In a fresh bid to sway public opinion and pressure the government to keep Verizon Communications (NYSE:VZ) from entering the Canadian wireless market, incumbents Telus, Bell Mobility and Rogers Communications are considering a new ad campaign highlighting Verizon's involvement with U.S. phone surveillance, according to a Reuters report.
The report, citing unnamed sources, said that the three largest Canadian carriers have not yet signed off on the plan, but that the campaign will focus on how a Verizon push into Canada could lead to greater surveillance and a loss of privacy for Canadians. The ads could start rolling out online, on the radio and in newspapers as soon as next week, the report said. The National Security Agency has acknowledged a program that has been collecting telephone metadata on virtually all U.S. telephone calls, including those of Verizon.
Telus, Bell and Rogers declined to comment, according to the report.
Thus far, the Canadian government has refused to back down from regulations that it argues will ensure greater competition in the Canadian wireless market. Canada's government last year relaxed restrictions on foreign ownership in small telecom companies with market share of 10 percent or less, in the hopes of increasing competition for incumbent carriers. The government also released new rules that will require all spectrum transfer requests to be reviewed.
Further, under current rules, Verizon could potentially bid in January's 700 MHz spectrum auction for two of four prime blocks of the spectrum up for bidding, while the incumbents can only bid for one block each.
Industry Minister James Moore has said he is holding meetings across Canada to try and defuse some of the "overheated rhetoric" surrounding the issue. "It's being dominated by people who have a vested interest in the benefits that this may or may not have for their firms," he told the CBC. "We want to make sure that Canadians know that our policy is about serving consumers and serving individual Canadians. That is what our policy is about."
Verizon is putting on hold potential deals with fledgling Canadian wireless carriers Wind Mobile and Mobilicity, according to a Globe and Mail report from last week. Instead, the company is deciding whether it wants to participate in the 700 MHz auction. The report, citing unnamed sources, said that Verizon has decided to delay pursuing any Canadian acquisitions until after the auction in January. If Verizon participates in the auction and wins the highly coveted airwaves, deals with the two companies might come back into play next year, the report said. Verizon declined to comment on that report.
Most financial analysts said they viewed the report as a positive development for the three incumbents, which dominate around 90 percent of the market in Canada. "Under the current auction rules, we would expect the three large wireless incumbents to each bid very aggressively for one of the prime spectrum blocks effectively preventing Verizon from securing a second block," RBC Capital Markets analyst Drew McReynolds wrote in a research note. "Given the current auction rules, one has to question at the moment the extent to which Verizon is still committed to entering Canada, assuming securing a second prime block is a prerequisite."
Canada's 700 MHz auction is not set to start until Jan. 14, though carriers must apply by Sept. 17 and submit a refundable deposit. However, after that point potential bidders cannot negotiate with other bidders until 2014.
During Verizon's second-quarter earnings conference call in July, Verizon Communications CFO Fran Shammo said that Verizon is interested in exploring options to enter the Canadian wireless market, but he stressed that it is "really an exploratory exercise for us." He said most of Canada's population is between Toronto and Quebec, and that aligns with Verizon's coverage. He also said Canada's 700 MHz spectrum auction will auction off licenses that align with Verizon's own 700 MHz holdings.
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