canadian wireless industry: deregulation or protectionism?

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Weighing the benefits of deregulation in the Canadian Wireless Telecommunications sector.

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  • 1. Team 4

2. AGENDA The Structure of the Canadian Telecom Space The AWS Auction and its Outcome Incumbents Reaction to New Entrants Government Changes to Foreign Ownership Policy Winners and Losers Financial Communitys Thoughts Is it Worth It? 3. CANADIAN TELECOM SPACE BEFORE AWS AUCTIONTier I / High Value (National) Tier II / Discount (National) 4. THE NEW AWS TELCOS Tier II / Discount (Regional) Tier III / Mass Discount (Regional) 5. INCUMBENTS REACT TO NEW ENTRANTS Tier I / High Value (National)Tier II / Discount (National and Regional) Tier III / Mass Discount (Regional) 6. FOREIGN OWNERSHIP RULES Up until recently, foreign investors could own up to 46.7%in combined direct and indirect stakes in Canadiancarriers CRTC had considered three options: Increase direct ownership to 49% Full ownership of telecom providers with less than 10%market share Complete removal of restrictions New rules are designed to increase investment andcompetition in the sector 7. GOVERNMENT POLICY CONSIDERATIONSPoses considerable riskConcerns regardingto public safety and security risks orDeregulation Status Quonational securityemployment impact Telecommunications systems overstatedare backbone of all critical No control over physicalinfrastructure systems intelecom infrastructureCanada connected to millions ofHinders authorities homesability to followCanadian control will notintelligence priorities setguarantee Canadianby Cabinet jobsCanada is not alone in Carriers already outsource customer service jobsits concerns Retail and corporate sales will In 2011, U.S. barred Chinas remain in Canada regardlessHuawei Technologies Co.from bidding for work on anational emergency network 8. OWNERSHIP RULES CHANGE: BILL C-38 Restrictions lifted for anywireless carrier with lessthan 10% market shareby revenue Designed to spurinvestment andcompetition in a sectordominated by the Big 3Remove barriers to investment for companies that need itmost 9. WINNERS AND LOSERSNew Entrants andRegional Incumbents Rogers Communications Inc., BCE Inc., Telus Corp. Together control more than 90% of the market 10. WINNERS: CONSUMERS 11. WINNERS: CONSUMERS AND BUSINESSTHERE ARE 30 OECD MEMBER COUNTRIES, AND ONLY THREE COUNTRIES HAVE INVESTMENT AND OWNERSHIP RESTRICTIONS THAT APPLY TO ALL PUBLIC TELECOMMUNICATION OPERATORS. THESE COUNTRIES ARE CANADA, MEXICO, AND KOREA. OF THE THREE COUNTRIES, CANADA HAS THE MOST SEVERE RESTRICTIONS. 12. WINNERS: NEW ENTRANTS Ability to raise further capital? Team up with multinational peers? More competitive offerings for Canadian? Greater market share and growth? 13. LOSERS: INCUMBENT CARRIERS Regulations are asymmetrical, for the benefit of small players Rules benefit foreign competitors while discouraging domestic entry In a wireless industry where 1/3 net subscriber adds captured bynew entrants despite smaller network coverage, limited distribution,fewer handset selections, huge concern Differential treatment under the Telecommunications Act and theBroadcasting Act Gives companies with access to capital a competitive advantage (ie.Wind Mobile) 14. LOSERS: INCUMBENT CARRIERS (CONTD) For Rogers, short-term impact not meaningful Rogers has no major partner unlike other two incumbents, which canshare wireless spectrum Bell Canada says it is a "solution in search of a problem May see long-term disadvantage against Bell and Telus Telus relatively quiet, given recent allegations by smaller competitorGlobalive regarding Telus foreign ownership stakes 15. WHAT DOES THE FINANCIAL COMMUNITY THINK?This is positive for the smaller players, especiallythe likes of Manitoba Telecom. Greg Macdonald, Macquarie probably the most balanced way to do it, itstarts us down the road of greater foreignownership in the telecom space but at the sametime it attempts to protect the incumbent players. Carmi Levi, Independent analyst competition in the low end of the wirelessmarket should remain fierceand possibly step up into the mid market segment...spurring M&A andpresenting event risk to investors - Madhav Hari, Standard & Poors 16. IS IT WORTH IT?Employees 29,00055,00041,000Revenues$12.65B $19.9B$10.5BMarket$14.6B$30.9B$18.0BCapitalizationHead Office Toronto Montreal Vancouver 17. IS IT WORTH IT?25.5 million mobiles125,000 Jobs$7.51/month more than USA$43.05B in Revenue$2.3B savings per year$63,5B in Market CapitalizationProtectDeregulate