Pierre Karl Péladeau, president and chief executive officer of Quebecor Media Inc. (Peter McCabe/Canadian Press)

The Canadian government is in the midst of deciding what the rules should be in an auction of wireless airwaves — known as spectrum — to be held next year. The auction is controversial in that a number of new, would-be operators would like special rules that will give them an edge in the auction over established players Rogers Communications Inc., Bell Canada Inc. and Telus Corp.

Among those potential new operators are Winnipeg-based MTS Allstream Inc., Calgary-based Shaw Communications Inc. and Montreal-based Quebecor Inc., which owns cable and internet provider Videotron Ltd.

Pierre Karl Peladeau, chief executive officer of Quebecor, says the status quo is responsible for high prices and low uptake of cellphone services, known as "penetration." Peladeau explained to CBCNews.ca why the upcoming auction is a golden opportunity for the government to spur wireless competition.

(The CEOs of Rogers, Bell and Telus were similarly invited to present their views, but declined.)

What's your current mobile device of choice and what's your favourite feature on it?

Like everyone, I use a BlackBerry, mostly for e-mails.

What is it lacking that you wish it had?

I don't think I'm a technological expert, so what I've got right now achieves my goals. I do watch the news at nine o'clock and sometimes I'm late, so I'd like something that has the capacity to program my PVR at home. That would be something that would be interesting for a personal purpose.

How would you characterize the wireless situation in Canada?

There's a common understanding, that will obviously not be shared by the incumbents, but everybody agrees that we have one of the lowest penetrations in the world. The incumbents would say that's because we have a wireline network that was strong enough to have an effect on mobile penetration. We can understand this argument coming from their side, but at the end of the day, no one can dispute we have a low penetration rate.

What are the reasons for that? We've been loud and clear that we lack competition, so prices are higher than anywhere else. It's true that wireless competes against wireline, but I think everyone agrees that wireless is the future, so therefore if you have better pricing on wireline, what's the real relation on wireless, given that it's the technology of the future? Pricing is certainly having an effect.

"At the end of the day, it is what it is. If the prices were lower, the penetration rate would be higher."

— Pierre Karl Peladeau

Also something we should agree on is that we're lacking technology. Yes it's true that we have the BlackBerry and other devices that allow us to have services other than only voice, but those services are behind those we can get in other Occidental or [other] Western countries. We can't even say it's Western countries anymore, because Eastern Europe and Japan and Korea, all those technologies have been there and available for many years, and we have none here. I don't see how you can dispute that.

You mentioned prices, which are notoriously difficult to compare across countries because of all the variables across different carriers. How do you overcome those variables?

You'll see some lower-pricing strategies [temporarily in Canada] but you need to compare across the board. Studies say that for large users, prices are higher overall. If we were to have other services, such as downloading music — and we know that because we are [a reseller of Rogers services in Quebec] — we can't offer that service because the bill will be so expensive for our customers that we won't have any [customer] retention effect from it.

It's true that prices are debatable, but it's been debated. At the end of the day, it is what it is. If the prices were lower, the penetration rate would be higher.

Speaking of penetration rates, some have said that European rates are inflated because people there often own more than one SIM card for different countries to offset high roaming rates. Is that a tangible factor or an overblown excuse?

Our experience is when we brought in wireline service through Videotron, we had a very successful initiative. We already have close to 600,000 customers in two and a half years, so this is a clear example of if you're providing better pricing to consumers, you're successful.

It was the same when satellite TV was introduced. [Bell ExpressVu and Star Choice] came in with a much more competitive offer than what cable was all about, with new technology. Remember, they came in with digital and most of the cable companies at the time were providing only analog services, so they were forced to invest in their customers. It used to be much cheaper [to service them] — what we used to call a truck roll, where you plug and unplug, was costing us between $40 and $80 per customer. Now if you want to keep your customer and you want him to migrate to digital, you have to provide a set-top box and you subsidize all this, which costs around $300. You're forced to invest, first to keep your customer, then to offer him a better service at a lower price with an appropriate technology.

There are so many other examples that when you introduce competition, it brings to the customer more services, more choices and better pricing. This has been proven many, many times in the past in all industries.

If high prices and low penetration are a given, how is the average Canadian and the country as a whole suffering?

If you don't have access to the technology, you're lacking competitiveness with the countries that have the capacity for it and therefore provide more efficiency throughout the way they work and they way they produce.

It's not only a matter of consumers, it's a matter of national interest. Why would we not have advanced wireless services where other countries do? If you start late, you're going to arrive late — there's no issue there to debate.

What's the solution then?

In the German market, for the last 20 years there were only two operators — Vodafone and Deutsche Telekom, and Germany was known to have some of the highest pricing, lowest penetration and a lack of [innovative services]. Then they had two spectrum auctions, which brought in two additional players. Since then, penetration has gone very high and pricing has been favourable to customers.

