The Canadian arm of an international investment company believes it would be a good thing if Verizon Communications competed in the local wireless market but the United States-based company would need to fork out about $3 billion to do so.
Verizon, or any foreign wireless interest for that matter, could pressure incumbents to improve their performance and services, but a new entrant would need about that much to invest in building its own network and mobile phone service infrastructure, according to a study conducted by Moody’s Investment Services.
“Whatever the outcome of Verizon’s interest, we believe any foreign competitor would have a difficult time gaining traction in the Canadian wireless market, said Bill Wolfe, senior vice-president of Moody Canada. “The three major incumbents – Bell Canada, Rogers Communications and Telus Corp. – have built out some of the most sophisticated networks in the world and would provide formidable competitors.”
Verizon has been at the centre of debates over wireless market competition and foreign ownership of local companies in the fast few weeks since it was known that the U.S. carrier was eyeing struggling new entrants Wind Mobile and Mobility.
Incumbents have been vociferous in their objections to any government move that would allow Verizon to compete against them in the upcoming wireless spectrum auction. However, Industry Minister James Moore has announced that there would be no changes in the auctions allowing foreign carriers from possibly outbidding the big three.
Verizon has said it putting off its plans to acquire a local carrier for now. However, Moody’s said that if Verizon does decide to come in, it should be prepared to invest significant capital.
“A battle for market share likely would be based on user experience, which would require development of a top quality network,” said Wolfe. “And since this would be both costly and time consuming, we estimate it would take four to five years to develop a profitable company, giving existing players plenty of time to respond.”
Canada’s wireless service penetration rate of 80 per cent may suggest there is lots of room to grow, said Wolfe, but the country’s largest population centres are likely saturated. Un-served markets such as rural areas, on the other hand would require substantial capital to develop.
The existing 10 wireless providers in Canada have fixed-line infrastructures that enable Internet, video and voice components for a “quad-play service” while keeping cost low. Five out of 10 have a network sharing agreement to further push expenses down.
A price war is also unlike even if a fourth large player were to enter the market according to Moody’s.
“A newcomer’s cost would not be low enough to support such an effort,” according to firm. “Nor would acquisition be an instant win, because the three wireless entrants – Wind Mobile, Mobilicity and Public Mobile – serve less than 10 per cent of the market and have limited network infrastructure.”