Companies & Industries

Verizon not on the Canadian horizon

Analysts highly sceptical

Talk of American telecom magnate Verizon eyeing a spot in Canada’s wireless industry has drawn heavy skepticism from industry experts.

A report suggested that Verizon Communications Inc. was looking to take advantage of the government’s desire for a fourth major wireless carrier among the country’s incumbents, Rogers, BCE, and TELUS.

But the likelihood of Verizon taking such an interest was swiftly criticized by industry analysts.

“Our view is this is highly unlikely,” Scotiabank analyst Jeff Fan stated in a note.

“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.”

That track record includes Verizon’s past ownership of a significant stake in TELUS— amounting to a 20.5 per cent equity interest—which it sold in 2004.

“Verizon’s had its nose bloodied here before, so why would they do this? I just don’t get it,” said Eamon Hoey, a telecom consultant and founder of Hoey Associates.

Fan also pointed out that Verizon Wireless cannot invest outside of the continental U.S. due to a shareholder agreement with British telecom company Vodafone (which owns a 45 per cent stake in Verizon Wireless), and that it would be unlikely that any wireless investment by Verizon Communications Inc. would occur outside of Verizon Wireless.

“I just wonder, why now?” said Edward Jones analyst Dave Heger.

“There’s certainly been an opportunity already to enter the market via acquiring one of the newer entrants.”

The federal government has been sending very clear signals lately that it wants a fourth competitor, Heger added, and the recent encouragement might be leading some companies to reconsider entering Canada’s market. For example, the government changed its foreign ownership rules last year, and ensured that spectrum is set aside for another major player by denying the sale of smaller player Mobilicity’s spectrum to incumbent TELUS earlier this month.

Mobilicity is one of three struggling smaller wireless carriers—the others are WIND Mobile and Public Mobile—in Canada currently being eyed for potential consolidation or new ownership. WIND CEO Anthony Lacavera recently announced he’s interested in opening talks regarding consolidation with Mobilicity, while Public Mobile was recently acquired in a joint venture by Peter Thomson’s Thomvest Seed Capital Inc., and private equity firm Cartesian Capital, which is based in New York.

However, when it comes to a foreign entrant, “if there’s been interest on the part of Verizon, AT&T or anyone in the US, it seems like there would have been plenty of opportunity prior to now,” Heger said.

In Hoey’s opinion, the federal government’s efforts amount to little in trying to entice a foreign company to enter Canada’s wireless market, mainly because a cap on foreign involvement still exists in the form of a 10 per cent limit on the market share of any wireless entity with international financial backing.

“Why would a company the size of Verizon, AT&T, and even [Norway’s] Telenor, want to come to Canada with this limitation on them? Makes no sense to me,” said Hoey.

Regardless of any interest shown by a foreign investor, a new competitor would be hard-pressed to be prepared for the government’s next spectrum auction in January 2014, Hoey added. An acquisition would have to be completed, and interest in the auction declared a few months in advance, which doesn’t leave much time for a new competitor to ready themselves for the Canadian market and make a bid for the type of spectrum that supports popular smartphone devices.

The skepticism over Verizon’s entry is perhaps summed up best by Jeff Fan:

“We see this as ‘noise,’” he wrote.

Canadian Business magazine is owned by Rogers Communications Inc.