As the lobby onslaught from Bell, Telus, and Rogers bears some fruit – editorials from the Globe and Toronto Star calling for the government to reverse its position on a set-aside as well as support from the Canadian Council of Chief Executives and from a leading telecom union – it is worth considering whether the Canadian policy differs significantly from other developed economies. The Canadian policy boils down to the two issues: opening the door to telecom foreign investment after years of restrictions and creating a spectrum set-aside to ensure that new entrants (whether domestic or foreign) have a reasonable shot at winning sufficient spectrum to offer competitive wireless services in Canada.
While the big three argue for a “level playing field”, the reality is that Bell, Telus, and Rogers already enjoy enormous marketplace advantages. As I’ve previously discussed, 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 companies millions of dollars. In the absence of a set-aside, the incentives for the big three would be to pay far above market price for the spectrum in order to keep competitors out of the market. In other words, Bell, Telus and Rogers will massively over-pay for the spectrum to keep out Verizon unless the government establishes a policy that precludes them from doing so.
The incumbent talking points might lead some to believe that the Canadian policy is dramatically different from other countries (Bell has been talking about how the U.S. would never grant equivalent access, while the Globe speculates that perhaps the policy is “the result of a drafting error”). Yet a review of recent spectrum auctions in other OECD countries indicates that the twin policy of encouraging foreign investment plus establishing set-asides to facilitate competition is very common. The biggest difference between Canada and many other developed economies is that Canada is late to opening its telecom market and is therefore doing both at roughly the same time. In other countries, foreign investment restrictions in the telecom market were removed years ago.
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