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Government's Wireless Policy Still Not Connecting as it Kills the Telus - Mobilicity Deal

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Tuesday June 04, 2013
Industry Minister Christian Paradis surprised some analysts this morning by announcing that the government would not approve Telus plans to purchase Mobilicity. The decision is entirely defensible. The government established clear rules on transfers of spectrum that was set-aside in 2008 that prohibited transfer to incumbents within the first five years. The Telus deal (along with the proposed purchase of Shaw spectrum by Rogers) violated that requirement. To kill the deal is actually to provide greater marketplace certainty by making it clear that the spectrum policy rules will be enforced.

The problem is that the government appears to be doubling down on a single bet - that the combined spectrum of the new entrants (Mobilicity, Wind Mobile, etc.) can be pulled together into a single, viable competitor.  That was the message the government sent when it lifted foreign investment restrictions for the new entrants and allowed them to grow beyond a ten percent market share. Yet by maintaining a host of other barriers to a strong, competitive wireless environment, the government's policy is still on the verge of collapse. All the new entrants are struggling and the incumbents continue to bet that those competitors will eventually disappear or be acquired after the five year moratorium expires.

The government needs to do more than simply buy time by enforcing the five year spectrum set-aside rule. As I argued this week, there are a host of other possibilities, including fully opening the market to telecom and broadcast distributors (so a new foreign entrant can offer bundled packages that includes television), tough rules on domestic roaming and tower sharing, a full set-aside in the forthcoming spectrum auction, or a regulated wholesale market to create a strong class of MVNO competitors.  Some would go further. For example, Peter Nowak argues today for structural separation.

Regardless, the government's half-measures and incremental policy moves are a failure. Yesterday, the CRTC took care of its side of the bargain by firmly addressing several longstanding consumer concerns and establishing an enforceable code of conduct. It now falls to the government to admit that its approach to date has failed and that it stands ready to aggressively address the competition concerns within the Canadian wireless market.
Comments (10)add comment

Jackd said:

Nowak..
Nowak is the same clown who claimed that you could get 4 phones in Portugal for the price of 1 in Canada, when the cost of ownership on like phones and like plans are near identical between the two countries. I'd argue that he should pick up a book and learn what words mean.
June 04, 2013

Jerry said:

...
The CRTC did as little as possible.
They did not address roaming or tower sharing in a meaningful way.

2 year contracts as opposed to three year contracts is a distinction without difference. The last round of changes ended early termination fees. The only cost presently is the defrayed cost of the hardware.

Without competition the 3 major players will just increase prices in lockstep to defray the cost of the hardware over three years instead of two.
June 04, 2013

Crockett said:

Competition is the answer ...
But will this government be bold enough to truly open up the market? The Big 3 only have themselves to blame for the current blowback, if they had been more responsible (aka less greedy) then there would be less acrimony to deal with.

Now to please the populace the government is going to have to crack a few more eggs for the omelette.
June 04, 2013

Marcus said:

Competition Yes, An Effective Oligopoly Today No
I like Michael's option of a Regulated wholesale market. Historically within the wireline space it has a history of working. The system established hundreds of ISP's, voice and data network re-sellers from the 1990's onward. The Incumbents have experience with this concept as does the CRTC with systems and processes established. In addition, the Carrier Services Group within the largest Incumbent was known to be the most EBITDA rich business unit in the Company when I was around there. A win/win for all.
June 04, 2013

Shelagh Rogers said:

What about the market structure?
Why not separate the spectrum+towers+backbone from the sales+customer service. That is separate the nationally sensitive capital intensive natural monopoly, from everything else.

Dictating a 2 year contract norm is not good. Why not 18 months, why didn't this happen earlier, etc.? Why look at that one aspect, but not the fact 2 people pay for every call or that customer service is generally closed if you live in the wrong time zone? Trying to exert direct control will create problems faster than it solves them.

We need to change the problem so that it reliably optimizes to a desirable outcome, especially one that we can't even foresee today.

