Canada Wireless Competition: Rogers Says Fourth Carrier Doesn't Make Sense

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Big U.S. carriers like Verizon shouldn't be allowed to buy new, struggling Canadian wireless companies, Rogers CEO Nadir Mohamed says.
Big U.S. carriers like Verizon shouldn't be allowed to buy new, struggling Canadian wireless companies, Rogers CEO Nadir Mohamed says.

Big U.S. carriers like Verizon shouldn't be allowed to buy new Canadian wireless companies at discount prices while the big domestic carriers are barred from the same opportunity, the CEO of Rogers Communications said Wednesday.

Rogers welcomes competition but wants a level playing field, chief executive officer Nadir Mohamed told analysts after the Toronto-based wireless, cable and media company released its second-quarter financial results.

"What we're absolutely against is a tilted or stacked playing field where you have a massive incumbent U.S. carrier that would be given favourable treatment, and frankly better treatment than Canadian incumbents," Mohamed said.

"We can't have a U.S. foreign incumbent be allowed to buy new entrants at depressed pricing by blocking the ability of incumbent Canadian players to do the same. So it's about parity."

There have been reports that Verizon wants to enter the Canadian market and is planning to buy new carrier Wind Mobile while also in talks with financially struggling Mobilicity — two of the new generation of wireless carriers competing with Rogers, Telus and Bell (TSX:BCE).

The federal government blocked major carrier Telus (TSX:T) from buying Mobilicity since the smaller company's spectrum licence doesn't expire until 2014.

The industry minister at the time, Christian Paradis, made it clear in June that the federal government wants to increase competition in the wireless market and aims to create the conditions necessary to have a fourth national carrier.

Since the July 15 cabinet shuffle, the minister has been James Moore but the Harper government has repeatedly said it favours increasing competition to provide consumers with better prices and more innovation.

It has removed foreign investment restrictions for wireless companies that have less than a 10 per cent market share.

Mohamed repeated that Rogers favours opening foreign investment for large telecom players too, which can't be more than one-third foreign owned.

"If the Canadian government decides to open up foreign ownership, it should open it up for everybody," he told reporters later.

Mohamed said that four wireless carriers have never been sustainable in Canada and that globally, the norm is three wireless carriers in one country.

"I've never seen how a four-player market can work in a country like Canada," Mohamed said, noting Canada's "geographic expanse."

Mohamed said if Verizon were to enter Canada's wireless market, large urban markets would benefit more than smaller and rural markets. If Verizon comes to Canada, it should be required to roll out networks and not to "cherry pick" on the new wireless companies' existing networks and it should face the same limits on acquiring spectrum, radio waves over which cellphone networks operate, that Rogers and others face.

Verizon has almost 100 million wireless customers in the United States. By comparison, Rogers (TSX:RCI.B) is Canada's largest wireless provider with about 10 million customers.

Rogers also addressed the new wireless code that carriers will have to follow, starting Dec. 2. The company is in the process of eliminating its three-year contracts and developing two-year contracts with reduced subsidies for smartphones as a result, the conference call heard.

Rogers, Bell, Telus, SaskTel and Manitoba Telecom Services (TSX:MBT) are challenging part of the CRTC's new wireless code of conduct, saying it would affect millions of three-year cellphone contracts retroactively before the code takes effect in December. They have asked the Federal Court of Appeal to resolve the issue.

In its financial results released Wednesday, Rogers Communications Inc. reported $497 million in adjusted net income in the second quarter, a four per cent increase from last year and better than analysts' consensus estimate.

Analysts had expected the Toronto-based wireless, cable and media company to have $491.95 million of adjusted net income. Net income was also higher than expected, at $532 million or 93 cents per share — $22 million above the estimate and up from $413 million or 77 cents per share a year earlier. Revenue grew three per cent to $3.2 billion.

Rogers said it had 98,000 net new post-paid wireless subscribers versus 87,000 year-over-year and the increase was partly due to short-term promotions. Those were customers who are usually on lucrative three-year smartphone contracts. The company said 72 per cent of its post-paid customer base now have smartphones compared with 63 per cent in the same quarter last year.

Shares in Rogers were up 96 cents, or 2.3 per cent, to $42.10 in noon trading on the Toronto Stock Exchange.

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