Rogers Communications Inc. (RCI/B), Canada’s largest wireless carrier, said the government should scrap foreign ownership limits on telecommunications companies rather than stick with the current “flawed” policy that favors global competitors such as Verizon Communications Inc.
“If the end objective for government is to say ‘let’s open up the market,’ then we’d rather have it open than flawed in terms of the structure that is currently in place,” Chief Executive Officer Nadir Mohamed said in an interview yesterday at Bloomberg’s office in Toronto, where Rogers is based. “It’s not a level playing field.”
Mohamed and his counterparts at BCE Inc. (BCE) and Telus Corp. (T) have been pressing the Canadian government to change its national wireless policy which they say is unfair and handicaps the country’s three biggest carriers against a potential new entrant like Verizon. The New York-based company, whose market value of $135 billion is close to double that of BCE, Telus and Rogers combined, said in June it’s weighing a bid to buy Wind Mobile, the largest of three new Ontario-based carriers.
Verizon Chief Financial Officer Fran Shammo described the possible bid at the time as “just us dipping our toe in the water” and the Globe and Mail reported Aug. 14 the company may be backing away from its bid. Robert Varettoni, a spokeswoman for Verizon, said on Aug. 9 that Wind is one of many business opportunities that the company is looking at. He declined to comment on Canadian issues yesterday.
While Mohamed said he would prefer scrapping foreign ownership restrictions over the status quo, his first preference would be to change the current rules.
The government has been trying to boost competition for BCE, Telus and Rogers, which together control about 90 percent of the domestic wireless market, and has pledged to foster four competitors in each region of the country. In a spectrum auction in January, incumbents will be limited to bidding on just one of four blocks of prime 700-megahertz airwaves while new entrants, including potentially Verizon, could bid for two.
“For a company to establish itself in the Canadian marketplace, that’s a scale of spectrum they would require to compete across the country,” James Moore, who became Industry Minister last month, said in an interview Aug. 21.
The minister said he will not change the timing of the auction or rules on block allocations.
Asked if the government would consider eliminating the remaining restrictions on foreign ownership of phone companies, Moore said that “our policy is to encourage more competition, and our rules in this auction we think will arrive at that.”
Current rules prohibit any foreign company from buying a carrier with more than 10 percent market share, which includes BCE, Telus and Rogers.
Moore said claims by Canada’s telecommunications companies for a level playing field are self-serving because they already have an advantage over any potential entrant into the wireless market. Even if Verizon enters the wireless market,it would not be allowed to own broadcast assets under Canadian law, limiting its ability to offer bundled cable packages. “Incumbents who are providing broadcast policy can also bundle packages together,” Moore said. “That is an advantage incumbents have over Verizon.”
“A level playing field which they describe is quite a misnomer,” he said.
Canada’s biggest opposition party, the New Democratic Party, have triggered parliamentary hearings on the auction which must begin by Aug. 27 under the rules of the country’s legislature.
A newcomer like Verizon would need to spend more than C$3 billion ($2.85 billion) to start up in Canada against “some of the most sophisticated networks in the world,” Bill Wolfe, an analyst at Moody’s Investors Service in Toronto, yesterday.
Shares of BCE, Rogers and Telus tumbled after Verizon confirmed it was mulling an entry into Canada. They have since recovered some of those losses after the Globe report Verizon may not bid. Rogers rose 1.2 percent to C$41.26 at the close in Toronto. The shares have dropped 8.6 percent this year. Montreal-based BCE is little changed and Vancouver-based Telus has dropped 2.3 percent over the same period.
Rogers and Telus, based in Vancouver, are the Canadian carriers that would be hardest hit by Verizon because they draw nearly twice as much of their pre-tax profits from their wireless businesses, Tim Casey, an analyst with BMO Capital Markets in Toronto, said yesterday by phone.
Rogers, BCE and Telus are opposed to rules that effectively stop them from buying rivals with less than 10 percent market share because it would mean a transfer of spectrum ownership while there is no clause stopping a major foreign carrier from doing so.
The carriers are also arguing for a change to the spectrum auction rules.
“It’s specifically about government artificially creating rules that subsidize a large foreign incumbent to take advantage of rules that were set for new players,” said Mohamed. “We’re open for competition, just on terms that are the same as ours.”
If the government wants to really open up the country to foreign ownership, then it should postpone the spectrum auction and first address that, Mohamed said.
“If the objective is to allow foreign companies to come in, let’s not do it with what I would describe as a stacked deck,” he said.
Rogers would survive as a company if that rule were scrapped by the government, Ken Engelhart, Rogers’ vice president, regulatory affairs, said in the interview.
“We would,” Engelhart said. “We’re not interested in selling.”
Deposits by those planning to bid in the Jan. 14 auction must be made by Sept. 17. Mohamed said there is still time for the government to come up with an alternative before that and that rule changes could still be made beyond September.
Smaller carriers Wind, Public Mobile and Mobilicity have all struggled to gain market share from their larger rivals, even after the Canadian government reserved wireless spectrum for them in 2008. The government in June blocked Telus’s bid to buy Mobilicity, citing the decision as a precedent for blocking the transfer of spectrum.
Mohamed’s comments echo those made earlier this month by George Cope, CEO of BCE, who said Aug. 8 that Verizon cannot be allowed to buy Canadian carriers at a discount nor should it have preferred access to new spectrum.
“It’s very clear that Verizon does not need government handouts,” he said. Jacqueline Michelis, a spokeswoman for BCE, did not immediately return a call seeking comment on Mohamed’s remarks.
Telus, like Rogers, is first in favor of changing current rules and if not, opening the industry up to foreign competition, said Ted Woodhead, Telus’ chief of regulatory affairs.
“My first preference would be for the government to get this right,” he said yesterday in an interview. “This sort of half measure, sort-of limp 10-percent national market share thing is rather goofy.”
Companies like BCE and Rogers say they need the spectrum to feed data-hungry smartphones and tablets, and that they are the only carriers with the scale to build the faster networks consumers are demanding.
Spectrum is a “precious Canadian resource,” Mohamed, 57, said.
As Mohamed, Cope and Telus CEO Darren Entwistle publicly criticize the government’s plan, labor unions have come to the support of the industry, as well as the editorial boards of some of the country’s biggest newspapers such as the Toronto Star and Globe and Mail.
Mohamed said he still plans to step down as CEO of Rogers on Jan. 31 even with the auction set for Jan. 14. The board is continuing with the process of choosing his successor, he said.
“We have a great leadership team, we’re obviously in the process of selecting a CEO and I have no doubt whatsoever that we’ll have the leadership that’s required,” said Mohamed.
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