The CRTC released it much anticipated decision on the wholesale wireless industry yesterday, painting the decision as fostering “sustainable competition, innovation and investment in the wireless services market.” The ruling generated supportive comments from consumer groups, community groups, new entrants such as Wind Mobile, and business analysts who thought that the CRTC might go further. The regulated wholesale roaming rates has attracted the lion share of attention, but the bigger story is what the Commission did not do. Indeed, given the CRTC’s finding on the competitiveness of the Canadian wireless industry, it should have done more to address the issue. Instead, it adopted a regulatory approach that suggests it thinks it knows the right formula for more competition and it has placed its bet primarily on a fourth national wireless player rather than on an environment that facilitates as much new competition as the market can support.
The Commission sets the stage for its decision by examining the state of the market and – despite repeated claims to the contrary from the large incumbent providers – concludes that there is a competition problem. For example, it notes that at the national retail level:
there has been very little change in retail market shares (either by revenue or by number of subscribers) in Canada in the past five years, despite entry into the market by several wireless carriers. While no company has a national revenue market share greater than 35%, the national wireless carriers collectively continue to have national market shares of more than 90% for both revenues and numbers of subscribers. The Commission considers that the barriers to entry into the retail market are very high. These barriers include not only access to spectrum, and the high cost of spectrum and of investment in facilities, but also the ability of wireless service providers to obtain wholesale mobile wireless services from other wireless carriers, in particular the national wireless carriers, at reasonable rates, terms, and conditions.
After examining the competitive state of wholesale wireless roaming in Canada, it concludes:
the Commission considers that the national wireless carriers collectively have the ability and incentive to, with regard to GSM-based wholesale roaming in the national market, maintain rates and impose terms and conditions that would not prevail in a competitive market. Therefore, the Commission determines that Bell Mobility, RCP, and TCC collectively possess market power in the national market for GSM-based wholesale roaming.
It reaches the same conclusion with respect to mobile virtual network operators (MVNOs):
the Commission determines that Bell Mobility, RCP, and TCC collectively possess market power in the national market for GSM-based wholesale MVNO access
Finally, it determines that the Bell, Rogers, and Telus networks are essential to wholesale roaming and MVNO access:
the Commission determines that wholesale network access to the GSM-based mobile wireless networks of Bell Mobility, RCP, and TCC is essential for their competitors to provide broad or national network coverage to their retail customers. As such, the Commission determines that GSM-based wholesale roaming and MVNO access provided by Bell Mobility, RCP, and TCC are essential.
Given these findings, Canadians could reasonably expect the CRTC to exercise its regulatory authority to remove competitive barriers and establish the necessary regulation to allow for smaller wireless companies to offer genuinely competitive services and for MVNOs to effectively compete in the market.
But that is not what the CRTC did. Instead, the CRTC put forward a very limited vision of wireless competition based predominantly on a few smaller players competing on the national stage. A viable fourth national wireless company would be useful, but a robust competitive environment should be about more than just that. Yet the CRTC stopped short of creating a regulatory framework to allow for robust competition. It will regulate wholesale wireless rates, which is a big win for companies like Wind Mobile. However, it will not directly address an assortment of other issues for those companies such as seamless roaming or call hand backs. Without these measures, the smaller players may still suffer from an inferior product.
Moreover, the CRTC stopped well short of facilitating an MVNO market in Canada. While it removed some barriers, it did not mandate MVNO access, claiming:
if the Commission were to mandate GSM-based wholesale MVNO access provided by the national wireless carriers, this permanent network access would likely discourage continued investment by wireless carriers, because they could rely on this access rather than investing in their own mobile wireless network infrastructure.
It is hard to believe that the Commission still believes claims that MVNO access would discourage ongoing investment by wireless carriers who emphasize each quarter to business analysts the scope of their investment and breadth of their spectrum holdings.
What the CRTC is really doing is saying it knows best what competition should look like: a fourth wireless player that offers economically viable if somewhat inferior national service. That vision falls well short of a vibrant, competitive market with as many players and as many different services as possible and makes it likely that the Canadians will have marginally more choice, but still fall well short of the situation in other countries where consumers experience greater choice, more business models, and better pricing.