The Harper government’s bid to stoke competition in the wireless industry was criticized by upstarts as still too protective of established players such as Rogers Wireless.
“It’s a total disaster,” Wind Mobile chief executive Anthony Lacavera said. “It gives the illusion that the competitive marketplace has been strengthened, but it will be a catalyst for consolidation and new entrants will be starved of frequencies.”
According to new research, consolidation of new entrants is precisely what the federal government should be aiming to achieve. The Royal Economic Society is holding its annual conference at the University of Cambridge this week. Among the papers presented is one by Yan Li and Catherine Waddams of the ESRC Centre for Competition Policy and the Norwich Business School at the University of East Anglia. Rather than a free-for-all, they conclude the optimal wireless industry includes no more than four or five companies.
Dr. Li and Prof. Waddams studied 22 mobile carriers from seven countries, including Canada, between 1998-2007, measuring technical efficiency, productivity gains and technological innovation. They determined that increased competition has an obvious positive effect on productivity and innovation. But the strongest results came not from widespread competition, but from oligopolies.
“The most robust finding is the positive effect on both levels and growth in firm efficiency of competition, which has profound implications for the design of markets,” the authors write. “In an area which is sensitive both from a political and business perspective, governments and regulators should encourage active rivalry between four or five firms, but extending such competition to more entrants may have little, or negative impact on the productivity of the participants.”
Canada’s wireless market is dominated by three companies. Rogers accounts for about 36 per cent of 25.8 million subscribers, according to CWTA data. Bell Wireless and TELUS Mobility each control about 28 per cent of the market.
Most economists would describe that arrangement as too cozy to spur significant gains in productivity and innovation. The Harper government apparently agrees. But in assessing the measures introduced by Industry Minister Christian Paradis, it is worth considering what the federal policy is trying to achieve: productivity gains that lead to better service and lower prices. That might best be done by creating the conditions to allow a couple of strong newcomers to thrive, rather than opening the door to lots of new companies that would struggle to take market share from the three established providers.
It’s a type of competition that Ottawa likes. Just think about the banks.