With Harper elected, rumors abound that we may see a change in foreign ownership regulations for the telecom industry. Considering I am invested in the Telecoms (receiving healthy dividends) and that I am a consumer (paying for services), I thought I’d look into what it means to the investor and the consumer.

Consumer Perspective

With the recent talk of introducing a bandwidth cap by the internet providers many consumers have been up in arms fearing that their monthly bill would go up. The bottom line for many consumers is that it will cost more to continue to use the internet as they are now. Many internet users have taken the access to content on the internet for granted so far. I remember when I first got my high-speed internet, my choices weren’t about how much I would consume or how fast I wanted it, there was only 1 option. My choice was either to have my internet through my cable or through my phone line (also known as DSL).

Nowadays, the internet is much more evolved and can achieve so much more than it did 15 years ago (remember the days of Netscape?). The internet gets more attention and can deliver much more to the consumer. Take Netflix for example, it is able to succeed where Blockbuster has failed. With the recent introduction of Netflix in Canada, its successful entry only means that viewers would have to shell more than 8$ per month for heavy usage of the service. Netflix was quick to provide low-bandwidth option but it just highlights our dependence on the internet and how it grows.

It’s believed that we our gouged for the telecom services we receive compared with other countries but the realities of the bandwidth cap is not unique to Canada. On May 2, 2011, AT&T introduced the bandwidth cap for its DSL users.

As a customer, there is no need to wait for foreign ownership to have other options. There are many options out there if you wish to try out the other options. Just recently, the Canadian Capitalist shared on his blog that he was moving away from Bell to a cheaper alternative in Teksavvy. Teksavvy offers some good alternative if it’s available in your area. Remember that there are alternatives out there, it’s a matter of looking for them. What the big telecoms have in common is that they are providing incentives to get you on more services (the packages) rather than individual services as it used to be.

Investor Perspective

Foreign ownership is already present! Last time I looked, Virgin Mobile was not Canadian How is that possible? Simple, the regulation already allow foreign companies to rent the infrastructure from established telecoms. Recently, there are rumors that Carlos Slim Helu (Richest man in the world) would like to expend America Movil to Canada. The assumption is that it is negotiating a deal with an established telecom to enter the country the same way Virgin Mobile did it. The legal way of doing business in Canada is to come in as a Mobile Virtual Network Operator (MVNO). A recent clip form BNN highlights the rumors and how they can get around the foreign ownership rules.

With Virgin Mobile, did you see significant competition from a pricing point? I personally have not seen any difference. Loyalty programs seem to be what differentiate the players. From a pricing point, it’s just like the car industry It’s higher in Canada even if the dollar is on par. Are Canadian consumers just sucking it up?

I am sharing an interesting interview with Globalive chairman which is currently dealing with the courts with respect to foreign ownership. Their challenge is to find funding within Canada to expend their business which is were the foreign ownership conflicts comes in.

The telecoms are seeing the trend in consumer behaviors between internet and television viewing. It would be one of the main reason why they acquired content channels so that they can hold exclusivity across all mediums. Consider that back in the day, the telecoms got paid for providing viewers with the channels where as now, the content provider could go straight to the consumer and by-passing the cable companies with the internet (essentially removing the middle man). Having exclusive content allows them to own more than just the delivery mechanism and to offer a competitive set of products.

From a business perspective, entering as an MVNO makes much more sense financially as you have a much smaller financial risk and you can earn revenues much faster. Just look at how long Shaw has been working on its wireless expansion only to put it on hold. Globalive is needing a lot of capital to continue its expansion of service which is why they are flirting with the foreign ownership limits. Building an infrastructure is expensive and take years to execute. Doing so amidst all the competition can be really challenging. The cost of it all doesn’t imply a lower price from the consumer in my view. The telecoms need to differentiate themselves in other ways through customer service, loyalty programs, discount for multiple services and such.

With respect to the internet bandwidth cap, I don’t see foreign businesses coming into Canada and building a competing infrastructure. The pipes are already going to the homes and new developments wouldn’t be enough to sustain the expenditure costs. If any of them are going to offer internet, it would have to sign a deal with the current telecoms to provide the service which would add to the cost and keep the price point higher. At the end of the day, any foreign company would have to establish a Canadian entity and it would have to be profitable on its own. Profitability would require decent margins which leads me to believe that consumer pricing would not be much lower (if at all) than the current prices.

Thoughts

Will the consumer benefits? Will it be the investor? Or both?

I simply don’t see the price point going lower for consumers. Wireless features may become more competitive but at the same price. This may mean a lower bill for you if you make heavy use of the features but I don’t believe it does for most users – I don’t have any data to confirm this.

The cap bandwidth is going to be introduced (if not already) and customers will have to negotiate to get lower prices for their packages if they can. The telecoms understand where the internet is going and they are preparing themselves for it. A cap on bandwidth is part of the process.

Readers: What are your thoughts on foreign ownership in the telecommunication industry?

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