The IT Nerd

Today is the start of the 700 MHz wireless auction that according to the Canadian Government was part of a strategy that was supposed to bring Canadians “More choice. Lower prices. Better service” to borrow a tagline that they’ve used. But as I type this, it appears that Rogers, Bell, and Telus will win three of the four 700 MHz blocks on offer. That’s because Wind Mobile dropped out of the auction at the very last minute. That leaves nobody to challenge the big three telcos as Wind Mobile was eligible to buy two blocks of 700 MHz specturm. So as it stands right now, it’s business as usual with Canadians paying among the highest prices in the world for cell phone service and no real competition in the wireless space. It also highlights how the Canadian Government’s wireless strategy has failed to bring about the change that the Government desired. This in stark contrast to the press release that Industry Canada put out today that seeks to give Canadians the opposite impression.

So, how did we end up here?

Let’s look at the Wind situation. The reason why they dropped out was that their biggest backer, Vimpelcom wouldn’t fund their entry into the auction. The reason allegedly being that Ottawa shot down an attempt by Vimpecom to take control of Wind because Ottawa was worried about giving a Russian entity (Vimplecom is a Dutch company but controlled by a Russian Billionaire) control of Wind’s network infrastructure. What didn’t help that situation is that the network infrastructure was built by Chinese telecom equipment maker Huawei who don’t exactly have the best reputation. Now add to that the recent decision by Ottawa to block the sale of another teleco, MTS Allstream, to Accelero Capital Holdings over “national security concerns.” Chances are Accelero’s association with North Korea might have something to do with the Government blocking the sale, but I doubt we’ll find out for sure. Keep in mind that Accelero is the investment arm of Egyptian telecom tycoon Naguib Sawiris, the man who originally bankrolled Wind Mobile before his interest was sold to VimpelCom because he’s “finished with Canada”.

Net result: It sends the impression that Canada is closed for business despite the fact that Ottawa says it’s open for business. If you’re a Verizon, T-Mobile, or any other foreign telco, you might looking at this and be concerned that any attempt to enter Canada would hit some sort of roadblock. Thus you’ll avoid Canada so that you don’t get caught up with that. That’s not a good impression to leave foreign telcos who are thinking of coming into the Canadian market if you’re the Canadian Government and you’ve made it clear that want to foster competition in the wireless space. So with that in mind, there’s only two ways that the Canadian Government can claim victory on the wireless front from where I sit.

The first one is to hope that Quebec based telco Videotron, who as I type this are still in the 700 MHz auction, becomes a national player. While they have been primarily focused in the Quebec marketplace, it  may see a strategic opening with the departure of Wind Mobile from the spectrum auction. So it is plausible that Videotron could pick up spectrum in Ontario, Alberta and British Columbia, which it could use give the big three something to worry about. What makes this even more plausible is the fact that Videotron has very deep pockets. However it’s a passive approach for the Government and one that may not happen as anything can happen in an auction.

The second way, and the only real solution in my mind, is for the Canadian Government to throw the doors wide open to foreign telcos and let them in and set up shop. But for that to be really effective, the federal Investment Canada Act which allows Ottawa to block any deal worth $299 million or more if it finds the takeover doesn’t provide “net benefits” to Canadians has to be changed. Specifically, that rule has to be relaxed so that a true free market can exist and a telco could come in and buy whomever they want rather than have to set up a network from scratch. That will encourage the Verizon’s and T-Mobile’s to enter Canada as they could buy a Wind Mobile for example and pour money into that operation to expand their network to challenge the big three. This is what the Government should have done in the first place if they really wanted to have “More choice. Lower prices. Better service” for Canadians, and it’s not too late to do that. All that’s needed is the political will.

The bottom line is this: If there is not an immediate change in course, Canadians will be stuck with the status quo in the wireless space for the foreseeable future. That’s not a good thing for consumers, and it’s an even worse thing for a government that wants to get re-elected 2015 as I am sure that consumers will remember that the Government failed to deliver on its promise of “More choice. Lower prices. Better service” when they go to the ballot box.