Another nail in Canada’s Competitive Cellphone Market: Yet another prediction to come true.

“The Harper government’s attempt to engineer more competition for the benefit of Canada’s 27 million wireless users has been successful in a couple of ways: Prices have fallen for the average customer, and service plans are now more flexible. The question is, for how much longer? The upstarts’ networks are still poor – both in quality and scope – and there is constant talk of consolidation among players that may be too financially weak to go it alone. Many believe the endgame will see the Big Three eventually consolidate their grip on the market by buying up their smaller rivals, returning the wireless industry to its former state as a cozy oligopoly.”

–          Canada’s newly competitive cellphone market at risk, Rita Trichur and Iain Marlow, Globe and Mail, Saturday, Feb. 11, 2012

So the Globe and Mail has finally heard the rumours that Bloomberg first reported months ago: the present cellphone structure is unsustainable. However, for those who read this blog, they would have been aware of this fact for months. Or put differently, if one looks at the structure of other country’s cellphone market, one could have seen that the new ‘competitive market was doomed to fail. For, in all other countries, there is a way to share existing telecom infrastructure. This is not the case in Canada.

Unlike Canada, most other jurisdictions brought forth competition with real substantive change to the landscape. In the American Case, the Telephone System – owned by AT&T – was broken up. Due to a case filed by the US Government in the early 70’s, the US Courts required AT&T to spin off , sell off or  divest itself of many underlying businesses. This disinvestment radically changed the US market. Firstly, companies were structure in such a way that they had to work together. For example, at first, Regional Baby Bells could only provide local phone services. Therefore, local customers had to find a long distance provider. This meant that local and long distance providers had to work together to ensure the seamless integration of services.

Furthermore, some of the facilities were given to other providers. Such that now, the US now has a viable market for independent cell tower network providers. Or put differently, in the US, cell phone companies can buy, build or lease their antenna service. This means that it is easier for a competitor to come to a market. Or put in the Canadian Context, if Canada had had independent cell antenna network providers, Wind, Mobilicity or Public Mobile might have saved millions, if not billions, of dollars in building out their network because in the short term they could have leased cell towers in various cities. Therefore, the maintenance of the core of philosophy of AT&T Corp- “One Policy, One System, Universal Service” – allowed the American Telephone System to incorporate viable and long-term competition into their telephony model.

In England, the story is a little different. While, they do have competition, they have a different market model. On the wire side, British Telecom was required to split itself into two sides: regulated and unregulated. The Regulated Side is the infrastructure side. This would include the antennas, wires, switching systems and the like. While, the unregulated side of British Telecom provides services to retail customers. Or put differently, the unregulated side connects the “last mile”.

The “last mile” is a telecommunications industry term which describes the person who connects a client to a larger network. So in other words, no network goes everywhere. Therefore, my phone provider buys services from other telephone, satellite, cable and communication companies to ensure that I have the illusion that my phone in Calgary seamlessly connects to Toronto, Montreal, New York, London, Tokyo, Jerusalem or Moscow. Therefore, in Canada, our last mile provider also has significant infrastructure. This is not the case in the United Kingdom.

For, British Telecom’s regulated side must sell services to other “last mile” connectors. Consequently, one does not need to build a lot of infrastructure to compete for consumers. A new company can either build facilities or lease phone lines from BT on the wire side of the Business.

This Universality on the traditional telephony side of the business has also extended to the cell side. For, major cellphone network operators open up their facilities as well. Therefore, Everything Everywhere, O2, Vodafone and Three allow over 20 other provides, including Virgin Mobile, Tesco, GiffGaff, ASDA Mobile and FamilyMobile, to rent or lease their cell tower times or facilities.

Consequently, there is a reason why Canada has some of the highest cell phone rates in the world. We have not applied the open, “mix and match” approach that has been used in much of Europe and the US. Accordingly, it is not surprising that in some countries also have a lively cell phone rental business. Or put different, openness and flexibility breeds more of the same.

In Canada, this needs to happen. Yet, our own cell phone providers are largely unwilling to tackle the problem. They understand that if they close their systems, the expense of creating another network in such a vast country is astronomical. This ensures the incumbent’s competitive advantage. Even Wind, with a large international partner, is having trouble. Like Fido, AT&T Canada, Sprint Canada or another of other attempts at competition, the present market is doomed to fail.

The truth is that unless the federal government intervenes with a vision and legislation, we will continue to have a handful of cable and telephone companies. For example, Rogers and Telus have always had closed systems. And while Bell Canada did allow Virgin on its network, Bell Canada bought them out for some unknown reason.

If you don’t believe me ask yourself this, why did Shaw – the second largest cable company in Canada and one of the largest telecom companies in Canada – decide that they were not going to create a cell phone network with the wireless spectrum that they paid several million dollars for. After indicating that they were going to build a cell company, Shaw changed its mind. Why? Size, Capitalization and Market Readiness were not issues. My argument would be that cost was.

Bell Canada and Telus already have network sharing agreements to reduce costs. Why would Telus and Rogers have bid for Microcell Communications – Fido’s partner company? The simple answer is the cost savings and improved service. Between integrating the facilities and customers, purchasing a failing cellphone company meant more to the incumbent players than we could ever imagine. So the truth is hard, most – if not all – of the existing start-ups with disappear through merger, acquisition or bankruptcy. This would even be true if the feds lower the foreign ownership restrictions. So unless telecom facilities are opened to competition we are likely to see a return to the Telecommunication Oligopoly that existed before.

One thought on “Another nail in Canada’s Competitive Cellphone Market: Yet another prediction to come true.

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