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A Reply to Bell's Open Letter: You've Failed

08/08/2013 12:41 EDT | Updated 10/08/2013 05:12 EDT

Dear Mr. Cope,

Amongst your many traits as CEO of Bell Canada Enterprises (BCE), tenacity, enthusiasm for your trade, and perseverance top the list. Conspicuous in its absence from your letter, however, is your sense of irony.

You begin the "unusual step of writing to all Canadians" (strange, isn't it, that "Canada's Top Communication Company" should find it unusual to communicate with its customers?) with a history lesson, ostensibly in the interest of helping us "understand a critical situation" now facing the wireless industry: the potential entrance of an American company into the Canadian market.

You inform us that, since Parliament granted Bell its charter in 1880, Bell has spent 133 years "investing in delivering world-class communications services to Canadians." An impressive track record!

You must, however, be aware that Bell's permission to operate in Canada was initially obtained by agents acting in the interest of the (American) National Bell Telephone Company and that, after securing a favourable charter, three top-level executives from National Bell were appointed to Bell Canada's board of directors (Babe, 1990, pg 68-69). Or how about how American Bell initially owned 50% of your company, only fully divesting its interest 43 years ago, in 1970 (Winseck, 1998, pg 119)?

Bell began its life in Canada as a branch plant of an American company; in a strange twist of fate, it's now a descendant of National Bell Telephone -- Verizon -- which is contemplating (re)entering the Canadian market. And they leveraged this relationship to get an early leg up on the competition -- using patents owned by its American parent, Bell quickly monopolized the market for Canadian telephone services, a monopoly it used to funnel profits back to the States. (Smythe, 1981, pg 141)

You suggest that "US giants don't need special help from the Canadian government," but that's exactly how Bell got to where it is today!

That's all ancient history, however, and in the here and now, BCE is a Canadian company who "welcomes any competitor," so long as they "compete on a level playing field." Right?

You're calling on the Federal government to close "loopholes" that are intended to promote competition in your industry -- rules that your company has forced the government to create.

Regarding the three "loopholes" you want closed:

1. "Verizon would be able to buy twice as much of Canada's airwaves as Canadian companies like Bell can in an upcoming auction of wireless spectrum -- the airwaves that carry your calls and data."

According to a recent article in the Financial Post, BCE currently holds license to 19% of Canadian radio frequencies designated for mobile use -- that's if you include the upcoming blocks of 700MHz in the total -- or 29% if you don't. Bell didn't get most of that spectrum by paying market price, but through a 'beauty contest' -- the government licensed mobile spectrum to Rogers, Bell, Telus and other regional providers such as MTS and SaskTel for pennies compared to market value.[1] You might call that "existing spectrum holdings previously subsidized by Canadian taxpayers," something you've got in spades but would deny to your competition.

Even in the unlikely event that you don't win a block of 700MHz in the upcoming auction, you'll still be in control of 19% of all available mobile spectrum in Canada -- more than twice as much as the set-aside provides for new entrants.[2]

The playing field looks pretty tilted from here.

2. "They get to piggyback on the networks of Canadian carriers wherever they don't want to invest and build their own."

At least you won't have to worry about Verizon piggybacking on your network here in rural Manitoba -- because you barely have one. Instead you've chosen to only cover the most densely populated (and most profitable) areas of the province while ignoring places like Thompson, Churchill and the Whiteshell -- a practice that you reserve exclusively for Verizon. Where you do provide service -- Ontario, Quebec, Vancouver, etc. (Winnipeg, Brandon, and immediately surrounding areas in MB) -- you're already sharing a network with TELUS. Since 2009, Bell and TELUS have been sharing their national 3G (HSPA) network infrastructure. You've needed help providing your services for years, why should we expect Verizon to go it alone?

Rogers also has similar agreements with regional providers such as MTS. In fact, all three national providers are already sharing their networks with their "competitors," yet you actively campaign to exclude new entrants such as WIND and Verizon from the club. Not my idea of a level playing field.

3. "Verizon can acquire smaller Canadian competitors -- but Bell and other Canadian wireless companies can't even try."

You note that "With Ottawa's help, the new companies [WIND, Mobilicity, Public Mobile] have become part of the vigorously competitive Canadian wireless marketplace." I have to point out that with your help, one of those companies is facing imminent financial insolvency, while the other two are actively courting buyers. Naguib Sawiris, WIND's original backer, has frequently and publicly lamented his decision to test your waters. The previous contestants, (Clearnet and Microcell) I would add, met a similar fate when they were bought out by TELUS and Rogers in 2000 and 2004, respectively. Are we supposed to believe that TELUS is competing with Koodo, or Rogers with Fido?

After every challenger contesting your dominance of the wireless market has been bought out or squashed, is it any wonder that the government wants to act to promote real competition?

Mr. Cope, I am Canadian. Like virtually every other Canadian I know, I rely on my mobile phone in my personal life and for my livelihood on a daily basis. The "critical situation" I face comes every month, when I open my wireless bill wondering whether I'll be able to afford to pay it. Your company, along with Canada's other major wireless providers, have had 30 years to address this situation. But you've failed. Posting huge profits and paying dividends year after year might satisfy your shareholders, but individual Canadians and their families are being hung out to dry. It's time for a change. Faced with a choice between an American company fighting to gain a foothold in a hostile market or a Canadian one who takes my hard-earned money for granted, I'll pick the lesser of two evils. And if you don't know which that is by now, I'll happily send you a copy of my monthly phone bill.

~

[1]According to a report Bell submitted to Industry Canada's invite-only Wireless Roundtable in 2010, total fees paid by spectrum licensees to IC is $132M per year, your share of which (29%) is $38.28M per year by my estimate. Sounds like a lot, until you consider that you paid nearly that much at auction just to secure AWS spectrum for Toronto alone (Per year cost of winning bid for 10 year license.) It's fair to say that most of the spectrum you're holding (and have been for up to 30 years) has cost you significantly less than market value. Why should you have access to public subsidies for spectrum but not your competitors?

[2] This estimate excludes spectrum held by Bell et al for radio and television broadcasting, but includes the BRS spectrum -- intended for mobile internet but out of use since early 2012 -- currently being hoarded by Inukshuk Wireless, a joint venture between Bell and Rogers. Also, it assumes that Verizon will not have completed acquisition of Wind or other new entrants prior to the auction.

Sources Cited:

Babe, Robert E. Telecommunications in Canada. University of Toronto Press, Toronto. 1990.

Smythe, Dallas. Dependency Road: Communications, Capitalism, Consciousness, and Canada. Ablex Publishing, New Jersey. 1982.

Winseck, Dwayne. Reconvergence: A Political Economy of Telecommunications in Canada. Hampton Press, New Jersey. 1998.

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