Federal attempts to promote more competition in the wireless industry are hurting consumers and preventing a more efficient industry, according to a report from the Montreal Economic Institute.
The report’s authors Martin Masse and Paul Beaudry point to Ottawa’s efforts to foster wireless start-ups through preferential treatment in spectrum auctions in an attempt to create a “fourth carrier” in the Canadian market.
“Fostering artificial competition through regulatory fiat leads to an inefficient allocation of financial resources, and ultimately hurts the consumer,” the report, titled The state of competition in the Canadian wireless industry 2014, says.
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The Montreal Economic Institute is known for its free-market approach to public policy issues and is financed, in part, by businesses, including some in the telecom industry. But the institute says the report was researched independently.
The report cites rules that prevent the resale of wireless spectrum and regulators blocking the sale of bankrupt Mobilicity to Big 3 player Telus as examples of distortion of the market by the federal government.
It claims the Big 3 – Telus, Bell and Rogers – are adequate to provide choice for consumers and have provided Canadians with fast, high-quality networks.
“Contrary to popular belief, with three national wireless players, and several regional ones, Canada is far from being an aberration among developed countries,” says Masse, adding that the federal government is acting in response to negative perceptions of the industry by consumers, rather than any need for intervention in the market.
“As Europe’s experience shows, high levels of government regulation and competition may bring down prices, but they also discourage investment and innovation,” Masse says in a news release.
He argues wireless capital expenditures fell by four per cent in the European Union between 2007 and 2012, meaning few customers had access to high-speed LTE or 4G networks. By contrast, investment in the network grew by 35 per cent in Canada and 14 per cent of mobile users are connected to the fastest networks.
The report is another skirmish in the battle between Ottawa and the Big 3 telcos over the structure of the wireless market.
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In the Fair for Canada campaign last year, the Big 3 argued Ottawa should not set aside spectrum in its fall auction for new entrants and especially if one of those new entrants might be American giant Verizon. In the end, the Big 3 snapped up the lion’s share of that spectrum.
The small players Ottawa allowed into the market in a 2008 auction also have a poor track record – Mobilicity and Public Mobile went into receivership and Wind is struggling, the MEI report said.
“These interventionist measures, including a controversial attempt to attract a large American provider by of- fering it extraordinary regulatory privileges, have not succeeded in ensuring the emergence of solid fourth wireless carriers in three of the largest Can- adian markets, namely Ontario, British Columbia and Alberta,” it said.
“On the contrary, it can be argued that these measures merely led to a waste of resources, which the government is exacerbating by preventing their reallocation through such actions as blocking the transaction between TELUS and Mobilicity.”
The report proposes liberalization of Canada’s foreign investment regime in the telecommunications sector and of spectrum licence transfer rules.