The Verizon deal is not good for Canada

In our household, we share a cell phone with a plan that costs $15 a month. If I were to break down and purchase a phone of my own, I would examine a BlackBerry, for patriotic reasons, but would likely settle on an iPhone, because my two-year-old granddaughter could show me how to use it.

All of which qualifies me to comment on the war between Canada's three largest telecom suppliers, and U.S.-based Verizon, which is attempting to break into the Canadian market.

“Breaking in” is an apt description of Verizon's attempt to purchase either Wind or Mobilicity, two comparatively tiny Canadian companies struggling against the corporate giants, Bell Canada, Telus and Rogers.

Verizon, which has almost four times as many customers as the entire Canadian market put together, wants to use federal laws designed to allow small startups, who don't have a lot of cash, get a foothold in this apparently not-very-competitive market.

Verizon needs no “little guy” assistance to compete head-to-head with anybody, but the purchase of a junior telecom would give it licence to access Canadian bandwidth they could sell to customers. That bandwidth was created at the expense of the three larger Canadian companies.

In other terms, it's like the Canadian government passing laws allowing a small railway company to rent the tracks built by CN or CP rail companies — at a discount — in the name of encouraging competition. Except that Amtrak bought the company which got the licence.

Rail customers might like the deal — at least at first. And in the case of cell phone services, if the federal government allows the sale (and it looks like like they want to do that), Canadian customers would probably see some early discounts.

But even in a country with a reputation for having the most costly cell phone service in the world, the sort of competition being proposed here would most likely end up creating losers. Canadian losers.

As has already happened as the telecom war has heated up, share prices of the three darling Canadian companies have dropped significantly. That may not affect you now, but it certainly affects Canadian workers with broadly-held RSP portfolios.

The telecoms are quite profitable right now (ask their customers). That has boosted share values, and made them an ever-larger share of the baskets of stocks held by RSP fund managers.

Remember Nortel? At one point it represented about a quarter of the value of the Toronto Stock Exchange, and no mutual fund manager could sell a fund which did not contain it.

When Nortel went down in flames, it took a lot of people's pension values with it.

Today, though it's hardly on the same scale, it's the same phenomenon with Verizon.

Under the laws set up by the federal government, Verizon, with its deep pockets and ability to outlast any competitor in a price war, cannot lose.

That's why share prices in Telus, Rogers, Bell Canada — and throw in the next largest telecom, BCE Inc. — have already begun to trickle downward.

Most Canadians with RSPs held in mutual funds have no idea what companies are in those funds, but you can bet a lot of them hold Canadian telecom stocks. They've been so profitable (ask their customers), and they boost total returns, so naturally they're a part of a lot of mutual fund baskets.

How's your RSP been doing these last couple years? How do you think they would perform if a U.S. giant like Verizon is allowed discount access to Canadian cell phone bandwidth they didn't even have to pay to build?

Economics is about self-interest. So in your self-interest, would you rather shave 10 bucks a month off your cell phone bill today, or see your RSP take a shave?

In the self-interest of thousands of other Canadians, let's think about the employees of Telus, Bell Canada and Rogers. Manufacturing hasn't been doing so good as an employment option in Canada, and don't even ask me about the future of journalism as a career. Please, don't.

Not everyone can be a pipeline welder, or snub an oil rig. Some good jobs will arise in the Canadian version of Verizon, but the total employment market in cell phone sales in Canada is rather finite. All the rest of the jobs will probably be folded into the existing Verizon sphere, probably far overseas.

So I don't see this deal as being “good for Canada” in the long run. I don't understand why the federal government seems so eager to see it happen.

Price competition in cell phone service seems to have improved recently. I wouldn't know, our plan is many years old. The current Canadian market is worth tens of millions a month, with plenty room for both profit and competition.

Verizon's U.S. market alone is in the hundreds of million a month. Why are we allowing them discount access to Canadian-built bandwidth under laws designed to assist small startups?