Since coming to power seven years ago, the Conservative government has pursued an incremental strategy of changing policies in small steps. That’s generally the right course for a conservative party that professes to believe in continuity and stability. It’s particularly the right path when the desired changes are matters of degree, such as lowering rates of taxation, increasing the age of eligibility for receiving OAS payments and levelling off transfer payments. Sometimes, however, a policy framework is so fundamentally flawed that incrementalism cannot improve it and may even make matters worse.
That, I believe, is the situation with mobile phone service in Canada. The source of our problems is the provision in the Telecommunications Act that service providers have to be 80-per-cent Canadian-owned. That’s what has led to our clubby system of three main providers. Lots of other companies around the world could compete with Telus, Bell and Rogers in the Canadian market, but the law keeps them out.
Let’s leave for another time the debate over whether ownership restrictions are necessary in true cultural industries, such as book publishing and television broadcasting. Mobile service is a personal convenience and a business necessity, but it is not a cultural industry. There is no good reason to restrict ownership to Canadian investors; doing so only limits competition without promoting Canadian culture.
The Conservative government inherited this flawed regime and, to its credit, is trying to improve it, but with incremental changes that don’t address the flaw at the heart of the system. First, it amended the act to create a foreign ownership exception for small companies (Wind and Mobilicity). Now, it seems ready to let the American giant Verizon acquire Wind and Mobilicity and purchase new spectrum under special rules intended to help those small companies. The announced intention is to make the industry more competitive by licensing four rather than three large service providers across the country; but in the name of promoting competition, the government is, in fact, resorting to ever more intrusive regulatory decisions.
Four, moreover, is an arbitrary number. What makes a market competitive is not the number of sellers but openness to entry. A market with only one seller will simulate competition if there are no barriers to entry, for that one seller will know that, if he tries to act as a monopolist, others will enter to take advantage of his monopoly profits. And a market with many sellers can become a clubby oligopoly once the insiders know that further entry is impossible.
Indeed, that is what is likely to happen to the wireless market in Canada if a fourth big company is invited in without changing the barriers against other foreign investors. The club will be bigger, but it will still be a club.
If we want the benefits of full-scale competition in the mobile industry, we won’t get them by incrementally adjusting the number of competitors. We will have to repeal the barriers to entry set up by the Telecommunications Act, and that means abandoning the shibboleth of Canadian ownership where there is no need for it. It’s a leap of principle, not just an incremental step.
Certainly, the politics are difficult, but the government’s desire to bring in a fourth provider has already antagonized Canadian capitalists. Why not knock down the barriers rather than just tweak them, and go all the way to a truly competitive market open to international investors? Canadians want reliable mobile service without stifling contracts and outrageous roaming charges. They don’t care who owns the companies that provide the service.
Tom Flanagan is a distinguished fellow in the School of Public Policy at the University of Calgary and a former campaign manager for conservative parties.