Lessons for Canadian mobile market from the AT&T/T-Mobile deal

 By Simon McNeil 

Recently AT&T entered into an agreement to buy out T-Mobile for $39 Billion US. It has caused a stir south of the border in part because T-Mobile and AT&T are the only GSM providers with national coverage in the USA. As such the loss of T-Mobile establishes an effective monopoly for AT&T in the GSM market.

Both T-Mobile and AT&T have extensive infrastructure and penetration into most American mobile markets although AT&T is three times as large as T-Mobile. Notwithstanding the size difference the loss of T-Mobile means a net reduction in the number of available choices in the market of one in most places. This brings down the number of available carriers as low as 4 in some markets, although most areas will still retain 5 or more available cellular carriers; just not using GSM technology.

The main obstacle standing in the path of the merger is the regulatory concern about the loss of competition this deal entails but with AT&T having a veritable army of lobbyists it is very likely that this merger will get the green-light

Attempted mergers

The proposed merger is certainly interesting in and of itself. Any time a carrier with the size and reach of AT&T buys out a smaller competitor it has impacts internally but also, with the size of the US mobile market, this shift will probably have repercussions for device manufacturers which will, in turn, echo into device availability and pricing in Canada.

Considering both the small number of carriers supplying the Canadian mobile market and the history of attempted mergers in the country it is also interesting to consider what might happen if a major carrier such as Telus or Rogers tried to buy out one of the smaller new entrants.

Telus has attempted to purchase Bell on a few separate occasions. Chatter of anticipated mergers pops up across the web from pretty much any time in the last five years. The main obstacle to a Telus / Bell merger has been concern over the growth of monopolies and the concentration of bandwidth into the hands of a single entity.

With the advent of White Space Spectrum technology fears about bandwidth may be misplaced but concerns over the development of monopolies are less so.

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Ultimately these concerns are probably insurmountable. Telus and Bell have been prevented from merging on past occasions and, short of a major shift in the Canadian mobile market it is unlikely that they would ever be allowed to merge in the foreseeable future.

The situation in Canada is somewhat unique. We have only three truly national carriers (Telus, Bell and Rogers) – each of which has a mobile infrastructure that covers the majority of the country. These three companies also maintain off-brand options that are virtually indistinguishable from their parent companies other than the relaxation of credit requirements through the use of phone tabs and other minor variations in plan structure through Fido & Chatr (Rogers), Solo (Bell), and Koodo (Telus). There are options for pre-paid phones (and even a few post-paid options now) with new carriers PC Mobile and Virgin Mobile but pre-paid service is ultimately a very different market from post-paid and while the coverage map for these independent pre-paid carriers is expanding they can hardly be called national in scope. 

New entrants at risk of collapse

Finally there are the new entrants, Mobilicity, Public Mobile and Wind Mobile. Though it is unlikely that Telus will ever buy out Bell these three carriers are ripe for potential mergers.

The first problem with the discount carriers is their coverage maps. Mobilicity has actual coverage only in a handful of major cities and Public Mobile has even less, serving only Montreal and Toronto. Wind is slightly better in this regard. The “wind zone” covers most of the Golden Horseshoe, Ottawa, Edmonton, Calgary and Vancouver and includes roaming coverage considerably more extensive than that of Mobilicity (and certainly more extensive than that of Public). 

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Public Mobile vs. Wind Mobile – new carrier showdown

In order for these new carriers to truly provide a competitive option to the “big three” they would have to considerably expand their coverage maps. This has presented some notable dilemmas.

Two of these new entrants, Wind and Public Mobile are at serious risk. Public Mobile lacks financing, is faced with the daunting task of setting up a network from scratch, and has positioned itself as the deep discount carrier in those few markets where it has a presence.

People aren’t going to Public for a smartphone. And this is a problem, as the cellular market is increasingly moving toward smartphone technology as the standard, rather than an elite service. Simply put Public is at risk of failing and they could very well take Wind down with them.

Wind Mobile is, like Public, a deep discount carrier. Services with Wind are sometimes less than half the cost of the big three. Their coverage map certainly isn’t perfect; there are plenty of dead areas, even within Wind Zones, where the devices simply don’t have reception but this can be seen as a trade-off for the reduced cost. Wind offers smartphones and does so with subsidies roughly equivalent to the big three. It offers some entry level smartphones literally for $0 up-front by using tabs, a gentle alternative to fixed-term contracts.

At first glance there doesn’t seem to be a whole lot of down-side to Wind service. With a rapidly expanding coverage map they may seem like a game changing company. The problem is that Wind isn’t fully compliant with Canadian regulatory requirements and Public Mobile isn’t satisfied with this situation.

Wind Mobile is largely financed by overseas interests while Public Mobile is domestically financed. Public Mobile sees the outside financing Wind gets as an unfair advantage as it is an option not open to them. They have issued a complaint over this and if Wind isn’t able to come up with a substantial Canadian investment soon they may soon be regulated out of the Canadian market.

Small mobile players ideal targets for takeover

Wind Mobile, Public Mobile and Mobilicity, despite their precarious position, represent a threat to the “Big Three” carriers. Should any of these carriers (particularly Wind) overcome the financing obstacles they face they could potentially upset the status quo that the major carriers have maintained.

With similar plan options and device offerings Bell, Telus and Rogers have done little to differentiate themselves in the consumer space. Certainly deals exist, we can help you find them, but they aren’t often advertised. The status quo between the major carriers has kept Canadian mobile pricing higher than in other places.

But when an entrant like one of the discount carriers enters the field of play it creates a situation where consumers have another option. Considering the precarious financial situation these smaller carriers are in there is little doubt that the idea of accumulating one of these smaller entrants has entered the minds of the major carriers.  After all, they’ve done so before.

What do you think?

This article by Simon McNeil came from MyCellMyTerms, a Canadian firm that helps consumers and businesses find the best mobile plans for their needs

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Jim Love, Chief Content Officer, IT World Canada

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