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    Time for a New Plan: With Government's Wireless Strategy in Tatters, Regulation May Be Only Option

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    Tuesday January 14, 2014
    The federal government's spectrum auction starts today with its wireless strategy in tatters. Late yesterday, Wind Mobile announced that it was withdrawing from the auction, creating a new entrant vacuum that seems likely to leave some of the prime spectrum in major markets such as Ontario, Alberta, and British Columbia unlicensed and the hope for a renewed competitive wireless environment all but dead. Indeed, the marginal competitive gains of the past few years are now at risk and the government's vision of four strong competitors in every market looks like a pipe dream. The big three managed to scare off Verizon, while the federal government's mixed messages on foreign investment appears to have kept everyone else out.

    Having made wireless competition a key policy priority - supported by a national advertising campaign and commitments in the Speech from the Throne - Industry Minister James Moore has little choice but to pursue a different strategy. The government had placed its bets on improving the competitive environment organically through foreign investment and new entrants. With that strategy a failure (a government spokesperson claimed the auction will still be positive for consumers but made no reference to improved competition), it is time to focus instead on regulatory solutions. The move toward regulated domestic roaming represents a starting point (and presumably Wind Mobile's best hope given its lack of spectrum), but more will be needed. Removing all foreign investment restrictions, establishing a regulated mobile virtual network operator market, and even considering structural separation are some of the regulatory choices still available.

    If the government still believes that a competitive wireless environment remains a crucial economic concern, it cannot simply sit back as the big three carriers solidify their dominance in the upcoming spectrum auction and the prospect of viable competitors steadily disappears. The government should complete the spectrum auction and then move quickly to address the wireless mess with a strategy supported by targeted regulatory reform.
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    Verizon Says No To Canada: What Comes Next

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    Tuesday September 03, 2013
    With Verizon CEO Lowell McAdam stating yesterday that "Verizon is not going to Canada", the government's best hope for "more choice, lower prices, better service" may have been lost. The mere possibility of a Verizon entry into Canada sparked a massive lobbying campaign by the incumbent carriers, who used every tool at their disposal - huge advertising spend, direct lobbying, lawsuits, union protests, and favourable media on their own networks - to try to sway public opinion and pressure the government to change its approach. The government did not come close to doing so, recognizing that Canadian wireless pricing is high and that its proposed policies were consistent with many other developed countries. The companies claim the concern is merely about spectrum (not competition), yet companies like Telus applauded the government when the spectrum rules were first released in 2012 and it was only after Verizon indicated its potential interest in entering the market that the rules were characterized as loopholes and unfair.

    So what comes next?

    After the share price of the incumbents jumps up to reflect the premium the market gives to the lack of Canadian competition and the arguments that the government should delay the auction disappear, the government will be left with the same reality that existed before Verizon. As I noted in an earlier post, there are primarily two things that will drive corporate behavior in any market - competition and government regulation. On the competition side, the government must consider whether further steps are needed to entice significant new players into the market. These may include complete removal of foreign investment restrictions from both telecommunications and broadcast.

    In the absence of robust competition, however, regulation is needed. The Canadian government should be doing all it can create more competition, but it must also commit to regulation - even if temporary - until that competitive environment develops. The CRTC signalled a willingness to regulate roaming pricing last week, but that may only be the start of far more dramatic steps that are needed to bring Canadians more choice, lower prices, and better service.
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    Getting Signals Straight in the Great Wireless War of 2013

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    Tuesday August 06, 2013
    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. Ben Klass posted an exceptional response to Bell over the weekend that provided some perspective on Canadian spectrum allocation, while Peter Nowak once again took on Telus' speaking points on the issue.  My weekly technology law column (Toronto Star version, homepage version) notes that the incumbents 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.


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    Getting Signals Straight in the Great Wireless War

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    Tuesday August 06, 2013
    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 mgeist@uottawa.ca or online at www.michaelgeist.ca.
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