Why Wind Mobile’s Auction Withdrawal May Mean Higher Bills

The consequences of Wind Mobile pulling out of the wireless auction.

Competition in the wireless market suffered a major blow last week, when Wind Mobile announced it is withdrawing its plan to bid in Canada’s latest spectrum auction. Not only is this bad news for wireless customers who pay among the highest mobile rates in G8 countries, it’s also bad news for Industry Canada, which had promised to introduce a fourth major player to Canada’s biggest markets.

Let’s take a look at what led to Wind Mobile’s decision to withdraw its bid, and what it ultimately means for your phone bill.

The Big Three Come Out Ahead – Again

The withdrawal means four blocks of coveted 700 MHz spectrum went up for auction without Wind Mobile. This spectrum is crucial for mobile carriers who plan to offer the latest and greatest smartphones that operate on high-speed LTE networks. The Big Three – Bell, Rogers and Telus – are expected to make out like bandits. They’re expected to secure the new spectrum in all major markets across Canada, and they’ll most likely pay a discount at the taxpayer’s expense. The Big Three are anticipated to pay between $600 million and $700 million for the new spectrum, well short of the almost $900 million Industry Canada was hoping for last year.

International Competition Not Likely

Don’t count on a white knight coming to the rescue. The rumours of U.S. player Verizon coming north of the border have long been put to rest. Verizon stated an expansion to Canada wasn’t high on their priority list as our market isn’t very friendly to foreign entrants.

So what about the other two wireless startups? Public Mobile was sold to Telus last year and Mobilicity is under bankruptcy protection, making its future uncertain. Quebecor could decide to bid on spectrum outside la Belle Province, but it would be at a major disadvantage, as it wouldn’t be able to bundle its services like the Big Three do.

Why Did Wind Mobile Back Out?

It was Wind Mobile’s parent company VimpelCom Ltd. who pulled the plug on the struggling wireless startup’s plan to participate in the latest wireless auction. The great deal of uncertainty surrounding Ottawa’s rules on foreign direct ownership is mostly to blame for the parent company’s flip-flop, according to Wind Mobile’s CEO Anthony Lacavera.

The wireless industry is already an industry with a lot of red tape. Ottawa’s latest misstep on foreign policy is scaring away foreign capital, which is leading to less competition and higher mobile rates for customers already fed up with paying through the nose for their mobile phone.

A Tough Barrier For Competitors

The wireless industry is one of the most capital intensive industries on the market, yet Ottawa continues to handcuff investors by limiting the amount of foreign investment. With the latest auction case in point, it’s clear these rules aren’t working – they need a complete overhaul.

”The outcome of the auction will be positive for consumers because high-quality spectrum will soon be available across Canada, providing Canadians with dependable, high-speed wireless services on the latest technologies, said Jake Enwright, press secretary for Industry Minister James Moore. “Whether to participate in the spectrum auction is up to the individual companies. We do not comment on their business plans.”

The above quote is laughable – the political spin doctors were clearly hard at work! Ottawa claims it isn’t their role to choose what wireless carriers do with their spectrum – which is true. But it is their role is to create a climate that encourages foreign capital to flow in, especially in an industry like wireless with such high startup costs.

The Cost For Taxpayers

Ottawa has cost taxpayers millions in lost revenue by giving the Big Three a discount on spectrum – do you think the Big Three will pass those savings down to wireless customers with lower rates? Don’t count on it. Those savings will go into the coffers of the Big Three, as they will continue their stranglehold on the Canadian wireless market at the expense of the consumer.

Wind Mobile CEO Lacavera said it best when he stated, “It is a sad day for competition and real choice for Canadian consumers and businesses that Wind is unable to participate in the 700 MHz auction.”

 

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