Six billion dollars. That’s how much value Canada’s big three wireless carriers – Bell, Rogers and Telus – have lost over the past two days as word solidified that U.S. giant Verizon is indeed looking to come north. Rogers’ stock has accounted for the majority of that slide, with the company losing about $2.7 billion in market capitalization. Telus comes in second at about $2.1 billion and Bell in third with $1 billion.
Investors inevitably got pinched amid all this, especially if they listened to certain Bay Street analysts. The Globe and Mail first broke the story that Verizon was looking at getting into Canada, possibly by acquiring Wind Mobile, back on Jun. 17. Some oft-quoted analysts fell all over themselves in a hurry to pour cold water on the notion.
“Our view is this is highly unlikely. We do not believe VZ [Verizon] sees Canada’s fourth operator as attractive based on the track record, the lack of spectrum and inferior network,” wrote Scotiabank analyst Jeff Fan in a note to clients. “We see this as ‘noise.’”
“In our view, Verizon and Vodafone have much larger issues to contend with than Canada,” said Dvai Ghose, head of research at Canaccord Genuity.
Kudos must be given to Globe reporters Rita Trichur, Steven Chase and Boyd Erman, who not only stuck with the story, but proved it, putting a good deal of egg on the analysts’ faces. While journalists sometimes get a story wrong, there is at least one reason why they should be given credence in such matters – they have a duty to talk to all stakeholders and not just people who would obviously prefer that the story be untrue.
For all of their pooh-pooh-ing, the negative Nelly analysts haven’t been able to see the forest for the trees. While wondering why Verizon would want to spend a billion or two to get into a market where it might see only $4 billion to $5 billion in annual wireless revenue, at best, they have seemingly ignored the bigger picture: Canada’s overall $59 billion communications market.
Buying Wind and/or Mobilicity is likely just Verizon getting its foot in the door. While some observers have erroneously remarked that the law limits foreign companies to only 10 per cent of the market, the reality is that the sky’s the limit for Verizon as long as it grows organically and not through acquisition. And even that rule will eventually stop making sense: What happens if and when the company does indeed capture a quarter of the wireless market through pure competition – will it still be prohibited from buying, say, Telus? The government could object to such a move on other grounds, but the existing 10-per-cent law might not apply anymore and could indeed be further loosened by the time that happens anyway.
Several observers, including CARTT.ca editor Greg O’Brien, have also pointed out that Verizon will still be at a disadvantage to the Big Three because it will be a wireless-only player, unable to offer bundles of TV, home internet and landlines. But, as I mused a while back, what’s to stop the company from buying a smaller internet provider such as Teksavvy and using that as a base upon which to start building triple-play services? (I actually predicted that it would be AT&T who would come in and buy Teksavvy and/or MTS Allstream.)
Canada’s Broadcast Act currently bars foreign companies from offering TV, but as Michael Geist points out, that too may be about to change. Not only is the Canadian Radio-television and Telecommunications Commission currently examining how television is sold in Canada – and apparently getting serious about it this time – Verizon is also more than likely talking about this very issue with the government as part of this whole wireless plan. There may very well be a quid pro quo going on, where Verizon is saying it will salvage the government’s desire to have four strong wireless carriers if Ottawa in turn loosens up the broadcasting rules.
That makes Thursday’s news about the CRTC approving Bell’s takeover of Astral somewhat irrelevant. With the giant, super-rich foreign barbarian clearly at the gate, it’s kind of cute how our telecom companies are continuing their insular expansion within Canada. As the government’s own expert panel report on competition said five years ago, those same companies need to “take the puck to the other end of the rink” and start growing outward, internationally, before it’s too late.
Now, it probably is too late. Despite what Bay Street analysts might say, those companies are going to lose a lot more than $6 billion.