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Ottawa's rules handicapping Canadian telecoms won't guarantee increased wireless competition

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Release Date: August 26, 2013

VANCOUVER, BC—If Ottawa wants to provide Canadians with more choice and competition in the wireless marketplace, it should apply the same rules to both domestic and foreign firms operating in Canada and remove restrictions on foreign ownership of telecommunication companies, recommends a new study published by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

“The goal of achieving and maintaining a competitive market is not the same as having a minimum number of competing firms,” said Steven Globerman, Fraser Institute senior fellow and Kaiser Professor of International Business at Western Washington University.

“By setting up rules that handicap the three large Canadian telecoms and favour small or new players in the marketplace, the federal government is effectively subsidizing new entrants and promoting inefficient competition. This could make most consumers worse off, rather than better off.”

The issue of increasing competition in the Canadian wireless market leapt to the top of the federal government’s agenda recently when Canada’s three largest telecoms, Bell, Rogers, and Telus, launched a campaign opposing what they said were unfair rules for a January 2014 wireless spectrum auction. The federal government has limited each of the three Canadian firms to bidding on only one of four available blocks of wireless spectrum while setting aside two blocks for smaller firms or new entrants.

In his study, An Assessment of Spectrum Auction Rules and Competition Policy, Globerman, who is an expert on trade and investment and a former consultant to Industry Canada and the CRTC, concludes the existing Canadian wireless marketplace is competitive. An attempt to entice a fourth major telecom to enter the Canadian market by imposing rules and regulations that disadvantage the existing three large domestic firms will not necessarily improve things.

Instead, Globerman recommends removing the 10 per cent restriction on foreign ownership of Canadian telecoms, broadcasting, and cable companies to allow foreign investors to enter Canada on a larger scale through mergers and acquisitions. Such a move, he argues, would increase competition and provide tangible incentives for wireless companies to improve service and pricing for Canadian consumers.

“Relaxing foreign ownership limitations would allow for new entrants to better compete with Canada’s big three telecoms,” Globerman said.

“Just the threat of a takeover gives companies a greater incentive to provide customers with better pricing and service.”

Globerman points out that many people miss the fact that any anti-competitive behaviour by large established wireless carriers could be dealt with through the existing Competition Act, which is better suited for dealing with resulting mergers or acquisitions that may arise from removing foreign ownership restrictions. This would also eliminate the temptation of governments to arbitrarily impose other regulatory prohibitions on spectrum acquisition or other assets.

“There are more efficient ways to bring additional competition to Canada’s wireless market that don’t require unfairly handicapping the existing large Canadian telecom firms,” Globerman said.

“If the Canadian government is willing to rely upon market competition to maximize the consumer benefits of wireless telecommunications, it could do so immediately by lifting foreign investment restrictions.”



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