Federal government’s approach to wireless has failed: study

The federal government’s meddling in the wireless market over the past seven years and its focus on bringing a fourth carrier into every region has failed to bring about meaningful competition, according to a new study from the Montreal Economic Institute. The report’s authors, Martin Masse and Paul Beaudry, wrote that, in trying to promote competition, Industry Canada and the CRTC have ignored market realities and “lost sight of the ultimate goal of promoting the development of a dynamic, efficient industry.” Beaudry and Masse said in their report, released Tuesday, that the “artificial competition” brought about by regulatory interventions will not help to lower prices. Jake Enwright, press secretary to Industry Minister James Moore, said in an email on Tuesday that Canadians know competition is good for everyone. “Competition lowers prices and keeps businesses from becoming complacent,” he said. “In fact, as a result of our actions, the average cost of wireless services in Canada have decreased by nearly 20 per cent while jobs in the wireless sector have increased 25 per cent since 2008.” Iain Grant, a Montreal-based telecom analyst with the SeaBoard Group, said the federal government should be given credit for some of its policies toward the wireless sector in recent years. “Consumer mobile prices have plummeted since 2007, when the government began its current approach to competitive stimulus,” he said in an email. “Investment in infrastructure has soared, customer service had improved and Canadians’ adoption of wireless devices has risen. “Sure, the policies were not perfect, and sometimes government is slow to tweak, respond, hone its approach,” he added. The federal government found itself the focus of criticism in its approach to the wireless sector during a panel discussion at the New Developments in Communications Law and Policy conference held in Ottawa last week. Beaudry and Masse found fault with the assertion that Canadians are ill served by the incumbent carriers, BCE Inc., Rogers Communications Inc. and Telus Corp. Canadian wireless prices, they wrote, are higher than those in Europe but lower than those in the United States and Japan. Those lower prices in Europe provide a disincentive for carriers to upgrade their networks with better coverage and new technologies, they added. “Pricing is not the be-all and end-all of telecom,” Beaudry said in a phone interview on Tuesday. “We have to look at the quality of service that Canadians have access to.” The report also noted that Canadians are among the heaviest users of wireless services in the world. “This does not constitute a proof, but it is certainly an indication that Canadians enjoy competitive, quality services,” the report said. Masse and Beaudry contended that the government’s stated goal of having a fourth wireless carrier in every region will not necessarily ensure more competition and better prices for consumers. “Government regulators often think they can implement policies that will lower prices, and hence the profitability of telecommunications companies, without affecting their willingness to innovate and invest in new technologies,” the report said. Capital spending in the wireless sector has increased 35 per cent in Canada since 2007, compared with an increase of 51 per cent in the United States and a decline of four per cent in the European Union, according to 2012 figures from Navigant Economics, quoted in the Montreal Economic Institute’s report. Europe was once considered a leader in mobile service, Beaudry and Masse wrote, yet “investments on that continent have fallen behind North America and Asia in recent years and European markets also lag considerably in terms of the deployment of 4G networks.” They pointed to the 2008 AWS auction, in which the government set aside spectrum for new-entrant and regional carriers, as the first in a series of policy interventions meant to encourage competition in the wireless sector that did not achieve its goal. “These artificial measures to encourage competition; this is what's wrong,” Masse said in the interview. “It has probably encouraged small players who did not have the means and business model to be sustainable in the long term to enter the market and now, six years later, they're gone or almost.” Masse said the companies that could have invested in wireless, such as Eastlink, Quebecor Inc. and Manitoba Telecom Services Inc., did not need the set-aside spectrum. “All these interventions, they just lead nowhere,” Masse said. “They just delay the efficient allocation of spectrum and lead to billions of dollars invested for nothing, essentially wasted.” Other policy interventions such as the suspension of some foreign investment restrictions in 2012, the 2013 introduction of the CRTC’s wireless code and the threat of new financial penalties for telecom companies that run afoul of the CRTC have all been to no avail, according to the report. Beaudry and Masse argued that if the Canadian wireless market were uncompetitive and ripe for disruption, an existing telecom company such as Verizon Communications Inc. or Shaw Communications Inc. would have entered it by now. “If wireless prices were so high and services so bad in Canada, as many critics claim, and the opportunity for a new player to enter the market and make a profit were consequently so obvious, why did Verizon and Shaw pass up this opportunity?” they wrote. The authors noted that Verizon would have benefited from “favourable auction rules” for 700 MHz spectrum this year that limited how much the big three incumbents could buy, as well as potential “regulatory privileges” from a government hungry for competition. The government’s attempts at regulation could be dangerous, Beaudry and Masse warned. In supporting new entrants, the government could regulate its way out of a level market where disruptive technologies can thrive, Beaudry said in the phone interview. “It's an industry that's extremely capital intensive,” he said. “ are investing billions of dollars every year. The market is changing by the year. There are new technologies all the time. We don't know where the market will be in five years.” Mariam Diaby, a spokeswoman for the Montreal Economic Institute, said in an email that the study had not been approved or reviewed by “anyone related to the corporate world, be it telecommunications or otherwise” before publication. She said while some members of the institute are from the telecom sector, some would agree with the content of the paper while others would “strongly disagree with our conclusions and recommendations.” The group’s website says that 70 per cent of its funding comes foundations, 27 per cent from businesses and three per cent form individuals. It says it does not disclose specific donors because this would provide an opportunity for similar organizations to solicit them for donations. — With reporting by Peter Henderson at phenderson@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

Federal government’s approach to wireless has failed: study

News | May 6, 2014

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Federal government’s approach to wireless has failed: study

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