Industry Canada released the names of the bidders for its forthcoming spectrum auction yesterday with the disappointing news that no major new entrants will be using the auction to enter the Canadian market. That is rightly viewed as a big win for the incumbents, who should have little trouble acquiring the spectrum they want in the upcoming auction and will not face any new competition from deep-pocketed global wireless players. Instead, despite the persistent efforts of the federal government to convince new competitors to enter the market, the Big 3 will continue to dominate Canadian wireless services for the foreseeable future. With prices high by global standards and mobile broadband penetration lagging compared to other countries (an ITU study released over the weekend ranked Canada 32nd worldwide for mobile broadband penetration), consumers are the immediate and obvious loser for the moment.
Yet the incumbent victory did not come easily, coming at the cost of a scorched-earth public relations war with the federal government that the incumbents are already trying to downplay. However, having failed to address market concerns through new competitors, it may now fall to the government to shake things up through increased regulation. There are no shortage of options, with two big steps (the consumer wireless code that limits contract length and potential CRTC regulation of wireless roaming pricing) already underway. After yesterday’s release, Industry Minister Moore stated that “in addition to this auction, our Government will continue to aggressively pursue policies that ensure consumer interests are at the core of all Government decisions.”
What policies might Minister Moore have in mind?
In this case, the government need not hand the incumbents another victory by delaying much-needed policy reforms. Full pricing regulation is rightly viewed as a last resort, yet there are other possibilities. For starters, the elimination of foreign investment restrictions in both the telecom and broadcast distribution sectors as well as tougher tower sharing requirements and domestic roaming rules to make it easier for smaller players to expand their networks.
Another mechanism to generate more competition would be to create a regulated mobile virtual network operator market, a vehicle that Verizon reportedly explored using as part of a potential Canadian entry. MVNOs typically do not own spectrum or network infrastructure. Instead, they purchase network access at wholesale rates from existing operators and offer it to consumers with their own retail pricing. MVNOs such as Canadian-owned Ting have become a hit in the U.S. but are not even available in Canada. By setting the wholesale price, the government could use regulation to create a new batch of MVNO competitors in Canada, much as it has tried to do with Internet access services.
The other big alternative step is full structural separation. Peter Nowak has been advocating this approach for some time, arguing for splitting the incumbents into companies that manage phone and Internet networks and companies that offer services to customers. It is unquestionably a major market change, but with the Canadian wireless environment seemingly stuck in neutral, the government would receive well-deserved plaudits for taking bold action to address the ongoing competitiveness concerns.
Other Incentives?
Since this is new spectrum, there could be conditions applied to its use. Here are a couple more ideas…
1) The spectrum is auctioned, but as I understand it, only leased, not sold. The idea is that this is a public asset, to be used for the public good. So – use it or lose it. New spectrum could come with requirements to have a certain level of usage or the lease terminates. This makes it clear that the purpose of spectrum space is not to be bought and held to prevent someone else using it.
2) User device attachment requirements? Although the CRTC trimmed the longest contracts from three years to two, at the core most carriers still try to lock in by using the “zero dollars up front” option. I don’t think we can – or want – to outright stop carriers from doing that, but it makes it very hard to move to a condition of separate markets for consumer devices and consumer spectrum. It’s as though everyone bought their electrical appliances from their local electricity supplier. Right now, there is no effective market for standalone cellular devices, in part because that market is so small – because of the carriers offering zero dollar contract starts. Unbundling the device and spectrum would lead to better transparency, where consumers could better select each according to their needs. A starting point would be to require that a full range of plans be offered on the new spectrum even without a device. It should be possible to find a pay-as-you-go plan with no included minutes or texts, but a five gigabyte cap on data. Right now, you can only get big caps either by buying big included minutes, or, in some cases, by getting a particular (expensive!) device from the carrier. We’ll be better served if we are free to pick our device in one competitive market and plug it in to our pick of service options in another competitive market.
Forget spectrum. We need a Ting
@Tom Moore
Ting is just an aggregator/reseller and there are already lots of them in Canada if you want to go that route. Try 7eleven, Presidents Choice, Sears, etc.
The aggregator/reseller business model only works if you can sign up lots of customers at very low cost. It works for 7Eleven and Sears because they are marketing directly to their existing customer base and can use their existing distribution channels to keep their costs down. Ting is trying to keep their acquisition costs down by focusing on very dense markets (e.g select US cities) where their limited advertising can reach a lot of people quickly.
