When the Wind blows West: Will Wind Mobile take down Canada’s telecom titans?

Originally published in the Other Press.

From titans maintaining an oligopoly to unproven newcomers, the Canadian wireless provider industry in wrought with distrust and uncertainty. But there’s more to Wind than meets the eye.

THE OLIGOPOLY

Everyone and their dog has heard of the “Big Three” in Canada’s telecommunications industry: Rogers Communications, Telus Mobility, and Bell Mobility.

Much like our country’s “Big Five” banks—Bank of Montréal, Royal Bank of Canada, Canadian Imperial Bank of Commerce, Toronto Dominion Bank, and the Bank of Nova Scotia—the Big Three is a market oligopoly.

Let’s stop here and understand exactly what an oligopoly is. An oligopoly is a state of limited competition within an industry, where a select few businesses run a massive market. It ultimately functions parallel to a monopoly (the Insurance Corporation of British Columbia is a good example of one), except that oligopolies are capable of creating the illusion that a market has sufficient competition for consumer-fair pricing models.

The next question is, how is this illusion created? In the case of the Big Five banks, it’s sheer numbers. Five banks offering nearly identical services must be in competition, right? Well, yes, but they also have an unwritten agreement never to undermine each other too intensely. But why wouldn’t they? Simple: first, they’re well-positioned to be consistently profitable because they can all keep their fees high instead of all keeping their fees low, which would be a “price war.” Second, their services are essential to virtually all of the population, so they know people will use their services. (Credit Unions offer nearly all the same services as banks for considerably lower costs, but many consumers fail to realize this point. But I digress.)

It’s slightly different—but a lot worse—in the Canadian telecom industry. The Big Three function on the same principle as the banks, where they universally keep their prices high (and identical) instead of competing for the lowest prices to lure in new consumers. But they go a step further in illuding the masses: each of these corporations actually has subsidiaries that few people realize are owned by the Big Three.

For example, you’ve probably heard of Fido. You may have even observed that it’s a cheaper, but less capable, version of Rogers. That’s because it’s fully owned by Rogers, and was created to target a demographic unsatisfied with Rogers. And just within the past month, Chatr Wireless officially launched. A new company? Hardly. Rogers created and owns that brand, too.

Continuing on, Bell owns Solo Mobile, and Telus owns Koodo Mobile. Again, these subsidiaries appear to be separate companies, but really just target different demographics. For several years, the Big Three have been sitting awful pretty. Until a 2008 government-managed auction shook the very pillars on which they are founded.

THE NEWCOMERS

Quoth Reuters, May 27, 2008: “Canada's government launched an auction of wireless spectrum on Tuesday that it hopes will bolster competition and lower prices by allowing new players to break into the cellular phone market.”

Up to five new companies were staged to enter a highly regulated and chokingly constricted wireless service industry. The Big Three, for the first time ever, were about to have some real competition.

Of course, companies can’t sprout out of the ground like a magic beanstalk. It’s taken four years for them to launch, and only three survived the grueling process: Public Mobile, Moblicity, and Wind Mobile. These companies are brand new to Canada, completely separate from the Big Three, and determined to offer greater value in their services.

But the Big Three haven’t made it easy for these altruistic newbies. Rogers began developing Chatr nearly one year ago, and launched it specifically to nip Wind Mobile in the bud. And I mean specifically. Chatr

matched Wind’s services and prices, and—despite Rogers having a much more expansive network—cut its service boundaries precisely where Wind’s are cut. And I mean precisely. Like, same street precisely.

With Wind and Chatr almost identical companies, who’s going to win? Rogers has the natural edge: it’s a huge, established company with myriad more Canadian resources. Despite Public Mobile filing a complaint with Canada’s Competition Bureau against Rogers, the longstanding communications company looks poised to forge ahead and clip the wings of these telecom startups before they ever get off the ground.

But there’s more to Wind than meets the eye.

A BIGGER VISION

Quoth Wind Mobile’s website: “Wind [has] a history of over 10 years in two large European markets (Italy and Greece) … Wind is a brand of Wind Telecomunicazioni, an operating unit of Weather Investments s.p.A.”

So Wind is foreign, offering “Super Mega Internet” in its country of origin, Italy. This is a first for the Canadian telecom realm, but it’s only the surface. Wind has other, much deeper, foreign roots that will soon play a very major role in the future of Canada’s telecom realm.

In the historically rich, sun-bathed country of Egypt, there resides an empire. This empire is called the Orascom Group. It owns four massive, global sub-empires: one in construction , one in hotels, one in information technology, and one in telecommunications.

The one of interest is the latter, Orascom Telecom Holding S.A.E. The executive chairman for this company is Naguib Sawiris, who is the billionaire scion to Egypt’s most prominent and dominant business family.

With Naguib at the helm of Orascom Telecom, Wind entered Canada. What’s the link? Naguib put millions into Wind Mobile’s entry into Canada, owning a majority of their debt, but also two-thirds of the company’s equity. To make this happen was difficult: Canada’s regulatory agencies—and even more so, the Big Three—continually tried to choke Orascom’s attempts to financially back Wind, citing an array of foreign investment policies and rules.

But in the end, Orascom successfully invested in Wind, and Wind successfully penetrated the Canadian market with foreign ownership. The fact that Wind is owned by a foreign empire is significant, but there are more cards to be played. And one is Naguib’s global vision.

First, Naguib wants to buy out both other newcomers, Moblicity and Public Mobile. He says they don’t have the resources to survive or make a dent in the market, whereas Wind already has a substantial amount of subscribers to its services. But that’s only the beginning. Naguib sees the telecom global industry revolving around a handful of empire-sized firms, his being one, each which operate in several countries as opposed to just one or two. Canada’s Big Three are all strictly Canadian, which makes them a drop in Earth’s bucket—Naguib’s telecom empire has over 120 million subscribers, which is more than five times greater than Rogers, Bell, and Telus combined.

A global oligopoly hardly sounds like a better situation that a national oligopoly, except for the fact that Naguib’s principles are in sync with consumer beliefs. Naguib calls our Big Three companies “a joke,” saying that they’re “too slow,” and that he would never invest in them. Wind, which is more in tune with value-minded consumers, much more accurately fits Naguib’s end goal. He wants a global empire that’s a win-win for everyone.

But who knows—maybe that’s how the Big Three’s vision began.