Verizon, the giant U.S. telephone company, will buy out the British joint owner of its wireless phone business and will not offer wireless phone service in Canada. Since Prime Minister Stephen Harper and his government were counting on Verizon to come to Canada and compete against the dominant wireless phone utilities, the company's decision leaves Mr. Harper without a champion in the battle.
Bell, Telus and Rogers, the regulated monopolies that provide most wireless phone service in Canada, mounted a massive advertising campaign all through the summer to persuade Canadians of the terrible evils that would ensue if Verizon were allowed to bid for access to the Canadian wireless communication network. The government picks users of the network, and they have to start by buying rights from the government. Bell, Telus and Rogers -- along with smaller players such as Manitoba's MTS and Saskatchewan's SGT -- already hold rights within this monopoly structure and fiercely defend the system, which has served them well.
The Harper government believes in the merits of competitive capitalism and in the efficacy of the market to deliver benefits to the consumer. By offering system access to Verizon or another foreign telecom, the government hoped to increase pressure on the Canadian telecoms and so keep the rates down.
The Canadian telecoms have been slowly but steadily increasing their revenue from wireless customers. This has been done by selling more and more postpaid contracts, where the customer is billed monthly according to calling volume, and fewer prepaid deals, where the customer strictly regulates the cost. It has also been done by selling more and more smartphones, which transmit and receive streams of data at great expense as opposed to the cheaper voice service on simple cellular phones. In this way, the Canadian telecoms have been able to raise average revenue per customer to around $60 per month.
Verizon is miles ahead of them. By offering an array of supplementary services along with smartphone service -- bill payment, for example -- Verizon in its most recent quarter drove average revenue per account above $150 per month.
The British firm Vodaphone, part-owner of the Verizon wireless network, was willing to sell its interest, offering Verizon a secure investment in a market where customers pay $150 a month. So the firm wisely declined to start fighting its way into a Canadian market where people are subscribing to simpler smartphone service. Retail margins for wireless operators are extremely attractive in both markets.
Wireless telephone service stands roughly where railway services in Canada and the United States stood in the 1890s. The companies are able to reap stupendous profits from their regulated monopolies because their services offer the public a stupendous improvement over what went before. A smartphone is better than a pencil to the same degree a railway train is better than a Red River cart. The railways pushed their luck so far that people found roads and trucks and cars were better still, and now the continent is littered with the remains of abandoned railways. In time, a similar process will overtake the wireless telecom business.
In the meantime, the Harper government is unlikely to conjure up new competitors to make the Canadian telecoms cut their prices. People are hungry for wireless phone service and they keep lining up for more. They occasionally grumble about the prices, but they pay. The government is stuck with regulating the monopoly and taking the heat for unpopular decisions.
So the battle of giants is over before it began. The Canadian telecoms are left to carry on business as before, but they have learned the Harper government is looking for a way to bring them to heel. Canadian consumers have learned they are not yet worth the attention of Verizon. The ruling Conservatives have learned that turning regulated monopolies into a competitive market is harder than you might think.