Canada's Big Three cellphone companies are running scared, and it's pathetic to watch. The mere hint of foreign competition has corporate Canada circling the wagons in an effort to keep U.S. giant Verizon from moving north. But what else would you expect from the Canadian Council of Chief Executives, whose CEO sits on the board of Telus, the No. 3 wireless provider, whose CEO sits on the board of the CCCE? Cozy corporate Canada still takes care of its own.
What has Rogers, Bell and Telus in such a tizzy is Ottawa's move to allow foreigners to purchase fledgling wireless providers (those with minimal market share) and prevent the Big Three from monopolizing the airwaves that carry cellphone signals. The country's main business lobby, the CCCE, has joined the Big Three in claiming that the policy "discriminates" in Verizon's favour.
That's rich coming from some of the world's most protected telecommunications companies. Long-standing foreign-ownership restrictions have left Canada with firms that, while big at home, are global nobodies. While global wireless providers have become the norm – think Orange, Vodafone or T-Mobile – Canada's coddled players have no international presence.
One result is that Canadians have historically paid more for wireless services and gained access to new services and technologies later than consumers in other countries. Prices have come down since Ottawa's last attempt to inject competition into the sector (it set aside airwaves for new entrants in 2008). But an independent report done for the federal government this month showed that, for most users, rates still "fall on the high side of the [developed world] average."
The Big Three trot out Canada's low population density as one reason for higher cellular prices here. That's a red herring, since Canada has one of the developed world's most urban populations. Far more Canadians live in cities than Italians or Germans. It's not as if the the Big Three have cell towers along every back road from Toronto to Tuktoyaktuk.
The real reason Canadians have faced higher prices and three-year contracts is that the Big Three form a largely unregulated oligopoly. They have acted to prevent competition by buying up "disruptive" players (innovators such as Microcell), or stopping new entrants from gaining a foothold (the case now with Wind, Mobilicity and Public Mobile.) It all smacks of "parallel exclusion," which Columbia University law professor Tim Wu describes as "efforts by an entire industry to keep out would-be newcomers."
The Big Three say they're not against Verizon coming to Canada. They just want Ottawa to set such onerous terms of entry – such as forcing a foreign firm to build its own infrastructure instead of piggybacking, at least initially, on the incumbents' networks – that none would try.
The truth is that Canada is hardly unique in allotting exclusive rights to bid on blocks of airwaves (known as wireless spectrum) to small or new industry entrants. Indeed, across Europe, it is the preferred means of stimulating wireless competition.
Even in the United States, the Department of Justice recently noted that auction rules favouring smaller players "could improve the competitive dynamic among nationwide carriers and benefit consumers." The DOJ, the country's competition cop, also warned that a "large incumbent may benefit from acquiring spectrum, even if its uses of the spectrum are not the most efficient, if that acquisition helps preserve high prices."
What makes Canada a wireless outlier is that it still restricts foreign ownership. Almost every other developed country has dropped such restrictions. In the U. S., Verizon Wireless, which is looking to move north by acquiring Wind and Mobilicity, is 45-per-cent owned by Britain's Vodafone. T-Mobile is controlled by Germany's Deutsche Telekom. And Sprint was just bought by Japan's SoftBank.
Verizon would play a very different role in the Canadian market than it does south of the border, where it's one of the big incumbents consumers love to hate. Here, it would be the "challenger brand" seeking market share with aggressive pricing and innovative services. With deeper pockets than Wind or Mobilicity, it could weather losses longer than a traditional start-up.
Canada seriously needs the competition. The McKinsey Global Institute recently identified the mobile Internet as the most important of the 12 "disruptive" technologies that will transform the global economy over the next decade. The firm predicts that, by 2015, wireless Web use will exceed wired use in the United States. Canadians can't afford to be left behind.