Appeared in the Toronto Star on August 3, 2013 as Setting the Record Straight on the Great Wireless Battle
The great wireless battle of 2013 continues to unfold with Bell, Rogers, and Telus – the big three incumbents that dominate the Canadian market – calling for “fairness” in Canadian telecom policy. Their concerns with the policy represent a notable shift, since they described it as “thoughtful and balanced” when it was unveiled by then-Industry Minister Christian Paradis in 2012. The same companies now say the rules will create a “bloodbath” since they fear the potential entry of Verizon Communications, a U.S. telecom giant with the power to shake up the Canadian market.
While the incumbents have framed the issue around fairness and a “level playing field”, the reality is that Canadian policies are strikingly similar to those found in many other countries that have sought to encourage greater competition. Moreover, the arguments around level playing fields conveniently omit the myriad of advantages enjoyed by the incumbents.
The Canadian policy boils down to the two issues: opening the door to telecom foreign investment after years of restrictions and creating limits on spectrum available to the incumbents in order to ensure that new entrants (whether domestic or foreign) have a reasonable shot at launching competitive wireless services in Canada. The fear is that in the absence of these policies, the incentives for the incumbents would be to pay far above market price for the spectrum in order to keep competitors out of the market.
Despite the longstanding objections of some incumbents to the removal of foreign investment restrictions (Bell has long been opposed or sought to delay reforms), Canada finds itself in a tiny minority of developed economy countries that still restrict foreign investment. In fact, in a 2010 consultation on the issue, the government noted that the OECD found that “there are 30 OECD member countries, and only three countries have investment and ownership restrictions that apply to all public telecommunication operators. These countries are Canada, Mexico, and Korea. Of the three countries, Canada has the most severe restrictions.” In response, Canada opened the market to those with smaller market shares, but retained restrictions on the larger players.
Not only is opening the market to foreign operators uncontroversial by global standards, so too is the use of spectrum caps or set-asides for new entrants to encourage greater competition. The OECD recently released a survey of all member countries on their spectrum allocation policies and found that the majority has implemented policies to encourage new entrants that could be seen to “disadvantage” the incumbents.
For example, Belgium, the Czech Republic, Germany, Hungary, Italy, Netherlands, Portugal, Spain, and the United Kingdom have all established set-asides that limit some spectrum exclusively to new entrants. Moreover, spectrum caps have been used recently in Denmark, Estonia, Finland, France, Norway, Slovak Republic, Sweden, Switzerland, and Turkey.
In the UK, the regulator Ofcom reached a conclusion much like the Canadian policy position:
Ofcom has concluded that UK consumers are likely to benefit from better services at lower prices if there are at least four credible national wholesalers of 4G mobile services. Therefore, in the interests of competition, Ofcom has decided to reserve a minimum amount of spectrum in the auction for a fourth operator.
Suggestions that Canadian policy is out-of-touch are inaccurate, as are claims regarding a level playing field. The current policy will create a framework that opens the door to foreign competition, yet the incumbents still enjoy enormous marketplace advantages.
These include restrictions on foreign ownership for broadcast distribution, extensive broadcast assets that Verizon could not touch, millions of subscribers locked into long term contracts, far more spectrum than Verizon would own, and shared networks that saves the incumbents millions of dollars.
Industry Minister James Moore has confirmed that the government remains committed to greater competition through its policy of foreign investment plus spectrum auction rules designed to facilitate new entrants. In doing so, he is following a well-worth policy path used around the world to encourage wireless competition.
Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can reached at email@example.com or online at www.michaelgeist.ca.