There are two ways to create competition – let it flourish naturally or engineer it.
In the wireless industry, the Conservative government is embracing Option No. 2 – the central planning model.
Ottawa is pressing wireless companies to end three-year contracts via a new code of conduct from the Canadian Radio-television and Telecommunications Commission.
The government is also signalling its intent to block any move by the three dominant players to buy out smaller rivals, preserving a division of wireless “spectrum” licences between incumbents and upstarts. Industry Minister Christian Paradis last week nixed Telus Corp.’s move to swallow tiny money-losing rival Mobilicity.
“No spectrum for you,” Mr. Paradis is essentially telling Telus and the others, who have the temerity to do what companies naturally do in a free market economy – buy and sell companies.
Consumers may applaud these moves, believing it will give them more choice and lower prices.
That is apparently the calculation the Conservative government is making. The Conservative Party of Canada is already highlighting the Mobilicity decision in a new fundraising pitch, insisting it will lower cellphone bills for Canadians.
“Our Conservative government is taking action to reduce your cellphone bill – and we wanted to make sure you have heard about it,” the party says in its appeal to donors. “We will not allow the big telecommunications companies to shut down competition by buying up undue amounts of wireless spectrum.”
But good politics shouldn’t be confused with good policy, particularly policy based on shaky engineering.
On the one hand, Ottawa is trying to control the size and behaviour of the three dominant Canadian players – Rogers Communications Inc., BCE Inc. and Telus.
But rather than fostering more competition, as Ottawa suggests, the current policies may entrench the Big Three, who control 90 per cent of the market.
That’s because it’s tying the hands of would-be rivals, who are too small and undercapitalized to be anything more than marginal players. All three upstarts – Mobilicity, Wind Mobile and Public Mobile – are reportedly losing money. Combined, they have just 5 per cent of subscribers, and operate in limited areas of the country.
Ottawa continues to ignore the obvious solution: Scrap all remaining foreign ownership restrictions and let the best wireless companies in the world compete on an equal footing for Canadians’ business.
Under current federal rules, foreigners can own a Canadian wireless carrier, but only if it has less than 10 per cent market share. In essence, the government is condemning foreign carriers to being bit players, depriving the upstarts of an obvious source of capital to grow, and consolidate.
Canada is one of the few OECD countries that explicitly restricts foreign investment in domestic telecommunications services – a fact that has not gone unnoticed by Canada’s competition watchdog. “It is clear that foreign ownership restrictions in telecom represent a considerable and sometimes insurmountable barrier to entry,” interim competition commissioner John Pecman said bluntly in a recent speech.
It’s not clear that all this engineering will give consumers better or cheaper service, as the Conservatives argue.
Rogers and BCE’s Bell subsidiary, for example, have both warned that the shorter-length contracts dictated by the CRTC could lead to more expensive phones and service plans.
And while Ottawa is committed to having at least four competitors in every market, it can’t compel good competition.
Last week’s Telus decision doesn’t relieve the financial pressures and unkind economics facing Mobilicity, Wind and Public Mobile, which was acquired last week by Thomvest Seed Capital Inc. and Cartesian Capital Group LLC of New York.
Restricted as they are to being niche players, the new entrants lack the market power and capital to build reliable national networks. And they can’t offer the “bundle” discounts used by the dominant players to tie customers to Internet, TV and phone services.
It’s not clear what policy rationale is furthered by protecting cellphone providers from foreign ownership. Foreigners, after all, are free to own Canadian real estate, resources, highways, and manufacturers of all kinds.
Perhaps most perplexing is why a government that purports to be small-c conservative is so eager to embrace economic engineering over unfettered competition.