Verizon more of a threat to incumbents than Quebecor: Dépatie

Quebecor Media Inc. does not feel overly threatened by competition from Verizon Communications Inc. though the U.S company’s potential entry into Canada’s 700 MHz spectrum auction could leave Quebecor “empty-handed,” said Robert Dépatie, the company’s president and chief executive. “Because of our brand, because of our service level, because of the network we’re going to have, yes it’s a threat, but not as much as the others,” Dépatie said during a conference call with analysts Thursday for the company's earnings results, when asked about Verizon’s potential entry into Quebec’s wireless market. Incumbent wireless carriers BCE Inc., Rogers Communications Inc. and Telus Corp. have launched public campaigns that aim to change Industry Canada rules that limit them to a single block of “prime” spectrum in the upcoming auction while allowing other players, including U.S. telecom giant Verizon, to acquire two out of four prime blocks in each region of the country. Under those rules, Quebecor, which offers wireless services through its Videotron Ltd. subsidiary in Quebec and Ottawa, would also be permitted to acquire up to two spectrum blocks of wireless frequencies in its operating markets, though it would have to outbid more heavily financed competitors, including the incumbents and possibly Verizon, which is mulling an entry into the Canadian market. As a result, Quebecor could fail to secure any of the prime blocks if it is outbid by Verizon, Bell, Telus, and Rogers. “The potential consequences could therefore be catastrophic to regional new entrants such as Videotron, as four prime spectrum blocks could end up being shared between only three players, resulting in new entrants ending up empty-handed,” Dépatie said. Darren Entwistle, Telus’ chief executive, said in a separate conference call Thursday, for Telus' earnings results, that the auction rules were originally designed to prevent regional carriers from being “crowded out” of the auction. “That’s the reason they were included in the first place, but that’s now what we’re going to see,” he said, pointing to Quebecor and the Quebec market in particular. Entwistle said Quebecor, which spent $555 million to obtain 40 MHz of spectrum across Quebec, 20 MHz in Eastern Ontario and 10 MHz in Toronto in a 2008 auction, invested those funds based on government “representations” concerning the company’s future access to spectrum. He said regional carriers would be justified if they lose confidence in the regulatory environment and the rules prevent them from getting spectrum licences. “From a confidence and transparency and predictability perspective, it’s not just the incumbents that have a difficulty with this, it’s also new entrants like Videotron,” he said. Dépatie said regional new entrant carriers—which include Manitoba Telecom Services Inc. in Manitoba, Sasktel in Saskatchewan, and Eastlink (a Bragg Communications Inc. subsidiary)—would be “the first ones to bear the brunt of the American giant’s foray” into Canada if the government doesn’t change the auction rules. Quebecor, which said Thursday that it had 451,000 wireless subscribers at the end of the second quarter, is prepared to compete with Verizon for market share if need be, he said. Dépatie said a new network sharing deal the company signed with Rogers in May will double the company’s capacity to carry wireless signals while tripling its total coverage area. Troy Crandall, a media and telecom analyst with MacDougall, MacDougall & MacTier, said in a phone interview earlier this week that Videotron’s 40 MHz of spectrum, coupled with the company’s network sharing deal with Rogers, is enough for it to compete. Crandall said he spoke with Quebecor officials earlier this year, before the spectrum sharing deal was announced with Rogers, and the company was not entirely clear about whether it would enter the 700 MHz auction. "They saw no immediate need for spectrum, and I guess you could see why. They don't have a huge number of subscribers right now," he said. "My feeling is they'll probably enter the auction, and if they get spectrum at a reasonable price, that would be good, because you can never get enough." When asked whether getting a 700 MHz spectrum block in the auction is a do-or-die situation for Videotron, Crandall said: "I don't think it's necessarily a serious threat." Industry Minister James Moore, who replaced former minister Christian Paradis as part of a wider cabinet shuffle last month, has indicated that he will not change the auction rules. "Our policy has been clear and remains unchanged: greater competition and liberalized investment has meant more choices at lower prices for Canadian families," Moore said in a statement on his website on July 31. "We want all regions of Canada to benefit from competitive market forces, which is why more progress must be made. We will continue to stay the course by ensuring Canadians benefit from a competitive telecommunications industry." George Cope, BCE’s chief executive, said in a conference call Thursday that he is optimistic Moore will look at the Canadian carriers’ complaints. “I continue to be optimistic that a fair solution is the right solution and we’ll continue to push for that,” he said. “We will use every avenue we can in a professional way to pursue it.” Verizon, if it plans to enter Canada, would be expected to make an announcement before Sept. 17, when initial applications and deposits are due for the 700 MHz spectrum auction. —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca, files from Simon Doyle at sdoyle@thewirereport.ca, and files from and editing by Anja Karadeglija at akarad@thewirereport.ca

Verizon more of a threat to incumbents than Quebecor: Dépatie

News | August 8, 2013

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