If the federal government really wants healthy competition in the wireless market, it should just do away with the limits on foreign ownership and other regulations, a new report says.
The analysis published Monday by the right-of-centre Fraser Institute is the latest input into the heated debate on the upcoming auction of valuable wireless spectrum.
The big three Canadian providers — Bell, Telus and Rogers — are furious that current rules might allow an American giant like Verizon to bid at the auction.
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As the system works now, the government limits how much of the spectrum the big "incumbent" companies can buy up, in order to encourage smaller players to come to the table. That theoretically would stimulate competition across Canada and ultimately keep prices down.
But those smaller players — Wind Mobile or Mobilicity for example — could be bought up by a firm like Verizon, which would theoretically have an easy time snapping up the spectrum that is off limits to the incumbents. Because those big Canadian firms aren't allowed to bid on all the spectrum available, that could drive down the size of auction bids and give Verizon a potentially good deal.
The report, written by senior Fraser Institute fellow Steven Globerman, argues there is no evidence that handicapping the incumbent companies does anything to improve efficient competition.
'By setting up rules that handicap the three large Canadian telecoms … the federal government is effectively subsidizing new entrants and promoting inefficient competition.' —Fraser Institute fellow Steven Globerman
"By setting up rules that handicap the three large Canadian telecoms and favour small or new players in the marketplace, the federal government is effectively subsidizing new entrants and promoting inefficient competition. This could make most consumers worse off, rather than better off," Globerman says.
"Given conclusive evidence that the wireless sector in Canada is workably competitive, there would be clearly no conceptual case for competitive handicapping," writes Globerman.
He says that getting rid of the remaining barriers to foreign entrants in the Canadian marketplace would create fears of hostile takeovers of the big three companies, thus creating an incentive for them to be more efficient.
"For one thing, it would expose the incumbents to the threat of a takeover by a more efficient foreign-owned company. That’s a discipline on management to use assets efficiently," Globerman told CBC's Lang O'Leary Exchange.
"Second, it’s an attractive way for foreign companies to enter on a large scale and quickly."
Telus says 'bring it on.'
"We've been on the record since 2001 calling for Ottawa to lift restrictions," Telus spokesman Shawn Hill said Monday. "It would open up Canada to real competition. Bring it on, [so long as it is] on a level playing field."
Rogers, for its part, said it welcomed competition from "any company, foreign or domestic."
"We believe this is an important debate and the Fraser Institute's report adds another perspective," the company said in a statement. "It's clear that the government needs to re-examine their wireless policy.
"Spectrum is a natural resource and the lifeblood of Canada's wireless networks. It's important that the government do the right thing and change their policies so that massive foreign companies aren't given preferential access to this precious natural resource."
Support for Ottawa's rules
Technology commentator Iain Grant of the Seaboard Group said it was "odd" that the Fraser Institute is talking about throwing open the market to more foreign players when, in fact, Vimpelcomm, a Dutch company twice the size of Verizon, is selling Wind.
He also said the report failed to address the way Bell, Rogers and Telus have already become more competitive in response to Wind and Mobilicity entering the market.
"The only reason that the marketplace works so well in 2013 is due to the government's steps to encourage a broader competitive market framework in 2007-2010," he said in an analysis of the report.
Grant said he supports Ottawa's plan to limit how many blocks the big three can bid on in its September auction of spectrum as well as the 10 per cent restriction on foreign ownership of Canadian companies.
Telecom overlaps broadcasting
Since many telecom firms are in the broadcasting business, the Fraser Institute report says the limits in that industry should also be eliminated — a foray into the cultural realm that no Canadian government has wanted to make.
Globerman says the government already has good levers at its disposal for making sure the industry is competitive — namely the Competition Act. In the absence of handicaps in the auction, the Competition Tribunal would evaluate major acquisitions and mergers, and hear complaints about anti-competitive behaviour.
"The elimination of all foreign ownership restrictions ... and reliance upon the Competition Act to deter acquisitions of spectrum that threaten to reduce competition, as well as to discourage any abuses of market dominance that raise rivals' costs or otherwise suppress competition, seem quite adequate competitive safeguards," he writes.
Industry Minister James Moore has already signalled he will not be changing either the date or the rules around the auction, scheduled for January 2014.
The big three telecom companies have been taking out full-page ads and have launched a campaign called "Fair for Canada," arguing Verizon would be getting preferential treatment under the current auction rules.