Telus focusing on ‘economic impacts’ of Verizon entry, lobbying to change auction rules

Telus Corp.’s summer lobbying efforts will focus on the “potential economic impacts” of allowing a large foreign provider like Verizon Communications Inc. to enter Canada’s wireless market, said John Gossling, the company’s chief financial officer. “We’re putting a lot of effort into it. Really, all we can do is try to have the government understand exactly what the impact is going to be,” Gossling said Tuesday in a telephone interview. “There’s a lot of potential economic impacts … It doesn’t appear on the surface that they’ve completely thought through.” Incumbent providers Telus, BCE Inc. and Rogers Communications Inc. launched lobbying campaigns last week, aiming to change Industry Canada's rules for next year’s 700 MHz spectrum auction. Currently, those rules allow a large foreign provider to secure two blocks of “prime” wireless spectrum in each Canadian market, while limiting incumbents to a single block each. This month, the board members of Rogers, Telus, and BCE registered individually with the federal lobbying commissioner to lobby the government on policies related to spectrum and the auction. Telus chief executive officer Darren Entwistle also held editorial board meetings with The Globe and Mail and National Post newspapers last week to call for an open auction and discuss the impacts of a possible Verizon market entry. Verizon has a 55-per cent stake in Verizon Wireless Inc., which with a 100 million subscribers, is the largest wireless provider in the U.S., and has made an offer for Wind Mobile, owned by Globalive Wireless Management Corp., and has held talks with new entrant Mobilicity, operated by Dave Wireless Inc. Gossling said the presence of a large, foreign player in Canada’s wireless market would force the incumbents to focus on competing with that provider, instead of on investing in “important policy issues,” such as “advanced technology rollouts,” bolstering rural coverage, and, in Telus’ case, expanding mobile health care services. Investors could also see their savings and pensions affected, Gossling said, if that competition affects the incumbents’ market values. He noted that the incumbents’ stock prices took a hit last month due to speculation that Verizon might enter the Canadian market, and said it cost their shareholders a combined $14.5 billion in stock market value between May 22 and June 27. The increased competition could also affect Canadian jobs if the incumbent carriers are forced to scale back growth and hiring, Gossling said. There’s no guarantee that Verizon, or any other foreign carrier, would make up for those jobs, he said, speculating that a foreign carrier could run their call centres and other operational support out of their home country. A foreign carrier could export its Canadian revenues to its home market, possibly avoiding paying corporate income taxes in Canada, he said, adding that Canada’s incumbents will pay an estimated $1.4 billion in provincial and federal corporate income taxes this year. Gossling said Telus is not opposed to competition in Canada’s wireless market, and wants to ensure that carriers are playing on a “level playing field.” He said that would require the government to ensure that all providers have equal access to secure spectrum in the 700 MHz auction, either by limiting all players to a single prime block per market or by removing the restrictions on incumbents. Nadir Mohamed, Rogers’ president and CEO, also went public Wednesday with his company’s concerns about the auction rules. Mohamed said during a conference call with analysts for the release of the company’s second quarter results that the auction rules give a foreign competitor like Verizon “better treatment than Canadian incumbents,” and speculated that a Canadian company would never receive similarly favourable treatment in other countries. Rules that prevent the incumbents from acquiring the new entrants also reduce the number of competitive bids for those smaller providers and their assets, he said, and could allow a foreign player to acquire them at “depressed pricing.” He said if a company is given an incentive to enter the market, “they should be obligated to build out in Canada.” If not, Mohamed said, a foreign competitor could come in and focus strictly on providing services in Canada’s more profitable city centres. “The reality is, Canadians won't get the benefit of investments outside a very slim, core urban networks,” he said. “That's not what the policy was designed to achieve.” Mohamed rejected the idea that the introduction of a strong fourth player would improve competition in Canada’s wireless market, an assertion former Industry minister Christian Paradis made as a core piece of his wireless policy. Len Katz, a former CRTC vice-chair of telecom, said in an interview Wednesday that he believes the incumbents’ lobbying strategy could convince the government to change the auction rules. He said that success will hinge on how much of the government’s spectrum policy was crafted by Paradis, and how large a role the Prime Minister’s Office played in shaping the auction rules. If the policies were crafted by Paradis, he said, new Industry Minister James Moore may decide to change direction. “Quite frankly, I don’t think anybody knows whether it was the minister’s views, Paradis’ views, or the prime minister’s views,” Katz said. “If it was the prime minister’s views, then the new minister is going to follow that to a T and all the lobbying in the world isn’t going to change anything.” John Capobianco, a consultant at Fleishman-Hillard and president of the Public Affairs Association of Canada (PAAC), said in an interview that the Prime Minister’s Office would have played a large role in Canada’s wireless policy over the past two years. Moore, he said, will have a greater ability to craft his own policy. “Because of his role in Heritage … his knowledge of the telecom industry and spectrum , he will play a bigger role and have much more influence with the PMO, whereas in the past the PMO would have had much more influence,” he said. “ was much more influential in the policy previously, whereas now I think they would be much more collaborative with the minister.” Sébastien Gariépy, a spokesman for Moore, said in an emailed statement Tuesday that Moore will meet with wireless industry stakeholders as he transitions into the new portfolio, though Gariépy did not confirm when or which stakeholders. Gossling said Telus will engage in “fairly significant” efforts to convince the government to change the auction rules in advance of a Sept. 17 deadline for providers to submit deposits to take part in the auction, which is scheduled to start in January. He said the company believes there is time to change the auction policy before September. “There’s always the potential for things to change until it actually happens,” he said. In the meantime, he said, Telus will try to acquire other wireless spectrum where it can, though he noted those opportunities are limited. “I guess there can be bits and pieces that come up from various places,” he said. “But those aren’t nearly as important as larger, national-type blocks or 700 spectrum.” —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and files from and editing by Anja Karadeglija at akarad@thewirereport.ca

Telus focusing on ‘economic impacts’ of Verizon entry, lobbying to change auction rules

News | July 24, 2013

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