Nadir Mohamed, CEO of Canadian telecommunications provider Rogers Communications, questioned whether that country can support more than three nationwide operators, something the country’s government is looking to bolster.
Speaking to analysts following the company’s second quarter earnings release, Mohamed called into questions the ability for such competition, citing Canada’s unique geographic characteristics.
“I’ve never seen how a four-player market can work in a country like Canada,” Mohamed told analysts during a conference call. “I never thought of it is as a sustainable model. It is – if you think of what’s happened over a period of time consistently in Canada, it’s proven out that this country – it’s difficult enough, frankly, to work with three players. It’s really hard to think how anybody that knows the business would think that a fourth facilities-based player would make sense. Frankly, globally, it’s interesting. If anything, we’re seeing a market that’s consolidating in just about every country. So Canada, by no stretches, is an outlier. If anything, three players is the norm … and that’s, by the way, before factoring in what I would say are the unique characteristic of Canada in terms of the geographic expanse of the country.”
Canada’s wireless market is currently dominated by Rogers Wireless, Telus Mobility and Bell Canada, with the two latter operators working through a network partnership that sees Bell Canada manage operations in the Eastern part of the country and Telus Mobility managing services in the Western part of Canada. The government previously attempted to infuse competition into the space through the auction of 1.7/2.1 GHz spectrum in 2008, though that has seen limited success as only a handful of carriers have entered the space, while others have sold off those spectrum holdings to established carriers.
Mohamed added that if the government is interested in adding more competition to the market it should do so with a level playing field, referencing Industry Canada’s plans to limit spectrum purchases by established carriers. Those limits include imposing regulations on bidding for the upcoming 700 MHz and 2.5 GHz spectrum auctions as well as closer scrutiny on carrier consolidation.
In setting up the original rules for the 700 MHz auction, Industry Canada said it would apply spectrum caps to the auction in a move to ensure that at least four new entrants enter the wireless space. In addition, build out requirements for rural areas will also be in effect for those companies acquiring two blocks of paired spectrum. Those spectrum caps will place a limit on “prime” spectrum to incumbent operators that is expected to reserve those licenses for new entrants into the space.
In addition, any provider that does not currently own spectrum in the lower bands would be allowed to purchase up to two new spectrum blocks at 700 MHz. The government also said it will apply “specific measures” for its planned 700 MHz spectrum auction “to see that rural Canadians will have access to the same advanced services as everyone else in a timely manner.” The propagation characteristics of the 700 MHz spectrum band are seen as ideal for providing mobile broadband coverage to the vast expanses of Canada outside of city centers.
The new regulations will require companies that control two or more blocks of paired spectrum in the 700 MHz band to cover 90% of the country’s population with their “current high-speed coverage” within five years and 97% within seven years of being granted the licenses. The government also said it would enforce general rollout timelines to both the 700 MHz and 2.5 GHz spectrum licenses ranging between 20% and 50% population coverage within a 10-year period.
Industry Canada also shot down Telus’ attempt to acquire smaller rival Mobility earlier this year, citing the initial requirement that the 1.7/2.1 GHz spectrum licenses controlled by Mobility be used by a new entrant into the market.
“Our government has been clear that spectrum set aside for new entrants was not intended to be transferred to incumbents. We will not waive this condition of license and will not approve this, or any other, transfer of set-aside spectrum to an incumbent ahead of the five-year limit,” said Christian Paradis, Minister of Industry. “Our government will continue to allow wireless providers access to the spectrum they need to compete and improve services to Canadians. We are seeing Canadian consumers benefit from our policies and we will not allow the sector to move backwards. I will not hesitate to use any and every tool at my disposal to support greater competition in the market.”
In addition to limiting spectrum aggregation, Industry Canada is also looking to lure new investments into the market, with U.S.-based Verizon Communications looking to take advantage of such opportunities. Verizon has reportedly offered to purchase beleaguered operator Wind Mobile for $800 million and has initiated talks with equally-troubled Mobility. Verizon has said it was interested in entering the Canadian market ahead of the planned 700 MHz auction currently scheduled for Jan. 14, 2014.
Verizon CFO Fran Shammo noted during the carrier’s Q2 earnings conference call with analysts that it was interested in how the Canadian market lines up geographically and spectrally with Verizon’s domestic operations.
“If you look at the population of Canada, about 70% of that population is between Toronto and Quebec,” Shammo explained. “That’s adjacent to the Verizon Wireless properties. Again, if you look at the spectrum auction, it mirrors up exactly what we launched here in the United States on the 700 MHz contiguous footprint. So we’re looking at all these, but obviously some of the cautions here are the regulatory environment, a foreign investor coming into the Canadian market and what does that mean? So again, cautiously looking at it. Not ready to make any announcements today. And we continue to explore and have discussions, but at this point it’s just really an exploratory exercise.”
Rogers’ Mohamed did note that the carrier was set to phase out three-year contracts in favor of two-year contracts to abide by government regulations. That move is expected to happen by Aug. 9. Telus Mobility recently made the move ahead of the government’s Dec. 2 deadline.
Rogers Q2
As for its quarterly results Rogers said it added 42,000 net wireless customers during the second quarter, which was just ahead of the 41,000 net customers added during the same quarter last year. The latest results included 98,000 net postpaid additions offset by the loss of 56,000 prepaid customers. The carrier ended the quarter with just over 9.4 million total customers on its network.
Total wireless revenues increased 3% year-over-year to $1.8 billion for the quarter, with wireless operating profits also posting a 3% increase to $821 million. Rogers added that data services accounted for 46% of total wireless revenues for the quarter.
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