MTS deal would set a harmful precedent for wireless competition

Dwayne Winseck is professor in the School of Journalism and Communication, Carleton University, and director of the Canadian Media Concentration Research Project. Ben Klass is a PhD student at the School of Journalism and Communication, Carleton University.

Two weeks ago, Bell announced a bid to buy MTS, Manitoba's largest provider of telecommunications, Internet and next-generation television services. If the merger goes through, the communication industry in Manitoba will be radically transformed, and there will be important implications for the rest of Canada as well.

A transaction of this magnitude deserves careful consideration. Some pundits and think tanks have been quick to support the deal, but a more rational review of the situation is needed. Our research suggests that the takeover would not be in the best interest of Manitobans, and that it could set a harmful precedent for the rest of the country.

Manitobans currently enjoy some of the most affordable prices for wireless service in Canada because MTS acts as an independent competitor to the national carriers. In provinces such as British Columbia, Alberta and Ontario, there are no strong rivals for Bell, Rogers and Telus, and monthly rates for popular voice and data plans are $30 to $70 higher. Remove MTS from the equation and Manitobans will likely soon be facing the same steep rates and parsimonious monthly data caps – which MTS doesn't have – that frustrate consumers elsewhere.

Supporters of the merger argue that "ruinous competition" and Manitoba's affordable prices have left MTS in dire financial straits, unable to invest on the same scale as a company such as Bell. As they see it, cheap prices in the short run might be costly in the long term. From this angle, BCE says it will help bring Manitoba into the future with its pledge to invest $1-billion over five years to build state-of-the-art fibre-optic networks, expand Bell's Fibe TV service and increase wireless 4G LTE network coverage.

However, a closer look at the data and existing trends tells a different story. In fact, MTS is more profitable and invests relatively more capital in its networks than Bell. This has been the case for some time. MTS's significant and timely investments in 4G LTE wireless networks, high-speed broadband and next-generation IPTV services all show that its operations compare either favourably to or better than anything Bell offers throughout its own territories.

Allowing Bell to acquire MTS would reduce the number of wireless carriers in Manitoba from four to three, a trend strongly opposed by regulators in many countries. When AT&T sought to take over T-Mobile in 2011, the U.S. Justice Department scuppered the deal. T-Mobile has since flourished by offering innovative services such as unlimited data plans and free international roaming. Just last week, European regulators blocked a four-to-three merger between mobile operators Hutchison and O2 in Britain, citing concerns over the potential for sharp increases in bills and anticompetitive behaviour.

Here in Canada, the federal government has spent the better part of the past decade bending over backward to increase competition in the wireless space. These efforts have begun to bear fruit in Quebec, where Videotron has rapidly expanded, and the Atlantic provinces, where Eastlink is now offering an affordable alternative to the national carriers. Supporters of the merger play down the benefits of independent competition while ignoring the potential harms that reversing course could have on competition.

Experience around the world shows that having four or more rivals results in more competitive pricing, and a greater diversity of service offerings – a virtuous circle that helps reduce barriers to adoption and innovation. This is vitally important since Canada ranks poorly (32nd of 40 OECD and EU countries) when it comes to cellphone adoption.

Promoting independent competition is crucial for another reason: MTS is now the only operator in Manitoba providing unlimited data plans, both for mobile and home broadband. The days without expensive overage charges will be numbered if BCE's bid goes ahead. As telecom consultancy Rewheel has observed, wireless markets that go from four to three carriers usually see a steep rise in prices, and more restrictive data caps.

Evidence of the potential for harm from reduced competition in telecommunications and TV markets is not speculative. Both the CRTC and the Competition Bureau have found that the mobile wireless industry is not sufficiently competitive, and the former has taken action to constrain the national carriers' market dominance. Allowing Bell to take over MTS would thus not only deliver Manitoba into the hands of the three firms the CRTC and Competition Bureau have found to have collective "market power," but would effectively condone the unfettered exercise of that power before the remedies that regulators have put into place have had a chance to achieve their goals.

For all these reasons, regulators should just say no to the BCE bid.