Getting Payback!

Angry-Kid-1

Are you tired of getting ripped off on your cellphone bill?  Do you get inferior service from your provider, dropped calls on a daily basis, and slow Internet speeds?  You’re not alone, as many people love to complain about their cellular service.  However, in Canada, we’re stuck with the 3 main carriers, Bell, Telus and Rogers who dominant the landscape by owning over 90% of the market share (wiki).  There’s no escaping the big three, Fido, Chatr, Koodo, Virgin Mobile, they are all subsidiaries of the big three telecommunication giants.  Welcome to wireless cartel!! (For those in the U.S., it’s not much different considering coverage is spotty for all but one or two carriers in any given region)

Cellphones are engraved in our culture.  You have one, your parents have one, your grandmother has one, and heck maybe even your 4 year old niece has one too.  If you are reading this blog, it’s most likely you are doing it on a mobile device, paying a cellphone carrier a fee to provide you data.  Your monthly cellphone plan is probably somewhere in the stratosphere and maybe even going over $100.  That’s a lot of money to pay for a cellphone plan isn’t it?  How many conversations can you count where you and your friends compared cellphone plans to see who had a better deal?  Probably a lot.

Everyone knows so much about cellphones and the cellphone plans that they all subscribe to, but do you really know how these companies operate?  All you know is that these cellphone providers are raking in the money, and the only thing you can do is complain.  Well I’m here to tell you that you don’t need to complain.  Just own them, reap the benefits, and essentially let the cellphone company pay for your phone plan through dividends and capital gains.

Let’s take a look at the Canadian companies (although the US companies are not much different).  There are three main carriers that operate in Canada.  Rogers, Telus and Bell.  Most people call them by their acronym Robelus.  Despite the mirage of having competition in Canada, it very much is an oligopoly (or cartel) that operates within the Canadian telecommunication sector.  Chatr, Virgin Mobile, Fido, and Koodo are all just subsidiaries of the three main companies.  Only Wind and Mobilicity are independent of the big three, but against the big three they are non-factors; money losing companies that are now on the block for sale.

With the recent news that Verizon might buy both Wind and Moblicity, competition might get fierce and this created a huge drop in the share prices of the big three companies.  But was this huge drop really warranted?

If we take a look at the North American cell phone market (Canadian Mobile Companies), one will notice the big three dominate in a big way.  Even with Wind and Moblicity competing in urban markets, they are barely able to make a dent.  Even if a fourth company swallowed those two companies it would barely have ten percent of the entire Canadian market share.  If we go further and take a look at Canada versus the world in cell phone revenue (CRTC Communications), Canada is a mere blip on the North American cell phone revenue.  A company like Verizon, that owns over 37% of the United States cell phone market will find that taking the remaining 10% of Canada’s market is only increasing their business by about 3%.   In order to grow the Canadian user base a company like Verizon would have to spend substantially on infrastructure upgrades to reach out to the vast land that Canada has.  The ROI on such an investment would never be justifiable.  Even a company like Verizon, that enjoys it’s own oligopoly with AT&T and Sprint in the United States, would never cannibalize cell phone rates to win a few customers.  They operate much on the same level as the big three in Canada.

Despite the hoopla, the big three (Bell, Rogers and Telus) are here to stay.  Whether consumers like it or not, they will continue to run the show and get burned with high data fees and roaming rates.  So don’t bother trying to fight them.  Just own them, own them like you would own the rest of the large banks and insurance that take your money.  If you already have a Canadian Index ETF or mutual fund, you’ll be glad to know that it’s probably already around 3% of your fund.  Yes, the big three are that big, they almost combine to make up 3% of the Canadian index.  As I always say, if  you can’t beat them join them.  At least they will pay you back.

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