How did they do that? Well they had an auction and said there would be a cap on who could buy spectrum. Since the incumbents were operators, they were not able to buy spectrum — or they could buy part of it — but certainly there was additional spectrum available for new competitors. So two new operators — Telefonica and Telecom Italia — came in and brought new services.

In Canada, either you have a set aside or a spectrum cap, but at the end of the day what's important is to ensure that competition will be alive and kicking for national interest and the consumer.

You have a lobbying alliance with MTS Allstream, but what is the likelihood of a deeper partnership with the company, and perhaps others such as Shaw or Eastlink?

"If you start late, you're going to arrive late — there's no issue there to debate."

— Pierre Karl Peladeau

We'll see what the conditions are when they are announced, but certainly there are discussions that are taking place to see if a national consortium of companies can bring a national service. At this stage, we can say there are no doors closed and a lot of discussions are taking place. Most of the companies that are looking at possible wireless services in the future are wide open in terms of situations or objectives they can achieve in the short term.

Would it make sense to go it alone, though? You wouldn't have any size benefits. If not an alliance with a Canadian company, would you perhaps ally with a U.S. company or other foreign player?

We're not saying no to anything at this stage. It's still too early in the process to have any statement about it. Again, we're wide open on different solutions to having more competition in the wireless business.

The incumbents and many financial analysts have said there isn't room for a fourth carrier. What do you think?

Analysts are mixed. Some are saying there's no room for a fourth operator while others are saying there is. You read Vince Valentini from TD and he says there's no real gain for a fourth operator and you read Jeffrey Fan from UBS who says Videotron is very well positioned in the province of Quebec to be able to provide and successfully achieve a significant penetration in the wireless business in the future. So there are mixed messages in the marketplace.

Is it too early to say you're going to go with GSM technology, which is what Rogers uses?

It is too early, but everyone agrees that the world is going more and more GSM. CDMA [used by Bell and Telus] is more of an American technology. Most of the manufacturers worldwide, from Nokia to Ericsson, are GSM, and this is where the research and development [dollars] are spent because it covers 80 per cent of the world. It's easily understandable why these companies would focus on this technology and there's a high probability we're going to go there because of this global environment that exists.

Why has Quebecor waited so long to get into the wireless business? Your critics have said you could have participated in a spectrum auction in 2001 but didn't, and you also had a stake in Microcell but did nothing to save that company before it was bought by Rogers in 2004.

First of all, we bought Videotron in 2000. It wasn't the best-managed company — it was coming out of a monopoly and an analog network, with a highly unionized workforce. At the time, the focus was to fix the company.

With Microcell, we had a 10 per cent stake, so we weren't in any position to do anything with that company, which had been restructured many times. We had no say at all. It’s a little bit funny that this argument, which is five or six years old, is now being raised.

People will say European countries have a higher wireless penetration because wireline customers are billed on a consumption basis. When Fido introduced [a similar payment structure for wireless] in Vancouver and Toronto against the monthly payment tier system that was being used in cable or the wireline business, well that was the end of Fido. That was going against the structure of how we were pricing wireless in Canada. It was the first time you saw someone bring in a business model that favoured the consumer, and that was the end of them. Telus and Rogers saw it and said, "We can't stand that sort of thing," so they moved forward to buy it.

Why is wireless important to Quebecor? Where does it fit in your grand scheme of things?

Today we have digital cable, internet and wireline services. We need to have the fourth service, which is the service of the future. It's not just the voice service — it's the multimedia, full-fledged communications service that is the future. There's a great importance for Quebecor and Videotron to be there.

The French market is very strong on original or Canadian content being produced here. As a convergence company, being able to deliver that kind of content on the device of the future is key for the growth of this company.

Ted Rogers has called you a "scallywag" for wanting what he says is a government subsidy. Is there anything you'd like to call him in return?

I don't even understand what that means! [laughs] It's funny because in terms of spectrum, the actual operators in Canada have more than any operator in the U.S., yet they service fewer customers.

"Awarding a licence to a new entrant would bring significant investment, mostly from the new operator but also from the incumbents."

— Pierre Karl Peladeau

There's a lot of noise regarding us being subsidized where most of the operators if not all had a very serious break when they launched their service. Don't forget Fido was a "beauty contest" for their [spectrum] licence. When Rogers acquired Microcell, it inherited what they now call a subsidy.

Awarding a licence to a new entrant would bring significant investment, mostly from the new operator but also from the incumbents, who will be forced to hurry up their offence regarding 3G [third generation] services. This is certainly not the best scenario for an existing operator.

So, you didn't call Ted any names…

I have the biggest respect for Ted Rogers. He's one of the greatest Canadians, he's one of the greatest entrepreneurs. He did a fantastic job in creating a fantastic company and he's really a nice man.