With Verizon Communications looking to buy a Canadian startup, the big three carriers complain government policy now favours the U.S. operator. Nonsense, says an industry analyst

Industry Minister James Moore has barely had time to get comfortable in his new chair and already he is being squeezed by the country’s three big wireless carriers.

The latest public pressure came today when BCE Inc.—which owns Bell Canada — placed two-page ads in major newspapers appealing to Canadians about what it says is federal policy that would give “special regulatory advantages” to Verizon Communications should it enter the market here.

Verizon is considering buying struggling startups Wind Mobile and Mobilicity, which it can under a new regulation allowing foreign companies to buy all of a carrier that has less than 10 per cent of the market.

Bell doesn’t say the Harper government is deliberately tilting the rules to favour Verizon in Ottawa’s efforts to increase the number of competitors in the cellular business. But it does say that the government “inadvertently left holes” in its strategy that will put Canadian-owned carriers at a disadvantage when facing Verizon, which is bigger than Bell, Rogers Communications and Telus Corp. combined.

In particular Bell says

–rules for January’s crucial 700 MHz spectrum action will allow Verizon to buy two of four blocks of frequencies available across the country, while incumbents like Bell, Rogers and Telus will have to fight it out for the other two. Industry Canada has set aside two of the four blocks for new entrants, which is what Verizon would be if it takes over Wind or Mobilicity.

If Verizon comes to Canada, it could easily afford to buy two blocks of spectrum, which to Bell is unfair.

–if Verizon buys a startup incumbent carriers would continue to have to let its subscribers roam on their networks. That was part of a rule Industry Canada set in 2008 to nourish new carriers like Wind, Mobilicity and Videotron, who faced huge startup costs. (Public Mobile is exempt from the ban because of the type of spectrum it bought.) Roaming meant they could take longer to build their networks. Bell argues Verizon is rich enough to be ordered to build its own network.

–at the moment, Verizon can buy a startup, but Bell, Rogers and Telus can’t. That’s part of a five-year ban Industry Canada set in 2008 to protect new carriers from being swallowed by incumbents. That ban runs out next year and what happens then isn’t clear. But enforcing the ban, Bell argues, means Verizon could buy a startup without competitive bids — thus giving it a discount price.

Telus struck a deal to buy Mobilicity, which former Industry Minister Christian Paradis axed in June. As for what will happen after the ban runs out, the government says it will review acquisitions of startups by incumbents on a case by case basis. It also says it will do anything to promote competition, which could be interpreted as meaning it will forbid Bell, Rogers and Telus from buying a startup.

But this week Telus CEO Darren Entwistle told the Globe and Mail that if Industry Canada does that it might take Ottawa to court.
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Bell’s public statements have been mirrored by utterances from Entwistle and Rogers CEO Nadir Mohammed.

However, they are dismissed by telecom consultant Iain Grant, managing director of the Montreal-based SeaBoard Group. “These are the same companies that have been bullying Canada for a century,” he said in an interview this morning. “They want a level playing field (but) they have been moving whatever mountains they can to ensure that a level playing field doesn’t apply to them.”

Together, he notes, Bell, Rogers and Telus own most of the wireless spectrum in the country. Bell and that company that became Rogers Wireless were given spectrum free in 1985 when the industry was starting, he said. “That sounds to me like a subsidy,” said Grant.

Wireless prices have come closer to those in the U.S. only recently, he said, because of competition from new entrants like Wind, Mobilicity, Public Mobile, Videotron and Eastlink.

One thing Ottawa might bend on is the 700 MHz spectrum blocks, Grant said. For the purpose of the auction the country is carved up into regions, each with four blocks. The blocks have frequencies that line up with adjacent ones in the U.S. The idea was a Canadian carrier would likely bid on a block with frequencies close to the ones it already has, therefore making it easier for its customers to roam in the U.S.

However, Grant noted, earlier this year Verizon Wireless sold some of its 700 MHz spectrum as a condition to being allowed to buy spectrum in the AWS band from U.S. cable companies. Wind and Mobilicity own AWS spectrum.

As a result, Grant argues, it isn’t so important that blocks in the upcoming Canadian 700 MHz auction align with U.S. Perhaps, he said, Industry Canada will take another look at that structure.

That, however, would take time. Officially carriers have until Sept. 17 to tell Industry Canada if they want to bid in the 700 MHz auction, set for January.  Meanwhile Verizon is apparently talking to the owners of Wind and Mobilicity. Its decision on whether to be part of the auction depends on making a deal.

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