Canadian wireless carriers by Michael Geist

Canadian wireless carriers by Michael Geist

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Can Price Caps or Virtual Competitors Solve Canada’s Wireless Pricing Problem?

Responding to years of consumer frustration with the state of Canadian wireless pricing, Canada’s political parties have propelled the issue on to the election campaign agenda. The telecom giants will disagree, but study after study has found that Canadians pay more for wireless services than consumers in most other developed economies. But though just about everyone agrees we have a problem, my Globe and Mail op-ed notes there remains considerable debate over what to do about it.

The NDP was first out of the gate with a proposal to establish price caps on wireless services. The party says that it will develop a system for price regulation by establishing guidelines in consultation with various stakeholders and comparative studies. Once implemented, carriers would be required to offer price-capped, low-cost plans and “affordable, unlimited family-based plans.”

Meanwhile, the Liberals launched their own proposal over the weekend with a promise to cut prices by 25 per cent over the next four years. Rather than relying on price caps, the party says it plans to work with the carriers “to offer plans comparable to global prices, plus an unlimited family plan”, create new competition by mandating wholesale access for new mobile virtual network operators (MVNOs) that pay for access to existing networks but offer their own pricing and plans, and set-aside future spectrum to make it easier for new entrants to enter the marketplace.

The choice between price regulation and enhanced competition highlights alternate visions of how to best address high consumer prices after years of efforts from successive governments that have had limited success. Unfortunately, both policies contain some serious flaws.

The NDP plan for price caps raises the prospect of less competition, not more. Assuming reasonable price caps that lower prices and maintain incentives to invest can be established, the market would likely shift to the top of the capped price. The result would be matching, price-capped plans from each carrier with little in the way of price or product differentiation.

The Liberal plan rightly emphasizes competition, but can’t seem to quit the need to impose regulations that reduce the number of competitors or their ability to shake up the market. Their plan doesn’t remove the remaining foreign investment restrictions and it envisions limits on MVNOs based on “their commitment to creating jobs, developing skills, or investing in research.” In fact, fully opening the market to MVNO competition would only be considered after two years, if prices in Canada do not decline.

Moreover, the Liberal promise to work with carriers to offer globally competitive plans seems unlikely to achieve very much. Indeed, anyone who has followed the wireless sector in Canada knows that those same companies deny there is a pricing problem, challenge the same data the government relies upon, and typically tie up regulatory measures in appeals and litigation.

What would a more effective plan look like?

First, the Liberal’s policy direction to the Canadian Radio-television and Telecommunications Commission (CRTC), which prioritizes all forms of competition, provides the right regulatory starting point. It could be improved by removing lingering confusion over how it intersects with an older 2006 policy direction that emphasized de-regulation. The 2006 policy should be repealed, effectively replaced by a pro-competitive, pro-consumer one.

Second, Canada should race to fully open its communications market to new competition. This would be best achieved by embracing MVNOs, setting aside spectrum for new entrants to the Canadian market, and removing the remaining foreign investment restrictions from the communications sector.

Third, the parties should reject calls for new fees or levies on wireless and Internet services. For example, it is difficult to credibly claim support for affordable wireless services while at the same time backing new fees on those services to fund the creation of Canadian content.

Fourth, the foundation of the future of Canadian communications policy should be affordability and competition. The government’s Broadcasting and Telecommunications Legislative Review Panel is set to unveil its recommendations early in 2020. With some groups anxious to impose new regulations and costs on Internet services, the parties should commit to consumer-focused policy reforms that keep prices from escalating further.

Fifth, the proposals require a measurable target to determine success. The 25 per cent price decline may sound attractive, but if other countries experience declines of 30 per cent or 40 per cent, it means that Canadians would actually be paying even more relative to consumers elsewhere. The better approach, similar to the one used for pharmaceutical pricing, is a benchmarking exercise that ensures that Canadians sit comfortably within the average costs found in other developed economies.

5 Comments

  1. Mitchell Leitman says:

    Has there been a comparative analysis of the Canadian and Australian wireless markets? I ask because I understand that service rates are much lower in Australia, despite having to build out service in a sparsely populated country (more sparse than Canada) with harsh terrain.

  2. Kelly Manning says:

    Requiring service providers to lease out unused bandwidth could help, but new providers would have to overcome a lot of hurdles.

    My view is that bandwidth should never be sold, unless it is managed by the equivalent of a public utilities commission. Aren’t “Hydro poles” usually the property of Telcos, installed on public rights of way and subject to regulation by Utilities Commissions to protect the public interest in them as a Common Carrier for telephone, cable, electricity, alarm companies, …?

    A similar approach should be used for bandwidth, which is really a public space. Utilities commissions should manage the spectrum for the best public benefit, rather than politicians auctioning it off for a 1 time revenue grab, regardless of the long term consequences for individuals and companies that use wireless communication.

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