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McKenna: Ottawa looks misguided, almost desperate, on telecom policy

You've probably heard Verizon Communications Inc.'s familiar wireless slogan: "America's largest and most reliable mobile network."

Verizon's pitch is telling for what it doesn't promise: cheap rates for consumers. The U.S. telecom giant, which already has three times more wireless subscribers than there are Canadians, thrives on market dominance and high levels of service. Low prices aren't necessarily its thing.

And yet Ottawa, whose policy of promoting competition in wireless has the explicit goal of lowering prices, is going to considerable lengths to entice Verizon to come to Canada – efforts that border on desperate.

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Senior executives at Canadian telcos claim that federal officials went down to New York recently to court the Americans. The government is preparing to give new entrants such as Verizon a chance to buy a bigger share of the most valuable slice of wireless spectrum ever put up for grabs in Canada. And it's almost driving ailing upstart carriers, such as Wind Mobile and Mobilicity, into Verizon's wealthy arms by blocking other would-be Canadian suitors.

Canadian incumbents BCE Inc., Rogers Communications Inc. and Telus Corp. are steamed about all this, particularly as they have watched billions of their stock-market value vaporize. But that's beside the point. What's good for the Big Three and their shareholders isn't necessarily in Canada's best interests.

More troubling is that Ottawa is relying on Old World industrial policies to stage manage an industry that's in the midst of a 21st-century transformation.

Canadian mobile data traffic is poised to explode in the next few years. Cisco Systems Inc. estimates Canadian traffic will grow nearly 60 per cent a year between 2012 and 2017. The number of mobile devices will nearly double.

BCE, Rogers and Telus naturally want to keep as much of that growth for themselves. Ceding the spoils to this "entrenched and cozy oligopoly" – as Wind Mobile chief executive Anthony Lacavera calls the trio – would be just as misguided as granting special privileges to Verizon in the Canadian market.

Ottawa is relying on a regulatory regime that was designed for a time when the cellphone industry was in its infancy. This mixed bag of rules treats broadcasters and telecoms differently, shields incumbents from foreign takeovers and awkwardly tries to nurture upstarts.

It's not working. These efforts have spawned smaller, inefficient networks built by new entrants, without obviously delivering better rates and service to Canadians. A report prepared for Canadian Radio-television and Telecommunications Commission and Industry Canada found that while Canadian wireless rates have come down in recent years, they're still higher than in OECD countries such as France, the United Kingdom and Australia.

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Ottawa has so far ignored an elegantly simple solution: Stand back and let the market figure out how to deliver what consumers want. A good place to start would be to eliminate all foreign ownership restrictions, not only in telecom but in broadcasting as well.

This idea isn't exactly a revelation. At least one of the incumbents – Telus Corp. – has long been calling for just that. The C.D. Howe Institute's Competition Policy Council, made up of leading academics and competition lawyers, has also urged an open border policy.

There are better ways to promote Canadian content and ensure Canada-wide service than to put up walls to protect large incumbents. The rationale for blocking Verizon from, say, acquiring Telus is dubious. Ottawa can always fall back on the Investment Canada Act if it objects to a particular purchaser.

Allowing foreigners to buy smaller carriers (those with less than 10-per-cent market share), as the government did last year, was a half-measure that hasn't produced results.

Protecting the incumbents or rigging the rules for foreign players similarly won't deliver what Canadians deserve.

The C.D. Howe's Finn Poschmann, who heads its Competition Policy Council, said Ottawa's goal of demanding four carriers in every regional market is unrealistic in a country as small as Canada.

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"The best way to foster competition is with big competitive networks," Mr. Poschmann argued. "Four won't survive in the market, but two or three will. And if the government would lighten up on the regulation, and straightforwardly allow foreign entry, we'd get to find out whether the right number is two or three."

It should not be about favouring Verizon, BCE or any other company. It's about creating an environment that brings out the best in all the players. Imagine the benefits to consumers and businesses of wireless providers that are able to operate seamlessly across North America, without roaming charges.

An open border could lead to the demise of one of the incumbents. It could also mean Verizon or other powerful foreign players come to Canada.

Ottawa shouldn't be afraid to stand back and let it happen.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More


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