Moody’s Investors Service: Canadian Wireless Startups Soft Acquisition Targets For Regional Cable Players

by Gaurav Kheterpal on April 12, 2012

Despite all the talk over upcoming spectrum auction and about foreign ownership restrictions in Canada’s troubled telecommunications sector, I believe that efforts to increase ‘competition’ have been limited. Though the government introduced limits on the spectrum auction and a lifting of foreign investment limits on smaller telecommunications firms, it has failed to create a level playing field of the nation’s unfortunate oligopoly.

Occasionally, the CRTC has got its act together and floated initiatives such as soliciting feedback on whether the country’s wireless sector will require formal regulation to stay competitive. However, I have no doubt that more needs to be done or else the smaller wireless players will find it difficult to survive.

And that’s precisely the sentiment echoed by Moody’s Investors Service – Canada’s new wireless players are soft acquisition targets for Canada’s regional cable giants and the consolidation could start to happen as soon as next year.

Surely, this is a massive setback for the federal government and the CRTC as the end consumer is likely to the biggest loser in likelihood of such a consolidation. The new wireless players — Wind Mobile, Mobilicity and Public Mobile — have managed to wrest only a sliver of the market away from the established incumbents, Moody’s vice-president Bill Wolfe said in the report. The ‘Big Three’ still own a lion’s share of Canada’s wireless market and that scenario isn’t likely to change anytime soon.

“We think that public policy aimed at reducing consumer costs by encouraging new carriers to offer competitive service offerings has been successful, but we question whether new entrants . . . are viable and whether their impact on the market will be sustainable,” Wolfe said in his report.

Last Month, Wind Mobile cried foul on similar grounds stating that the new government rules will not guarantee smaller players enough spectrum to launch LTE. Leading analysts have suggested that the new auction rules might trigger a round of mergers or acquisitions as upstart carriers consider a Plan-B to get a share of the beachfront property.

Moody’s believes regional cable giants such as Shaw, Quebecor and Bragg Communications Inc. are potential suitors for Canada’s small wireless players. Despite concerns over competition, the report states regional cable giants mopping up wireless startups may not be that bad as it would allow the latter to scale and provide access to fixed-line infrastructure and the necessary funding for expensive network investments and spectrum purchases.

The report states that a fourth national carrier isn’t the need of the hour. Instead, it would be better to have four or five carriers in each region to maintain competition. Though Moody’s believes eventual consolidation will still leave the Canadian market a more competitive environment, I have my doubts. What do you think? Please share your opinion by leaving a comment.

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Written by: Gaurav Kheterpal. www.digitcom.ca. Follow TheTelecomBlog.comby:RSS,TwitterFacebook, or YouTube.

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