll try to hunt a few down and comment later). Getting your local politician to go to the appropriate ministers is also a pretty straight line. You need to equip them with the right info though since most politicians are market generalists.
I started my own Internet business recently and when I read your comment, I thought to myself “There’s a business opportunity in there somewhere.” There is actually a lot of untapped market opportunities in non-metro areas but due to their relative size in a big telephone company, they tend not to get full attention. The US still has lots of tier 2 and 3 companies doing very well thanks to their very local focus. I am 100 percent on my current venture right now but maybe someone reading this has some ideas or funding to dive into it with you.
You can also contact the non-dominant provider in your region. Telus in Bell Canada’s home turf, smaller providers who may be near by are good to. Tell them what you are lacking. Sign up a bunch of friends and neighbours on a blog perhaps and then go to the alternative telcos. Your voice to them may be the tipping point to getting better service and more options. You have to find the right person there to listen. The customer care rep isn’t the right person. Ask for the head of marketing, sales or new business line and go from there.
That’s all I can think of right now. Sadly, it puts all the burden on the individual consumer. I hope things improve.
M
Michael, we’d need more of those Tier 2, Tier 3 local companies.
The CRTC needs to conclude that not even Bell or Telus has the means to cover 100% of Canada; and so they must open up the market to new companies, no matter what it takes.
When writing this post, I was thinking about the CRTC which at one point forced Bell to give up its landline monopoly and give access of the last mile to third-party companies.
I haven’t examined the technical feasibility, but it occurs me that the same thing must be done with the wireless space. Whenever a new antenna is laid out by a company, any other company should have the right to use it and openly provide services to people covered by the antenna. Of course, it won’t be free, service will be charged, according to a rate, ideally set by the market, but practically I think only the CRTC can now set it.
Also, we’d need to favour GSM and handsets that can use 2+ SIM cards, so that users can switch seamlessly between different service providers. say one for voice, and another for data.
I did some research and it seems the clause of rent space on towers was included:
quote:
“New entrants will also benefit from two other Industry Canada rulings. Existing carriers will have to rent out space on their cellphone towers at reasonable rates to new players. They will also have to sign agreements that allow the customers of newcomers to “roam” on their networks, again at reasonable rates.”
http://www.cbc.ca/technology/story/2008/05/26/tech-spectrum.html
but then again, the new potential entrants, such as Shaw, issued a statement earlier this week that they will not lower prices at all but will come up with new plans and services.
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