The best way to think about the proposed acquisition of Shaw Communications Inc. by Rogers Communications Inc. is first to ask: Why do we have a telecommunications industry in the first place? What is telecommunications for? What, come to that, is an economy for?
Is it to give people something to do with their hands? Or is it to make goods and services that people can use at a price they are willing to pay? Is it, in short, about production, or consumption? Producers or consumers?
On this Adam Smith, the founder of economics, was in no doubt. “Consumption is the sole end and purpose of all production,” he wrote, “and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.”
And of course he was right. If production were an end in itself, it would not matter what was produced. We could produce yards of stuff that no one had any use for – only the more of society’s productive resources went into making things people didn’t want, the less would be left to make things people did want.
By contrast, the more nearly producers attend to the consumer interest – the more nearly they are obliged to attend to it, because of competition from other producers – the better. Not only will the composition of output improve, but so will the volume.
The consumer interest, then, is not just another interest to be weighed against the producer interest. It is the primary interest, to which the producer interest should be strictly subordinate. By promoting the interests of consumers, we promote the broader public interest.
I would not belabour this point, were not so much of public policy devoted to the very opposite notion: quite literally, that the purpose of consumption is production. The onus, in this view, is not on producers to serve consumers, but on consumers to serve producers. If they will not pay producers willingly, they should be made to do so by law.
Sometimes this takes the form of subsidies to failing businesses (see: “strategic industries”). More often the pelf is distributed by means of some scheme of regulation – whether limits on supply, which restrict competition and drive up prices, or more explicit price regulation. It does not matter, in the latter case, whether the professed aim of the scheme is to keep prices down or up, for the effect is usually the same: to keep prices higher than they would be under free and open competition.
Back to telecoms, then, and the Rogers-Shaw deal. There can be little doubt of the impact of Rogers’s purchase of Shaw, and of Shaw’s wireless telephone unit, Freedom Mobile, on prices for wireless telephone service. Freedom is the only player of any size in the Canadian wireless industry outside of the Big Three – Rogers, Bell and Telus, which together control more than 90 per cent of the market. That Rogers has promised not to increase wireless prices for three years only tells you how confident they are of their ability to raise prices in the longer run, once Freedom is taken out.
So: block the deal? Unlikely: there’s no particular impact on consumers of Rogers buying Shaw’s cable operations, as the two serve different parts of the country. Force Rogers to spin off Freedom? Fine, but that leaves us with the status quo: wireless telephone charges that, even with Freedom’s sporadic competitive stimulus, rank among the highest in the world.
Rogers is already working hard to head off that possibility, in any event, conjuring visions of all the wondrous goodies to flow from the deal: the money it will spend upgrading its network to 5G, or extending broadband internet across rural Canada, or creating jobs. It hopes people won’t know where the money comes from, and it hopes the regulators won’t care. And it may well be right.
What would policy look like if the interests of consumers mattered a whit? Competition – full, free and open – would be the default mode of public policy, not some unimaginable last resort. What we’ve had until now are fragile simulacra of competition, carefully controlled to nurture that most delicate of hothouse flowers, the domestic wireless startup.
Thus, for decades spectrum was set aside at auction for smaller competitors, at advantageous rates – only to see them quickly gobbled up by one of their larger rivals. Remember Wind Mobile? That’s what Freedom Mobile used to be called, before Shaw bought it. How about Mobilicity? Rogers bought it. Public Mobile? Swallowed up by Telus.
Nowadays the talk is all about resale: forcing the Big Three to sell access to their networks to competitors, known as mobile virtual network operators, at a regulated price. Maybe it will help at the margin, but it’s a highly artificial arrangement, rife with conflict of interest and dependent on constant calibration by the regulator.
Rather than trying to gin up domestic competition out of nowhere, we could just stop prohibiting competition, from the only place it is likely to come: outside our borders. Technically foreign wireless operators are allowed to enter the market, but they are effectively deterred from doing so, in part by the raft of “service” obligations the regulators have piled on the industry (again, paid for by consumers). Neither are they allowed to establish a competitive beachhead in the market, by acquiring one of the Big Three.
That will never change, so long as we remain stuck in the dominant producerist mindset. It isn’t just telecoms, after all. Why do Canadians pay among the highest air fares in the world? Because the Canadian airline industry is a protected duopoly. Why do we pay among the highest mutual fund fees in the world? Because the financial services industry is reserved to a handful of Canadian banks and other players. Why do we pay twice the market price or more for such staple foods as milk, eggs and poultry? Because these industries are organized as state-supervised price-fixing rings.
I remember, during the great free-trade debate of 1988, a union leader warning it would bring “dog-eat-dog competition” to Canada. He need not have worried. Across much of the Canadian economy, the prevailing thrust of policy remains the same: to enable both dogs to feast on consumers.
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