In telecom, is Canada the new North Korea?

21 Nov

What a contrast a few days can paint. On Friday, Egyptian billionaire Naguib Sawiris was everywhere in the media, lambasting Canada’s federal government for failing to encourage competition in telecommunications services by keeping foreign investment restrictions up. Two days later, on Sunday, reports started trickling out of North Korea that the strict and isolationist country is opening up to cellphones. Sawiris is, strangely enough, the common denominator in both bits of news.

Sawiris, who is the main financial backer of Wind Mobile - the biggest of Canada’s new cellphone companies - delivered a strong and clear message to Canadian media through his circuit of interviews last week. He said he “totally” regrets spending money on Canada, wishes he could get his money back (minus 10%) and tells other investors to steer clear of the country.

His comments were made in the context of trying to influence the rules of the next government auction of wireless airwave licenses, expected to happen some time in 2012. The big boys (Bell, Rogers and Telus) don’t want the same kind of special exceptions for new companies that happened in the previous 2008 auction, which gave rise to Wind and a few others. They want an open auction, where they can bring their considerable billions to bear and outbid the likes of Wind et al.

Wind and other newcomers want the big guys prohibited from bidding on some of the licenses, thereby ensuring that they can actually afford to acquire some. The government will (hopefully) outline the rules of the auction some time soon.

Sawiris bankrolled the company that would become Wind in the previous auction, presumably with an eye to taking it over when the government finally lifted Canada’s onerous foreign-ownership restrictions. With expert panel after expert panel advising such a legislative change would be a good move and with the Conservatives finally achieving a majority government early this year, it looked like everything was finally moving in that much-needed direction.

But so far, nada. The government has chickened out and keeps saying it’s studying the issue. Not surprisingly, Sawiris is frustrated and consumers are paying the price. As he told the Globe and Mail:

I tell you we will not bid – unless they set aside the frequencies, unless they really show seriousness that they want to create competition… But to say, ‘We want to create competition, we want your money.’ They take our money and they leave us to the dogs.

The “dogs” he speaks of are the big three carriers. As consumer electronics trends watcher Kaan Yigit detailed on Twitter over the weekend, new carriers have been hamstrung by the big guys in a number of ways, which shouldn’t surprise anyone. Firstly, a quarter of all cellphone customers want to switch providers at any given time, but hefty cancellation fees are usually enough to discourage them. Nearly a third of customers have also been offered better deals by those carriers to keep them from switching. The big three also launched “flanker” brands such as Chatr and Koodo to confuse customers. Lastly, the new companies have been limited in their coverage areas and the kinds of phones they can offer.

There are clear signs the new carriers, including Mobilicity and Public Mobile, are hurting. Mobilicity announced its CEO Dave Dobbin was stepping down to “pursue other interests,” also on Friday, leaving analysts to speculate that things aren’t going well for the company. Wind, meanwhile, wanted to have 1.5 million customers by the end of 2012 - with only 350,000 so far, the company isn’t going to get anywhere near that.

As I’ve written before, the new cellphone companies are a government creation, so the government - if it really wants to see more competition - has a responsibility to prop them up. At the very least, this means giving them the special rules they want for the next auction. On a purely technical level, the particular frequencies they paid for in the previous auction are terrible. Not only do handset makers the likes of Apple not make devices that can work on them, they’re also bad at penetrating walls. They sorely need the different frequencies that will be sold off in the next auction.

If the government doesn’t move to lift foreign-ownership restrictions soon and provide set-asides in the upcoming auction, then everything Sawiris says will continue to be true. Canadian telecommunications will continue to be a very bad place for foreigners to invest.

Which brings us to North Korea. As the Reuters story points out, the country - which as recently as four years ago banned cellphones - is about to sign up its one-millionth wireless customer. Sawiris is, of course, responsible for bringing cellphone service to the country in 2008 through his company Orascom. Some would criticize the billionaire for dealing with such an oppressive government, but as the story suggests, the general populace is benefiting greatly from having access to wireless services.

I’ve long joked - perversely so - that Sawiris has had a much easier go of it in North Korea than he has in Canada, where Wind has had to deal with the CRTC’s and industry’s attempts to prevent it from operating. Judging from his comments, it looks like he feels the same way.

I’m actually starting to wonder whether the Canadian government really does want to open the country’s telecommunications market to foreign investors and improve competition, or whether the 2008 spectrum auction was merely a ruse by cabinet to save their buddies at Quebecor some money, as the CBC recently suggested. The big three carriers said as much at the time.

As the days tick by with no action - with both consumer and investor frustration mounting - it’s sure starting to look like it.


Posted by on November 21, 2011 in mobile, telecommunications


2 Responses to In telecom, is Canada the new North Korea?

  1. Chris C

    November 21, 2011 at 1:16 am

    Love the post, Pete, nice to see some corroboration of a fact we obviously knew all along, the utter corruption of the cell phone industry in this country, coming from an actual insider in the cell phone industry :)

  2. Chas Underwood III

    November 21, 2011 at 8:36 pm

    Based on 1% industry churn there are more than 200k customers per month up for grabs or 600k per quarter plus net new subscribers. WIND added 41k last quarter or 15% of subscribers, 6k less than the previous quarter. Are consumers really clamouring to switch to new entrants? Also, set asides might make sense if foreign ownership is kept closed but if foreign ownership restrictions are lifted, why offer special dispensation to a global multinational (read Vimpelcom) with 200M subscribers and significant financial resources? Does little old Vimpelcom (market cap of $18b on 17% of free float or an implied $105b market cap vs BCE at $30b) really need to be protected from incumbents in Canada?
    I make 6 or 7 personal calls a day…usually after work so no extra airtime. A pay phone is $0.35 per call which means $2.10 in phone charges ($63 per month). I think having my mobile (including a $400 subsidy) is worth the $55 I spend including data plus it keeps jobs in Canada rather than flowing money to Russia or Egypt. Competition is good and prices have dropped due to the government set asides in the AWS auction but let’s be rational on how much special treatment is too much…enjoy the soup kitchen Chris C when your job is made redundant after shipping the jobs to Moscow or Cairo. That will be worth the $10 you save (or $0.33 per day) which is likely less than the discount you get for having cable and internet with a quad play carrier anyway.


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