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Nobody should be surprised to have
learned in recent days that three of Canada’s small wireless companies
– Wind Mobile, Mobilicity and Public Mobile
– are now for sale and may soon disappear as independent players. The
federal government’s attempts at artificially creating more competition
in this market were never based on a realistic assessment of the Canadian
market, or on sound economic theory.
It all started in 2008, when Ottawa set
aside for new wireless players part of the spectrum
being auctioned off that year, and forced existing carriers to open their
networks and share their transmission towers with the new entrants. I wrote
at the time in this page that this amounted to a subsidy to new entrants and
would distort the allocation of resources in this market.
We simply don’t know the optimal
number of wireless networks in a market like Canada’s. Market forces
(including an unbiased spectrum auction that reproduces market rules as much
as possible) are supposed to determine this.
In theory, more competition is a good
thing. It forces players to lower their prices and to offer better services
to attract clients. But how many more players should we have, in addition to
the big three? Would we be better off with one more wireless network, three, five?
Such networks cost billions of dollars
to set up from coast to coast. Obviously, at some point, it becomes wasteful
to add another one and it’s better for society if these resources are
spent elsewhere.
We had seen earlier in the decade how
difficult it was for smaller players to remain viable. Clearnet
was bought out by Telus in 2000 and, after seeking
bankruptcy protection in 2003, Microcell was taken over by Rogers in
2004.
It is true that among the recent new
entrants, Videotron in Quebec and EastLink in Atlantic
Canada have been able to establish a foothold. They have a loyal local
customer base in their regional markets and they can offer packages of cable
telephone services, broadband Internet access, and digital television in
addition to wireless telephone services. In the West however, Shaw decided
that it could not make a decent return on invested funds and has been sitting
on its spectrum ever since.
I was working on the telecom file as a
policy advisor to then Industry Minister Maxime Bernier
in 2007. The consensus view in the minister’s office was to open the
sector entirely to foreign investors and set up the
coming spectrum auction so as to have a level-playing field, without a
set-aside for new entrants. With no more barriers to the entry of foreign
players with deep pockets, but also no advantages given to potential new
entrants, we could then have seen if the market was ready to support a fourth
national carrier.
Opening the market meant amending the
Telecommunications Act. Since the government was then in a minority, it
needed the support of one of the opposition parties. The minister had been
talking to some of his counterparts and believed he could make a deal on this
issue.
However, Industry Canada’s senior
bureaucrats opposed the plan. There was also strong lobbying against one or
the other of these policies by some influential industry players. When
Bernier was shifted to Foreign Affairs in August and replaced by Jim
Prentice, it was clear that the supporters of more government meddling in the
industry had won. Prentice announced the 2008 auction rules with a set-aside
a few months later.
So, instead of real competition, what
we’ve had since then is constant attempts by Industry Canada to
artificially foster a phony type of competition with repeated interventions.
The market was belatedly opened to
foreign investment in 2012, but only for companies that have less than 10%
market share. Current Industry Minister Christian Paradis
also announced last year that the government would cap the amount of spectrum
any one party will be able to purchase in another spectrum auction to be held
this autumn, again explicitly in order to favour
new competitors.
And now, we hear that the minister is
considering taking more measures to block Rogers, Bell and Telus from acquiring spectrum from the small players or
the unused spectrum from Shaw.
Hundreds of millions of dollars will
have been wasted in this futile attempt to create, foster, and then reanimate
the clinically dead new entrants. The major carriers will have had roadblocks
put in front of them as they try to improve their services and answer their
customers’ demand for more bandwidth, thus actually reducing real
competition and achieving the opposite of what was intended.
And let’s not forget that all
these policies could become obsolete in a couple of years if a new
technological breakthrough radically alters the industry. What a waste of
resources!
We find it ridiculous nowadays when we
think that the federal government tried for years to keep
mines open by subsidizing the coal mining industry on Cape Breton
Island. Didn’t it realize back then that you could not ignore markets
and prevent economic transformation?
The industries, policies and the
buzzwords may have changed somewhat. But this government’s telecom
policy shows that wasteful and pigheaded interventionism is as popular as
ever in Ottawa.
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