Moody’s: Verizon wouldn’t automagically lower Canadian cellphone bills, could take five years to turn a profit on initial investment

There’s a permeating belief that if and when Verizon enters the Canadian market it would automagically lower prices through some combination of a strong upfront product (a national LTE network) and loss-leading prices (lower than the incumbents).

According to Moody’s Investor Services, a well-respected bond credit agency and analytics firm, Verizon would need to invest $3 billion in Canada to recreate the type of cross-country experience Canadians take for granted, and may not turn a profit for five years. The assumption that the company could enter the Canadian market fully-formed, even if it purchased both Wind Mobile and Mobilicity and snapped up two blocks of prime 700Mhz spectrum in each region, is a fallacy, according to the agency.

Verizon is unlikely to sully the premium brand in which it has invested so heavily in the US over the past 10 years by significantly undercutting the incumbent carriers in Canada. While it’s possible that upfront offers would be lower than Rogers, Bell and TELUS, price points will stabilize once the company reaches a similar number of customers.

According to a Moody’s report, “If Verizon or another company did invest in Canada, we doubt it would start by launching a price war, primarily because it would not have an established local network. Lacking the local cost structure to support a discount offering, a newcomer would have nothing to gain from a price war, as the existing companies could always go lower.”

Adding to the cost of customer acquisition would be a significant marketing budget aimed to unseat the incumbents that own over 90% of the Canadian market. It’s already been proven that few Canadians are willing to defect to a network that doesn’t cover the vast majority of the population; Verizon may be able to build out a national network more quickly, but the network reliability and speed would not compare to the incumbents for at least a few years.

Moody’s says in its report that it could take Verizon five years to gain just 15% of the national market. Whether such a long-term investment for just over two million customers is worth it remains to be seen.

[source]The Globe & Mail[/source]