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Much to the chagrin of consumers, wireless prices have nowhere to go but up now that carriers have spent heavily on 5G spectrum – thanks in no small part to the government’s own auction rules.Melissa Tait/The Globe and Mail

The Trudeau government has got itself in a pickle over its telecom policies as they launch into a federal election campaign.

Consumer prices for wireless services are expected to rise after carriers spent a whopping $8.91-billion in a government auction of 5G airwaves.

Analysts predict that carriers, which still need to make major investments to upgrade their networks, will pass on those costs to consumers. What’s more, they say the government’s auction rules precipitated this problem by inflating spectrum costs for large carriers.

The spectre of rising wireless prices will haunt the Trudeau Liberals on the hustings. Not only did they promise to improve affordability during their 2019 election campaign, they set a specific target of reducing the average cost of cellphone bills by 25 per cent over two years.

“Canada is often viewed as a country with relatively high retail prices for mobile services,” telecom consultancy Lemay-Yates Associates Inc. said in a report. “High prices for spectrum paid in auctions will ultimately flow to consumers, helping to keep prices high.”

The most recent auction was for licences in the 3,500 MHz band, mid-range spectrum that is well suited to provide coverage and capacity for 5G networks.

Auction proceeds, though, blew past expectations. Canada set a “world record” for prices of mid-band spectrum licences, according to Lemay-Yates.

Analysts say a limited supply of airwaves and the government’s decision to set aside, or reserve, a portion of available spectrum for bidding by new entrants drove up prices for established carriers.

Jerome Dubreuil of Desjardins Securities Inc. called the spectrum auction results “a thorn in the side of 5G profitability prospects” for carriers.

Moody’s Investors Service, meanwhile, said the auction was “credit negative” for industry players, noting the Big Three (Rogers , Bell and Telus ) and other providers also need to spend heavily on network upgrades and to acquire more spectrum licences in 2023 and 2024.

“The high price of spectrum auctions, including the impact of the set-aside structure on the Big Three, raises costs and therefore consumer prices, even as Canada’s government strives to reduce consumer costs while also encouraging the telecom companies to maintain reliable networks that keep Canadian customers connected at all times,” Moody’s report states.

Here’s another uncomfortable truth: It’s completely rational for businesses to raise prices when their own costs rise. That’s why consumers become collateral damage when governments pursue misguided policies.

That brings us back to the Liberals’s promise to lower wireless bills. The Trudeau government wants the Big Three, in particular, to reduce prices on mid-tier service plans (those that offer two to six gigabytes of data) by 25 per cent. The first quarter of 2022 is their deadline to get it done.

Sure, prices have fallen on some mid-tier data plans, but carriers have also predictably discontinued certain plans targeted for price reductions. In any case, mid-tier plans will become obsolete in a 5G world.

“Looking forward, even after the 25-per-cent reduction is met we will continue to pursue policies to make wireless services more affordable, including through our spectrum policies and keeping providers accountable for their pricing,” said John Power, a spokesman for Minister of Innovation, Science and Industry François-Philippe Champagne.

What the Liberals really need to do (if they form the next government) is ensure their wireless policies aren’t working at cross-purposes. Sustainable market competition ought to be the goal. At the very least, there needs to be a rethink of auction rules, including the set-aside policy for new carriers.

Sure, that policy helped Quebecor pick up 294 wireless licences during the 3,500 MHz auction, but its national expansion plans remain a mystery.

Moreover, it was curious to hear Quebecor president and chief executive officer Pierre Karl Péladeau tell analysts on Aug. 5 that while his company will continue to invest to have a full 5G network, “we consider there is no rush to do that.”

As Quebecor bides its time, wireless is shaping up to be a sleeper issue during the federal election campaign.

“We’ll speed up the spectrum auction process to get more spectrum into use and apply use it or lose it provisions to ensure that spectrum is developed‚ particularly in rural parts of our country” said Conservative Leader Erin O’Toole, who is also pledging to connect all of Canada to high-speed internet by 2025.

The NDP, meanwhile, would pursue various measures, including price caps for cellphone and internet bills, and requiring telecoms to provide unlimited wireless data options at “affordable rates.”

Let’s get real. No matter which party forms the next government, implementing price caps and targeting unlimited data plans for price reductions would wreak havoc on the industry and the broader economy. Such moves would destroy the profitability of major carriers, torpedo network investments and kill jobs.

That means, much to the chagrin of consumers, wireless prices have nowhere to go but up now that carriers have spent heavily on 5G spectrum – thanks in no small part to the government’s own auction rules.

Therein lies the rub with Ottawa’s wireless policies. Consumers love to hate the Big Three. But if those carriers falter, Canada loses its path to 5G.

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