I propose, infrastructure = Canadian owned, earns income based on transferring data as a commodity over distance. There is a guaranteed moderate rate of return because demand is not in question, government controls spectrum/tower siting, and it anticipates the natural monopoly of a network requiring a lot of time+money to build out. Allow small players to link into the network, without discrimination, if the big network has not already provided a certain feature or service based on their doubt of its viability.

All the rest are services that have very low entrance requirement, and does not risk concern about national security preventing foreign investment. These are functions such as selling phones, designing payment terms, customer service, tech support, voice mail, billing, partnerships with other brands, etc.

Why don't we do it this way already? It seems obvious to any student of technological or economic history.

There is no magic trick of auctioning off spectrum to the highest bidder and hoping for slimmer profit margins on better quality service and availability. Do not trust the economists advising the process who do not believe--as a matter of faith--that huge amounts of money can be made by spending a smaller sum to block competition.

A healthy marketplace has many new entrants, whether they fail or not.
June 04, 2013

Tombs said:

...
Mr. Geist makes a bold assumption that foreign carriers would be interested in buying one or more of the big three (they can already buy any of the incumbents and Wind is already owned by Vimpelcom). I cant imagine any foreign carrier investing in the banana republic of Canada where business rules are manipulated to serve the governments consumer populist objectives.
June 06, 2013

Tombs said:

...
@Shelagh Rogers

Remember the gun registry - the $5M database that cost more than $2B by the time it was finished? That is what happens when governments own infrastructure projects.

The cost to make a phone call will go up by at least 100 times.
June 06, 2013

Darryl said:

@Tombs
Well the government owns all the physical roads, and that is working out pretty well for all of us. Well, except for the 407 and look how expensive that one is! Can't imagine 407 tolls being higher than they currently are if that road was still in public hands.

So no, one cannot assume that just because it is government owned it will necessarily be more expensive. In fact when we are talking about a monopoly, public ownership is about the only way to ensure we are not getting hosed.

Public ownership of the "last mile" as well as the breaking up of the telecom conglomerates so they can no longer own ANY content producing media companies, would go a long way towards creating a healthy competitive environment that any real red blooded capitalist should be boldly supporting.
June 06, 2013

Tombs said:

...
@Darryl

I don't think we can fairly compare a cellphone network that is constantly being upgraded with new technology (roughly every 12-16 months in Canada) with asphalt roads based on 50 year old technology. I think most Canadians would argue that our municipal governments do an exceptionally poor job of maintaining our aging road systems.

Even private companies struggle to keep up with cellphone network technology. I'm currently in Paris and 50% of the city is still stuck with GSM (1G) technology. There are some pockets of 2G and 3G but I didn't see any sign of LTE yet. Vodaphone hasn't activated any LTE in London yet either.

In contrast, all the big carriers in Canada have blanketed the major cities with LTE. We Canadians are quite spoiled with the latest technology compared to the residents of Europe's two biggest cities and we don't even know it. I can't imagine how our government could keep up with the latest technology at costs comparable to the private sector.
June 06, 2013

KH said:

...
The spectrum really should have been a use-it-or-lose-it rule. I could accept Wind or Mobilicity being bought up Shaw under that provision. But as it stands now it looks like the CableCo's Shaw and Videotron bought the spectrum just to sit on it and then sell it at a profit their earliest convenience. What should happen is that the government buys back the spectrum from Shaw and Videotron that they didn't use for the same amount they originally bought it for (so it's a net-loss for them) and then do-over the auction again with a stipulation that:
- New wireless carrier (be it existing telecom companies with no significant wireless service, or Telus/Rogers/Bell spin off their discount brand Koodoo/Fido and they buy it)
- The spectrum must be fully utilized in 5 years or it get's returned to the government.

As I stated before, what harmed the new carriers was that they came into being at a time when people were switching from dumbphones to smartphones, and since AWS spectrum couldn't be used on iPhones, these carriers got stuck with spectrum that they couldn't utilize with the market leading device. The result is that they are offering competitive plans with noncompetitive devices.

Like if Wind and Mobilicity hold out another 2 years, they might actually get iPhone 5 and later devices onto their network. But they still lack 850/1900Mhz spectrum and thus won't get roaming revenue from foreigners like the big three do.

June 08, 2013

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