It was recently rumoured that Verizon, a major US broadband and telecommunications company, was interested in purchasing Wind Mobile as a way to gain entry and an immediate customer base in Canada. The rumoured price for Wind was $700 million. This rumour, if true, could have a major impact on the Canadian wireless market.
But it won’t.
To be fair, I guess there has already been an effect. All three Canadian majors’ share prices fell significantly when the rumour started making the rounds. I’m guessing that the reason for this is that shareholders are assuming that if Verizon, white-knight like, comes onto the scene, Canadians will be saved from those nasty, evil, price-gauging um, other Canadians (the three incumbents), prices will fall, service (both the coverage and customers varieties) will be stellar, and all will be well in the Great White North.
Here’s what people forget: Verizon is a for-profit company, and they answer to shareholders, just like the three incumbents. Prices will probably moderate somewhat while Verizon tries to carve out market share, and the others match to compete, but this will be a short-lived change. It must be said that Verizon has very deep pockets, so they can afford to lose money for quite a while if they so choose, but at the end of the day, they will regress to the mean, and they will end up raising their prices so as not to lose out on potential profits, and they will eventually adapt the business practices and pricing of the current big three.
How do I know? It has already happened, that’s how.
When Target recently moved into the Canadian market, with the Loonie and Greenback having been at or near parity for months and months, Canadian shoppers were aghast to find that many prices were higher in Canada than at American Target stores. I can’t quote any current examples, as I have yet to set foot in a Target store (nothing political, I just like money more than many of the things it can buy) so I can’t say how reasonable prices are these days. At the time, Canadians were beside themselves at the price differences. What did they do about it? They lined up to throw their money at Target. Not a great way to send a message. Well, actually, it’s a great way to send a message, just not the type of message you should be sending: Fleece me, I’m Canadian.
When Wind mobile moved into the Canadian wireless space, they shook things up by heavily promoting a pay-as-you-go model. On Wednesday, on Lang & O’Leary, Wind CEO Anthony Lacavera explained that that strategy has been abandoned, and they are working on growing their subscriber plan. Why? Well, I assume it’s because that’s the best way for them to make the most money. In defending the financial strength of his company, Lacavera also stated that their revenue per customer was up. Translation: people are paying more now that they were a few years ago for their service from Wind. To be fair, Lacavera also said that overall, cell phone rates were down 18% in the markets in which Wind operates, although he didn’t explain how that number was arrived at.
What is magic about the number 4?
In my opinion, nothing. If three companies are overcharging for their services, as seems to be the consensus, then how does a fourth change that? If there where 6-8 players, I might be more inclined to buy the competition argument, but going from three to four doesn’t make that much of a difference. All of the companies will quickly realize that there is still a lot of easy money to be made, as long as nobody gets too greedy.
The old flipperoo
As the jaded, cynical, always-finding-the-problems kind of guy that I sometimes am, I feel obliged to point out that if Verizon comes to Canada, it could just be for the purpose of a quick flip. The spectrum that was set aside for start-up telcos was sold to those new comers on the condition that it not be sold to the big three for five years. That five-year term expires next year, and as Telus’ recent attempt to buy Mobilicity shows, the big three are not going to be shy about gobbling up smaller companies in order to increase their own spectrum. So, even if Verizon buys Wind, it may well simply let Wind operate as it now is until it is able to sell the company, along with its most valuable asset, its spectrum, to one of the incumbents, and then we will be right back where we started.