Where’s the Promised Wireless Competition?

Canadian wireless customers have been promised that new competitors would enter the market. Where are they?

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In the summer of 2013, it seemed all but certain U.S. wireless carrier Verizon was going to enter Canada. Reports were that Verizon strongly considered scooping up either Wind Mobile or Mobilicity, the two smallest players in the Canadian market. The company also looked at a deal where it would lease spectrum from an existing player, but it ultimately decided to go in a different direction and buy the 40% stake British telco giant Vodafone held in the company.

Canadian consumers, who pay some of the highest wireless rates in the world, were disappointed in Verizon’s decision to stay stateside. Foreign competition brought with it the promise that, finally, wireless rates would start to creep down. It didn’t happen, and Canadians are still stuck with the big three companies in the sector.

Even the Canadian government wants wireless competition. It launched a series of commercials in the fall that attacked the incumbent carriers, saying that foreign competition would lower prices and lead to better service for consumers. It’s not often the government will come out and encourage increased competition in any sector.

Last week, it was announced that Telus (TSX: T)(NYSE: TU) once again bid for Mobilicity, offering $350 million for the startup wireless provider. This marks the third time Telus has tried to buy its smaller rival, the first two were blocked by the feds because of competition concerns. This time around, Mobilicity is broke, and is actively seeking a buyer. This may be the stimulus needed to finally allow Telus to swallow its prey.

Rogers Communications (TSX: RCI.B)(NYSE: RCI) is further entrenching itself as Canada’s wireless leader, spending a whopping $3.3 billion on spectrum during February’s auction, more than the rest of its competitors combined. Rogers also has a preliminary agreement with Shaw Communications to buy the spectrum that company acquired back in 2008.

Even BCE (TSX: BCE)(NYSE: BCE) has taken steps to boost its competitive position, partnering with Telus to spend billions upgrading its network. The company also offers its subscribers the option of watching television on their mobile phones, which it hopes will entice customers to choose its wireless offerings over the competition’s.

Among all this, a theme emerges. Foreign competitors don’t want anything to do with our market. Not one submitted a serious bid for Mobilicity. No foreign competitor participated in February’s spectrum auction. With the exception of Verizon, no international competitor has even been seriously linked to Canada.

It’s obvious both the government and Canadian consumers want additional options. Why won’t anybody give it a go?

First, competition is fierce. Orange Telecom, one of Europe’s largest carriers, was rumored to have entered into preliminary discussions with Ottawa about a possible Canadian expansion. But Orange is not only facing competition from an upstart competitor in France — its largest market — but it’s also facing a large debt load and stagnant free cash flow. Is this a company poised to enter into a long, hard battle with the incumbents?

Vodafone has experience entering many different markets, but none of those markets has the geographic issues Canada faces. Canada has a whole bunch of empty space, and customers demand service even when they leave the city. It would take a lot of time and money for a foreign competitor to roll out a true national network. In the meantime, a new player would be forced to lease spectrum from one of the big three, which isn’t ideal.

And finally, there just aren’t that many wireless companies with the means to enter Canada. Most of the world’s established telco companies are facing competition in their existing markets. Investing billions to try and gain a foothold in Canada is a huge gamble. Investing billions to improve current offerings is much less risky.

Foolish bottom line

Canadian consumers can continue to wish for foreign competition to enter the market, but it doesn’t appear likely. Our current carriers are just too dominant, and continue to invest to get stronger. The last wave of startups in the sector have been a resounding failure.

There are only a few companies around the world with the means to make an attempt to enter our market, and none of these companies seem to have the will. This is bad news for Canadian smartphone addicts, but good news for telco investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith owns preferred shares of Shaw Communications. The Motley Fool owns shares of Orange (ADR).

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