Thoughts on Canadian Telecom Industry

“Prime Minister Stephen Harper said his government is sticking with controversial wireless industry policies despite the growing outcry from Canadian cellphone companies over what they call an unfair advantage for foreign competitors.

‘Our government has pursued extremely consistently and extremely clearly a policy of fostering greater competition in this industry for the benefit of consumers,’ Harper told reporters in Miramichi, N.B., in response to questions about the Canadian industry’s stance.

Earlier Friday, BCE Inc. president and chief executive officer George Cope warned Ottawa’s policies, including the rules for an upcoming spectrum auction, could lead to fewer jobs, less rural service and lower investment in the cellphone industry.”

  • Harper vows to stick to wireless plan, By Dana Flavelle, Toronto Star, Aug 09 2013

 

 

So let us review the history of Canadian Telecommunications Industry. In 1993, Sprint – a US telecom provider – came to Canada.  The reason was simple: in 1992, the CRTC allowed for long-distance competition in the Canadian telecommunications industry. In 2005, Sprint Canada was sold to Rogers Communication.

This story is not unlike AT&T’s venture in Canada. AT&T Canada came to Canada at the same time. It was funded by a number of banks and AT&T was the managing partner. Eventually, it was sold off to Manitoba Telecom Services (MTS) in 2004, after its tumultuous history: A history that included a bankruptcy, recapitalization and rebranding. 

Or consider that in the 1990’s, Canada had five independent cellphone players: Rogers, Bell, Telus, Clearnet and Fido. However, that all changed when Clearnet was bought by Telus. After that, it was difficult for Fido, a single, small independent player to survive. Consequently, Fido went bankrupt and was recapitalized long before Rogers bought them.

Anyone who knows the history of the Canadian telecom history knows that independent players have always tried to “bring competition” to the Canadian market. So the scheme dreamed up by the Harper Government to bring a “fourth” player into the Canadian Market is not original. Furthermore, the fate of Public Mobile, Mobilicity and Wind Mobile were almost rewritten on the wall before they began. Just think about it, as I noted in another blog post, Shaw Communications – a major Cable television, high speed internet, telephone, broadcasting and radio company; a company that has more than $4 billion dollars worth of revenue and a positive net income – also bought spectrum at the same time that Public Mobile, Mobilicity and Wind Mobile did. They decided to cut their losses and not proceed with trying to build a cellular network. Instead, Shaw turned their efforts to trying to develop a Wi-Fi Network. So maybe the market is not broken. Maybe Canadians are getting the service that they want and/or willing to pay for.

This increasingly seems to be the case. In recent studies, one thing has become clear: Canada cellphone rates – including voice and data – have decreased since last year, putting Canada in the middle of the pack internationally. Yup, “a typical package of mobile phone services – including voice, text, call display and voice mail features – has fallen by about 13 per cent year over year, said the study, commissioned by Industry Canada and the CRTC. (Canadians pay less for cellphone service than Americans, Luann Lasalle for The Canadian Press, as printed by Globe and Mail, Jul. 04 2013, 6:07 PM EDT)

Accordingly, the Government’s recent push to have Verizon come into the Canadian market place raises a number of questions. For example, why is the Harper Government thinking of allowing Verizon to bid on companies that Bell, Telus and Rogers cannot bid on. Evidence of this seeming inequity is obvious. Just look at the actions of the former Industry Minister, Christian Paradis. On June 4th, as Industry Minister he prevented the “the transfer of struggling Mobilicity’s wireless spectrum licences to larger rival Telus. The decision effectively killed Telus’s $380-million takeover bid for Mobilicity.” (Telus sues federal government over wireless policy, by CBC News, Last Updated: Jul 30, 2013 5:12 PM ET) In fact, it is so problematic that Telus is seeking judicial review of that decision.

It is often said by conservatives that the market, free of government control, will come to the most effective and efficient solution. In the Canadian telecom market that has often been the case. Since the 1980’s, Canada has seen an increasing amount of competition and market innovation from both the Cable and Telephone carriers. There has been such a dramatic change that one often has difficulty telling Bell, Telus, Rogers, Shaw or Quebecor from one another. In most parts of Canada, though, an individual has real choice. In fact, people are often substituting services. So why is it necessary to provide preferential status to an American telecom service provider that is larger than Rogers, Bell and Telus combined? Why not allow all of them the freedom to spend as much money as they want for any telecom player?

For the truth is there is no certainty that Verizon will actually bring competition to Canada. While many things are up in the air, a couple of things have become clear. Firstly, Verizon is hoping that the federal government will bring in regulation that requires the three dominate players to open up their infrastructure. (Telus boss rips ‘favours’ to Verizon as auction deadline nears, by Rita Trichur, Thandiwe Vela and Steve Ladurantaye, the Globe and Mail, Last updated Friday, Aug. 09 2013, 3:16 PM EDT). Consequently, it is clear that Verizon will not be adding any infrastructure for underserviced or urban areas.

Furthermore, if they are to remain profitable, one can see that Verizon’s Canadian operations will likely not participate in price wars like Wind Mobile, Mobilicity and Public Mobile have. Consequently, we are not likely to see better prices. Accordingly, the only way that Verizon can do a better job is if they use their clout (ie. their American operations). If they are able to provide a better margin, it will only be because they re-route all of their calls through the US. So if that is the situation, why wouldn’t the Canadian Government allow telecommunication or cellphone companies to have either more foreign investment or to be bought up by foreigners? However, this is only the beginning of the questions that need to be asked.

As I have said before, the best policy option is likely to have the federal government create a not-for-profit agency who manages the country’s physical infrastructure. That not-for-profit agency would buy up most if not all of the existing infrastructure. Consequently, most if not all of the cables, wires, cell towers and satellites needed could be upgraded regularly and the cost would be borne by the telecommunication industry. Because the private players in the Canadian Telecommunication Industry could rent the services required from the not-for-profit, so as to make their profits. For those who might argue that this solution is either unworkable or not market driven, I would ask you to look at our air transportation infrastructure. NAV CANADA is responsible for all civilian air traffic services. It charges a fee on each ticket for its services and since November 1 1996, it has kept our air safe. While looking toward Sweden, we can see that their government-owned fibre optic provider links the entire country on the same principle. As a result, they provide important infrastructure support to the country’s private market telecom providers.

If the Liberal Party of Canada’s aim is to provide smart policy – which enhances the lives of individuals – we need to criticize the Harper Government in this area because as it has been illustrated we have options that they are not taking. The Federal Government could assist the Telecom Industry through a conversation as to the industries future. However, the Harper Government has not done this. They have decided to have an approach which could be seen as either ideological, paternalistic or ignorant. Either way, a government from my point of view should take the facts as they are and come up with a solution that improves the lives of individuals and not restrict existing players or individuals who would like to come into a market. While I applaud new players, we cannot destroy what we have to get them. All stakeholders should be respected and this includes customers, incumbent players, new entrants, governments, labour and industrial users. With this in mind, I have to question the actions of the Harper Government in this field.

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