Is Verizon really the 'bogeyman' Canada's telecom giants claim?

Canada's three big mobile-phone providers have been ramping up their campaign to sway public sentiment against the potential entry of Verizon into the wireless market. But is the U.S. giant really the bogeyman they make it out to be?

Canadian telecoms ramping up their campaign against U.S. giant

Could shopping for a cellphone plan get easier with the possible entry of Verizon into the Canadian market? (Rick Wilking/Reuters)

Canada's three big mobile-phone providers have been ramping up their campaign to sway public sentiment against the potential entry of U.S. telecom giant Verizon into the wireless market.

"They're trying to use the bogeyman of a U.S. company to scare Canadians into supporting a change to [current wireless] rules and really kind of push the government to doing an about-face on their policies," said Steve Anderson, founder of OpenMedia, an advocacy group for affordable wireless access.

Just in the past week, for example, Bell Canada took out a two-page advertisement in major newspapers, while top executives at Rogers and Telus relayed their displeasure during interviews with a series of media outlets.

"But is Verizon a big, bad bear about to gobble up Canada?" asked Iain Grant of the SeaBoard Group, a telecommunications consultancy.

Here's a look at what Canadians need to know about the potential deal and why it matters.

What's the issue?

On June 26, media outlets reported that Verizon had offered to buy Canadian upstart Wind Mobile with an initial bid of $700 million, and was also in talks about buying fellow upstart Mobilicity. Verizon has called the moves just an "exploratory exercise."

Despite that, Canada's big three telecoms — Rogers, Bell and Telus — have cried foul to the notion of the American giant entering Canada's wireless market this way, as these smaller companies had been given an advantage in the periodic auctions for wireless spectrum in an attempt by Ottawa to boost competition and hopefully drive down prices for consumers.

Verizon's bid comes after the federal government made changes in 2012  to the telecommunications rules that allowed foreign entities to enter the Canadian sector, albeit with certain limitations. 

Canada's telecoms are concerned that if Verizon were to take over one of the "new entrants," it would qualify for special status at an upcoming auction of lucrative broadband spectrum, which is what allows wireless providers to expand their networks.

Two blocks of spectrum have been set aside for new entrants. And Bell's argument is that because the big three are prohibited from bidding on these blocks, they are likely to be sold at a lower price.

Who is Verizon and why does it care about Canada?

Formerly known as the Bell Atlantic Corporation, this New York-based telecom was founded in 1983. It is the second largest cellphone provider in the U.S., with nearly 100 million customers.

But, "this isn't a stranger to the country," notes Grant. "This is a company that helped establish the Canadian telecommunications market as it now is."

Verizon once owned a large chunk of BC Tel, which later became Telus. But it sold its portion in 2004 to focus on its U.S. operations.

But why would a U.S. giant want to re-enter the Canadian market, with its small population spread over a vast area and where the total number of cellphone subscribers is not even a third of those in the U.S.?

"It makes a lot of sense for it to offer its services to its [American] customers in Canada," said Grant. "Similarly offering services to Canadians who spend a lot of time in the United States. Offering  a seamless North American plan."

What does this all mean for Canadians?

There's been considerable speculation that if Verizon were to set up shop in Canada it could lower rates for customers, thanks to more competition; or perhaps offer more premium-priced contracts with better service.

Benefits could also include eliminating roaming charges when Verizon customers travel anywhere in North America.

"Right now, we pay some of the highest prices in the industrialized world for some really horrible service, and that one way or the other needs to change," said Anderson.

However, the Canadian carriers, and some analysts, have suggested that Verizon's entry into the Canadian market could force the big three to focus on competing with the giant, which could result in job losses and a slowdown in efforts to expand advanced wireless services to rural Canada.

Grant suggests that demand would drive Verizon to invest across the country, not just in major cities.

"Verizon's [U.S.] customers come into the country every day through all of the bridges and ports of entries and they want to roam where they want to roam, whether that's fishing in Saskatchewan or hunting in northern Ontario or wherever."

What are Canada's telecoms saying?

Rogers has accused the federal government of aggressively courting Verizon; Telus has warned of a "bloodbath," and Bell charges that "loopholes" are being opened to a "U.S. company that is four times the size of Canada's entire wireless industry."

Full-page newspaper and online ads are part of a campaign launched by the three to change public opinion and try to push the federal government to adjust its policy.

Is the system fair for Canadian companies?

A large part of the Canadian telecom companies' argument is based on the idea of an unfair playing field.

All three say they support competition, but they say rules brought in by the Harper government give foreign companies an advantage they would never get in the U.S.

"It wasn't meant to be a level playing field," said Grant. "It was meant to give a leg up."

In the midst of the furor over Verizon, Industry Minister James Moore has stood resolute on the issue: "Our view has been clear, we want effective competition across Canada."

Large carriers in Canada still can't be more than a third foreign-owned. But ownership restrictions were lifted on those "new entrants" with less than 10 per cent of the market share of all telecommunications services, which includes not only wireless but also home phones, fixed-line internet and TV.

What happens next?

The big event looming over the sector is the spectrum auction set for January. Any company wanting to bid in the auction must submit its application by Sept. 17.

On the auction table is the 700 megahertz spectrum. Incumbents call it the most valuable one ever sold because towers using its frequency have wider coverage, which means fewer towers would need to be built to cover a particular area.

"If you put a tower up in 700 megahertz, that thing is going to go forever," said Grant. "It goes through concrete, it goes through granite, it goes through walls."

But while it's the first time in 25 years that a section of the spectrum is for sale (the last one took place in 1985), Grant notes it's not the last time.

The 600-megahertz spectrum — offering even wider coverage — will likely go on sale in the next few years, he says.