Telus Corp. is warning Canadian regulators not to follow Europe's example in favouring regulations that encourage "artificial" competition and sap investment in wireless networks.
The Vancouver-based wireless carrier was the first of the three large incumbents to appear at a weeklong Canadian Radio-television and Telecommunications Commission hearing on the market for wholesale wireless services – the rates wireless carriers charge competitors when their customers roam outside their home network.
In a broader argument against strict roaming rules, Telus introduced some European expertise. Georg Serentschy, a telecom consultant and former Austrian regulator, told the panel that overregulation in Europe led to underinvestment in infrastructure.
He said the cost of wireless services in Europe may be lower than in Canada, but the region now lags on the rollout of next-generation LTE services.
"I encourage Canada's regulator not to recycle Europe's failed policies, but rather to learn from them," he added.
Ted Woodhead, Telus's senior vice-president of regulatory affairs, asked the commission to abolish caps the federal government introduced on wholesale rates in June – or to at least ensure rates are not set "arbitrarily low."
Telus said low caps would force it to curtail capital spending, likely beginning with cuts to rural expansion efforts.
Mr. Woodhead also objected to Cogeco Cable Inc.'s proposal to mandate access to the incumbents' towers and spectrum for mobile virtual network operators (MVNOs) who do not own their own airwaves. He said Telus doesn't have enough capacity to make that happen.
"We're out, the bus is full, there is no spare spectrum or capacity lying around to support what [Cogeco CEO] Mr. [Louis] Audet was talking about," Mr. Woodhead said.
Mr. Serentschy said Europe pursued a regulatory course based on what he called "artificial competition" at the service level rather than encouraging competitors to build their own networks. This was based on what he says was a flawed theory known as the "ladder of investment," the hope that those who rent access to networks will eventually build their own facilities.
"I'm not aware of any successful stepping up of all the rungs," Mr. Serentschy said.
But the Canadian Network Operators Consortium – a group that represents smaller network operators – argued Tuesday that an MVNO model can lead to further infrastructure investment.
It cited an Australian example in written filings and said Tuesday that the model could give a small cable company or Internet provider the flexibility to invest in cellular spectrum if it becomes available and move "up the ladder" to becoming a wireless operator.
Chris Tacit, counsel for CNOC, also urged the commission to reject Telus's argument that it would stop investing if it faced overregulation.
"Every time the spectre of regulated access is raised, this is the comeback," he said, referencing similar arguments in the 1990s, when regulators mandated access to wireline networks. That eventually led to the creation of a number of Internet providers such as TekSavvy Solutions Inc. and Distributel Communications Ltd. that operate core networks but purchase wholesale access to the "last mile" of the incumbents' cable or telephone networks into customers' homes.
Mr. Tacit noted that mandated access hasn't prevented the incumbents from investing heavily in new fibre buildouts to replace outdated cable and telephone lines.
"We don't think [the threat of cutting off investment is] credible for the same reason we didn't think it was credible in the wireline world," Mr. Tacit said. "The reality is that the three of them, from a network evolution perspective, have to keep up with each other. None of them can afford to fall behind."
CNOC also questioned Telus's argument that it does not have the capacity on its network, arguing if that were the case it would not be actively fighting for new retail customers.
Greg MacDonald, head of research at Macquarie Capital Markets Canada, said he agrees that excessive regulation played a part in the slower rollout of LTE networks in Europe and believes rules mandating MVNO access could lower network investment in Canada too.
However, he noted that if competition is limited to carriers that actually own wireless networks – such as Wind Mobile, which could benefit from lower wholesale roaming costs – "we think incumbents would likely increase network investment as a competitive response."
Scotia Capital Inc.'s Jeff Fan says the problem in Europe was that regulators tried to maximize the number of competitors and the CRTC has not set a similar goal. In fact, commissioners noted several times on Tuesday that they were not focused on the presence of a fourth carrier as a marker of sufficient competition. Mr. Fan said if new entrants such as Wind, Quebecor Inc. and Eastlink Wireless in the Maritimes can convince the regulator they will continue to invest in their networks even if they benefit from low roaming rates, "then the European argument seems less relevant."
Mr. Fan added that stock price valuations for the incumbents are high, leaving room to fall before their returns fall below the cost of capital required to ensure investment.