BUSINESS

Verizon Canada Would Struggle To Compete Against Big Three: Moody's

08/23/2013 01:37 EDT
AP
FILE - In this Thursday, June 6, 2013, file photo, a pedestrian uses her cell phone as she passes a Verizon Wireless store on Broadway in Lower Manhattan, in New York. Verizon Communications Inc. reports quarterly financial results before the market opens on Thursday, July 18, 2013. (AP Photo/John Minchillo, File)

In the great wireless war, there are those who believe allowing Verizon into Canada would threaten Canadian jobs and introduce a misbehaving corporate citizen to the country.

And then there are those who just want to see more competition to the Big Three’s wireless oligopoly, and if it takes a company as big and powerful as Verizon to make that happen, so be it.

But according to Moody’s Investor Service, not even Verizon would have it easy breaking the Big Three’s stranglehold on Canada’s wireless market.

In a report that illustrates just how entrenched their market position is, the global credit rating agency said the incumbent wireless companies would probably be able to hold off an attempt by a large foreign company to muscle into the Canadian market.

Among the reasons for this: The local companies can offer “bundles” — wireless service along with home phone, internet and cable or satellite TV. Due to foreign ownership restrictions and saturation of those TV and internet and markets, it would be almost impossible for a foreign player to match the local carriers’ bundled deals.

Moody’s also said it believes Canada’s densely-populated urban wireless markets are likely already saturated. A new player would have to invest into expensive rural infrastructure to pick up available market share.

"Whatever the outcome of Verizon's interest, we believe any foreign competitor would have a difficult time gaining traction in the Canadian wireless market," Moody’s Senior Vice President Bill Wolfe said in a statement.

"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 prove formidable competitors."

The agency also doubts that Verizon’s arrival would lead to a price war. It estimates development costs would be too high for a new company to offer prices much lower than the existing players.

That goes against the Harper government’s insistence that a fourth major wireless company is the way to reduce wireless prices for consumers.

So what if Verizon bought some of the existing small wireless players, like Wind Mobile (for which it has reportedly placed a $700-million bid), or Mobilicity? That probably won’t work, either, Moody’s says.

“The three Canadian wireless new entrants — Wind Mobile, Mobilicity and Public Mobile — serve less than 10 per cent of the market and have limited network infrastructure.”

The Big Three have been on an aggressive campaign to keep Verizon from coming to Canada under rules that favour new market entrants. With less than 10 per cent market share in Canada, a Verizon-owned company would be allowed to bid on more wireless spectrum in an upcoming auction than the established local players.

The Big Three are calling on the government to rescind the spectrum rules and create “a level playing field” for all wireless companies.

But many consumer advocates say the “level playing field” argument is misleading, because of the advantaged position the Big Three already enjoy.

New wireless companies “won’t see any sort of level playing field against the Big Three for years to come, if ever,” tech blogger Peter Nowak wrote Friday.

Nowak listed off numerous reasons why a “level playing field” in wireless rules would mean the continued dominance of the Big Three, including the fact they already control the lion’s share of spectrum available for wireless, and — similar to Moody’s point about bundling — they have “media integration.”

“With Bell and Rogers owning everything from magazines, TV channels and sports teams, there’s an awful lot of of bonus content they can throw at wireless subscribers,” Nowak wrote. “The recently launched Bell TV app, which gives the company’s customers special access to programming, is a case in point. Yet another untouchable feature for new entrants, big or small.”

Verizon’s major advantage, if it has one, is that it is four times as large as Canada’s Big Three wireless companies combined. But if Moody’s and Nowak are right, even this may not be enough to break the dominance of Bell, Rogers and Telus.

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