This is wireless week in Canada with the CRTC unveiling its consumer wireless code on Monday and Industry Minister Christian Paradis scheduled to make an important wireless announcement on Tuesday morning in Ottawa. In anticipation of the focus on telecom issues, my weekly technology law column (Toronto Star version, homepage version) assessed whether Canada’s failed wireless policy can be saved.
The column opened by noting that earlier this year, Industry Minister Christian Paradis released the Canadian government’s strategy to increase competition in the wireless sector. Acknowledging the challenges, Paradis promised to “continue to pay close attention to what is going on and to make sure that our policies reflect the fact that we want to achieve the goal of having more competition.”
Paradis recently characterized the Canadian wireless pricing as “middle average”, but it appears that the situation is about to become even worse for Canadian consumers. The incumbents, who bet that the new entrants would be little more than a short-term blip in the market, kept their prices steady, deploying cheaper flanker brands to compete for cost-conscious consumers. If the new entrants exit the market, most analysts expect prices to quickly rise.
The question now facing Paradis and the government is what can be done to address competition concerns that affect consumers and business alike.
The starting point may be to acknowledge that the last round of policy initiatives failed. A spectrum set-aside in 2008 opened the door to new entrants, but enormous barriers remained. These included the slow relaxation of foreign investment restrictions that created significant problems in accessing capital, the lack of availability of the most popular devices (such as the Apple iPhone) on new entrant networks, and the inability to offer attractive bundled packages that include wireless, television, and home broadband services.
There are primarily two things that will drive corporate behavior in any market – competition and government regulation. In the absence of robust competition, regulation is needed. The Canadian government should be doing all it can create a more competition, but it must also commit to regulation – even if temporary – until that competitive environment develops.
There are several regulatory options available that may ultimately enhance competition. First, the government should toughen tower sharing requirements and domestic roaming rules to make it easier to new entrants to expand their networks. Further, it should remove all foreign investment restrictions (currently only smaller operators may be acquired). In fact, it should consider opening up the broadcast distribution market so that all competitors can offer bundled packages.
The government could also rethink its approach on the forthcoming spectrum auction. While it would be unpopular with the incumbents, a full set-aside geared toward new entrants would virtually guarantee changes to the competitive landscape. Companies such as Bell and Rogers already possess large blocks of unused spectrum and the auction may be the last chance to create a strong, national fourth carrier.
Another mechanism to generate more competition would be to create a regulated mobile virtual network operator market. 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.
On the consumer side, the Canadian Radio-television and Telecommunication Commission’s wireless code of conduct, which was released today, is the starting point for regulation of retail wireless services. The code effectively sets a two-year limit on wireless contracts, creates caps on data roaming fees to address bill shock, and requires that carriers offer device unlocking services.
A complete removal of foreign investment restrictions for communications companies, a full spectrum set-aside, and regulated wholesale pricing seemed unthinkable a few years ago. Yet as the wireless policy failures mount, the government must act boldly if it wants the Canadian market to be anything better than “middle average”.