Structural separation, or varying degrees of market failure.
Structural separation is our *only* defensible course of action, given everything we now understand about the future roles of digital tools and networks in the development of economy, community and society.
I believe that both our government and telecom industry already know this, yet government has so far been unwilling to engage industry in what may be an epic battle to secure Canada’s demographic and economic future.
Bringing our telecom industry to heel is justification enough for structural separation, but there is a far more essential need.
There is no regulatory solution for the crippling liabilities of facilities-based competition, which a nation like Canada can least afford.
The most we can hope to achieve through regulatory reform is lesser degrees of market failure, because our economic geography simply cannot accommodate multiple competing networks.
We live in a global economy that depends increasingly on flows of knowledge and data.
Do we honestly believe Canada can remain a magnet for people and investment without a world-class and wide open digital ecosystem that minimizes the cost of moving and managing data, and that optimizes innovation and competition in digital services?
Early this year I asked a Google VP why they aren’t building data centers in Canada to take advantage of our cooler climate.
He said that Canada has plenty of dark fibre, but it costs far too much to access and use it… we aren’t even close to competitive with the U.S.
He also said that while it’s a real pain to deal with their own captive telecom regulator, it’s nothing compared to what we have to deal with up here.
Canada has almost everything going for it in relation to the global Digital Economy, but we are being held captive by rogue network operators who appear to have lost any meaningful sense of responsibility to the Canadian people.
We have granted them licenses to operate, and to use our spectrum and other public right-of-ways.
We have done this on the understanding that they would respect these privileges, use them wisely, and help us to meet our needs and achieve our ambitions as a nation.
Cut our roaming fees in half?
Why not throw us crusts of bread.
Our incumbent network operators have become highly skilled in the art of separating us from our money, and this now appears to be their only ambition in life.
Far from being trusted allies in building our nation’s digital future, they have become greedy-minded gatekeepers.
There can be no redemption for the serial abuses of market power and public trust that we have been enduring at their grubby hands, and we would be fools to trust them any further with our nation’s digital future.
It is time for our Federal Government to put this sad and sordid episode of our telecom history behind us.
Swing the hammer hard, and break our telecom industry in two.
Unleash our potential for digital entrepreneurship, and forge a much brighter economic future for Canada.
THAT would be sound economic stewardship, Mr. Prime Minister.
@ Iames
I guess you didn’t see yesterday’s CRTC report that showed yet again that Canadians pay less than Americans for telecom services and enjoy a greater level of service. Or the CRTC’s July report that also said wireless prices were lower than the US but roughly middle of the pack compared to other developed countries.
There is no doubt that Canadians believe they pay more than anyone else in the world for cell phones and internet but the hard data continues to disprove that premise. There is nothing more dangerous than an incompetent government going off to fix problems that may or may not be real. The $2 billion we spent on a national gun registry is a good example of what to expect when that happens.
Since the current economic crisis began in 2008, Canada’s telecom sector is one of the few industries in North America that continued to make substantial capital investments in our economy. If we continue adhoc tinkering with the rules for how that industry competes and invests we’ll continue to scare off potential foreign investors like Verizon.
On the surface it’s not clear what, if any, macro benefits we should expect from structural separation of the telecom industry. Has structural separation of the electric utility industry done anything for consumers? Electricity costs are significantly greater than they were 15 years ago and the grid is far less reliable (brownouts are now routine across the country).
In contrast, the cost per minute on my cell phone has dropped more than 80% since 2000, my internet connection is 20x faster for the same price I paid 15 years ago, and I can get an amazing smartphone for $200 compared to $1500 for the basic flip phones that were so cool 15 years ago.
I have little faith that structural separation will deliver any benefits to consumers whatsoever.
The Last Resort Plan
You know what, Mister Moore? The most aggressive thing to do would be to build the next Petro- I mean TeleCan. Do it. Forget fighter planes and Avro Arrows; pulling an Australia could be the Next Big Thing, Mister Minister. That is precisely what I advocate today.
The Last Resort Plan
You know what, Mister Moore? The most aggressive thing to do would be to build the next Petro- I mean TeleCan. Do it. Forget fighter planes and Avro Arrows; pulling an Australia could be the Next Big Thing, Mister Minister. That is precisely what I advocate today.