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It's time for the federal government to admit its efforts to broaden competition in the wireless phone industry have largely been a bust. The government should then move to Plan B: a full surrender of outdated foreign ownership rules, rather than the piecemeal, half-measure, paternalistic approach that has created little credible competition for the incumbents players outside Quebec and left everyone scratching their heads.
As the Globe reported Friday, three of Canada's small wireless companies who were supposed to bring greater competition to the market – Mobilicity, Public Mobile and Wind Mobile – are for sale, and giant Telus Corp. is in talks to buy Mobilicity.
All three are estimated to have average revenue per user of less than $30, well below the $50-plus level of the incumbents, and their market share is minuscule: All new competitors had a combined share of just 4 per cent of Canada's 27.4 million wireless subscribers as of the end of 2011, according to the Canadian Radio-television and Telecommunications Commission Meanwhile, a lawyer for Mobilicity (legally known as Data & Audio-Visual Enterprises Wireless Inc.) said in a recent court appearance that the company "is going through some very tough times financially ."
Their challenges have been considerable. The upstarts have had difficulty convincing consumers to switch out of multi-service "bundled" offerings from the incumbents, while the cost to break long-term wireless contracts is high. Much growth has come largely from undercutting the incumbents, hardly a sound long-term strategy.
Industry Minister Christian Paradis – who wants to see at least four carriers in each market – has pleaded with foreign telcos to invest more in Canadian wireless. But he hasn't helped the situation, announcing recently that Ottawa is reviewing its policy on transferring wireless licences at the same time as it prepares to auction new licences on the powerful 700 MHz frequency later this year. That has created uncertainty among the small players, further limiting their access to capital and leaving investors worried about the "liquidity of spectrum assets," Mobilicity said in a recent government submission.
In fact, the government's whole approach has been characterized by delays, dithering and herky-jerky policy moves that make it hard for anyone to figure what might be coming next. For example, the government loosened foreign ownership restrictions last year, allowing non-Canadians to buy up to 100 per cent of domestic wireless firms that have a market share of 10 per cent or less. But, as Telus CEO Darren Entwistle rightly pointed out this year, the change creates a "tilted" playing field that gives an unfair advantage to "opportunistic" foreign investors over domestic incumbents.
If the government had its way, it would likely push for some of the weaker, smaller players to merge and create a credible fourth competitor across several markets. But that would be just one more example of government meddling to create the solution it wants, not necessarily the one the market desires. Why not, as Mr. Entwistle suggests, instead begin to fully liberalize the telecommunications industry instead?
Either way, the established telcos will win: by gobbling up the weaker new entrants, or by selling out to big U.S. companies like Verizon or AT&T. But if the government ultimately wants to declare victory for Canadian consumers, opening the market to full competition and foreign ownership is the best way.
Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Sean on Twitter at @seansilcoff .
Sean Silcoff