A Very Public Brawl

The Honourable James Moore, Minister of Industry, poses for a group photo after the swearing in of the federal cabinet at Rideau Hall in Ottawa on July 15, 2013. THE CANADIAN PRESS/ Patrick Doyle

The battle between the telecoms and the Conservative government is the biggest confrontation between Ottawa and corporate Canada since 1980.

This is getting really ugly – and very un-Canadian. The clash between the big three telecoms and the federal government has escalated to a level unseen in this country for a generation.

The last public slanging match of this magnitude between Ottawa and Corporate Canada that I can recall was way back in 1980 when the Liberal government of Pierre Trudeau introduced its controversial National Energy Program. It was widely vilified by the energy industry and Western political leaders, particularly Alberta premier Peter Lougheed. So bitter were the feelings that the Calgary headquarters of Crown corporation Petro-Canada became widely known as Red Square. The most popular bumper sticker of the day on cars west of Ontario read: “Let the Eastern bastards freeze in the dark”.

We haven’t quite sunk to that level of name-calling this time around, at least not yet. But we’re getting close. Last month, a director of BCE Inc., Anthony Fell, published a letter in the National Post in which he effectively accused new Industry Minister James Moore of arrogance, ignorance, and incompetence.

Within 24 hours, Mr. Moore had fired back with a public missive of his own, accusing the telecoms of orchestrating “misleading” and “dishonest” advertising campaigns and insisting that the government’s position was carefully considered and is in the public interest. His office then announced he was going on a cross-Canada speaking tour to defend and promote the government’s stance.

To say that this kind of high-level mudslinging is unusual is an understatement. Corporate executives generally keep a low profile in their dealings with governments, understanding that publicly backing politicians into a corner will probably not end well.

The fact the telecoms have come out swinging with an all-out media campaign shows how desperate they have become.

text_04905816The heart of the issue, as we all know by now, is the possible entry of U.S. giant Verizon into the Canadian market on very favourable terms. In the interest of expanding competition and possibly lowering prices, the federal government appears ready to allow Verizon to purchase one or two troubled small wireless players, Wind Mobile and Mobilicity, at bargain prices while excluding Canada’s Big Three from the bidding. As well, Verizon would be allowed to acquire more of the highly desirable 700 MHz spectrum than the Canadian firms in an auction scheduled for January.

The Big Three – Rogers, BCE, and Telus – clearly view Verizon’s entry as a major threat to their business. The market agrees; the shares of all three companies have fallen sharply since it became apparent that Ottawa was on-side with the Verizon entry and was going out of its way to make it happen. The result has been a loss of billions of dollars in market capitalization.

We don’t know how much Canada’s telecoms are spending on this campaign but it has to be in the millions. Whether or not you agree with their position, it could be money down the drain. Prime Minister Harper has stated firmly on several occasions that he supports the entry of another competitor in the wireless sector and this is not a man who changes his mind easily or often.

Moreover, his policy seems to have a lot of public support. Many people feel they have been ripped off by wireless fees and contracts and would like nothing better than to have another choice. International roaming charges are a particular sore point; if Verizon came in offering Canada-U.S. cross-border deals that knocked those costs way down, it would reap a ton of business.

Of course, there’s no guarantee that would happen. Verizon, which has remained silent throughout all the controversy, suddenly took on the role of reluctant bridegroom last week. According to a Globe and Mail report, the company put its expected takeovers of Mobilicity and Wind Mobile on hold under after the spectrum auction and has yet to confirm that it will even participate in it. There was much speculation as to whether Verizon is losing interest in Canada, seeking to drive down the price tag on Wind Mobile and Mobilicity, trying to obtain even better terms from Ottawa, or some combination of all three. In any event, the share prices of the three Canadian telecoms jumped on the report.

Even if Verizon does decide to come, don’t assume it will make a significant impact on wireless prices and service. There are plenty of disgruntled Verizon customers in the U.S.; just check out some of the reviews on www.phonedog.com. A few are complimentary but most carry heads like “Verizon sucks”, “Stay away from Verizon”, and “Counting the minutes until I can change”. Canadians who like the idea of Verizon coming here may end up being disappointed.

This battle isn’t over but it’s hard to see how Ottawa can back down now that the Canadian telecoms have taken such an aggressive public stance. A retreat would make the Conservatives appear weak, which is the last thing Mr. Harper wants with an election only two years away. He has a majority government and he is going to use it.

If Verizon is coming – and that remains to be seen – our domestic telecoms had better be ready. Spending some of those advertising dollars on lowering costs and becoming more competitive might be a good place to start.

This article originally appeared in the Internet Wealth Builder, a weekly e-mail newsletter that provides timely financial advice from some of Canada’s top money experts. For more information about becoming an Internet Wealth Builder member, go here.