Canada’s telecom disaster. Part 2: Why the government is wrong about Mobilicity

Mobilicity

Soon to be a thing of the past?

Continuing from my last post, I will cover one of the most underreported and troubling issues in the telecom market and the reason why, in my opinion, Verizon didn’t come to Canada.

In my last post I discussed the reasons and arguments behind the Telecom War of 2013. But what is often not reported is a company that, despite its small size, sent a chill through the wireless industry: Mobilicity.

Mobilicity is one of the new entrants after the 2009 spectrum auction.  From the beginning Mobilicity has struggled. Even with an average revenue per user (ARPU) of less than $30 per month, the company was only able to acquire about 250,000 customers, that number has now shrunk to around 150,000. Many analysts figured that Mobilicity would operate with a similar business plan as Fido: get as many subscribers as possible, and sell out to the incumbents.

Due to Mobilicity’s failure to cover costs the company is teetering on bankruptcy. As a result, it is desperately trying to exit the market by selling its customer base and valuable spectrum. Telus has repeatedly tried to buy them, and since the 5 year ban on the sale of new entrants to incumbents has expired, they are legally allowed to do so. But the government has drawn a line in the sand and will not permit the sale.

Industry Canada, still licking its wounds from the Telecom War of 2013, doesn’t want to let Mobilicity fall into the hands of Telus because it would prevent them from attaining their stated goal of having a 4th national carrier. Mobilicity’s bondholders, who are desperately trying to cut their losses, are furious.

The big question is what kind of message does this intervention send? Would any prospective company want to invest in Canada’s telecom sector with this kind of uncertainty?

The Canadian government, when it comes to telecom, is acting like a Latin American banana republic. They’ve thrown out a welcome mat for new investors, but when it comes to Mobilicity they have essentially expropriated the company’s legal right to exit the market.

It’s no wonder Verizon abandoned their plans to enter Canada.

Verizon, even with their financial and technical heft, faced extremely long odds of actually being successful in Canada.  Despite all of the cheerleading from the government, they were just as likely to discover, just like Target Canada, that the market is in fact a lot more competitive than they thought. And just like the last auction, there was a provision to allow the sale of the spectrum after 5 years, but would the government honour it?

Verizon, and any other potential bidders, probably asked that very question.

Today, Telus abandoned its ambitions of buying Mobilicity because the government threatened to exclude them from future spectrum auctions. Telecom is no longer operating in a world with an independent regulator and the message is clear. We make the rules up as we go along, play by them…or else? There’s a word for this: blackmail.

Any hope of a 4th carrier are gone. If you haven’t already done so, buy shares in the Big 3, because the government has solidified their dominance by interfering in the free market.

My next blog post will cover another underreported story that put the final nail in the coffin of Canada’s telecom policy: MTS.

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Andrew Seipp

Principal Consultant at Telclarity
Andrew Seipp is the principal consultant for Telclarity. His company helps small to enterprise clients navigate the world of telecom and find significant savings. Having worked in the telecom industry for nearly a decade he brings unparalleled insider knowledge to the table.

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