Wireless policies could lead to entry of ‘inefficient’ competitors: report

Canadian wireless policies that aim to promote competition by “handicapping” incumbent providers could encourage the entrance of “inefficient” wireless competitors and could run counter to consumer interests, a new report by the Fraser Institute said. Instead, the conservative-leaning think tank said, the government should further relax restrictions on foreign ownership of Canadian telecom services while relying on the federal Competition Bureau to block deals that wouldn’t serve the public interest. “reventing large incumbent carriers from unduly restricting competition in the future can and should be addressed through the Competition Act, rather than through ‘handicapping’ the competitive process, including spectrum auction caps,” said the report released Monday. “he likelihood of established carriers being able to restrict competition would be substantially diminished if all existing restrictions on foreign ownership in the sector were eliminated.” Wireless incumbents BCE Inc., Rogers Communications Inc. and Telus Corp. have launched campaigns in recent weeks that aim to change Industry Canada rules limiting them to a single block of “prime” spectrum in the upcoming 700 MHz spectrum auction, while allowing other players, including U.S. wireless leader Verizon Communications Inc., to acquire two out of four prime blocks in each region of the country. The government, which finalized the auction rules this March following two years of public consultation, has said those policies are designed to bolster competition in the wireless market by ensuring the presence of a fourth competitor to challenge the three incumbents in each region of the country, which would result in more choice and lower prices for consumers. In its report, the Fraser Institute rejected the idea that Canada’s wireless industry is less competitive than those in other countries because it lacks a fourth wireless provider. It argued that Canada’s wireless market is comparable to the U.S. market, which appears to be “effectively competitive,” and said there is “some indication” that Canada’s wireless carriers deliver better services at similar or lower costs than those in other countries. “Taken as a whole, the evidence points to Canada’s wireless sector being workably competitive in delivering relatively low prices and improved service offerings to consumers,” the report said. The institute said consumers could suffer if government policy allows less efficient competitors to enter the market and gain subscribers and spectrum at the incumbents’ expense. This could reduce the incumbents’ ability to take advantage of economies of scale or to roll out new services quickly, it said. At the same time, it said, the potential entry of a new “efficient” competitor could serve as an “important disciplining force” for incumbents, encouraging them to lower prices, reduce costs, and roll out new technologies more quickly. One way of encouraging efficient competition, the report added, is to reduce barriers to entering the market, including rules prohibiting foreign companies from acquiring large Canadian telecom providers or broadcasters. If those rules were removed, it said, foreign companies would be more capable of growing their Canadian businesses through acquisitions while the incumbent carriers would have an incentive to “use corporate resources efficiently” due to the threat of a potential hostile takeover. Jessica Fletcher, a spokeswoman for Industry Minister James Moore, noted in an emailed statement Monday that the federal government relaxed foreign ownership rules last year to allow foreign companies to acquire Canadian telecom providers with less than a 10 per cent share of the national telecom market. “Our Government has liberalized foreign investment rules, and we are implementing policies that will provide more choices for consumers,” she said. Rogers’ spokeswoman Jennifer Kett said in a separate emailed statement that it is now “clear” that the government should re-assess its wireless policy. “Spectrum is a natural resource and the lifeblood of Canada’s wireless networks,” Kett wrote. “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.” The Fraser Institute report also took aim at Industry Canada rules that could prevent the incumbent providers from acquiring smaller competitors by requiring the industry minister to sign off on any acquisition of those smaller players or their spectrum holdings. The government should instead rely on the Competition Bureau to review those acquisitions for potential anti-competitive impacts because the bureau is better positioned to evaluate their long term costs and benefits, the group said. “Furthermore, acquisitions that are reviewed should be assessed on the basis of their plausible efficiency gains, as well as their likely impacts on competition, which is what is called for under the Competition Act,” the report said. As part of their campaigns, the incumbent carriers have also said that a potential Verizon entry into the Canadian market will hurt rural areas because Industry Canada rules would not require the U.S. company to roll out rural services, and because the incumbents would be forced to invest more into competing against Verizon in urban markets. The Fraser Institute said the government should encourage rural investment by introducing a taxpayer-funded program to subsidize the costs of providing rural services or the costs of subscribing to them. The Fraser Institute report was released on the same day as a new Forum Research Inc. poll that said a majority of Canadians favour policies that would allow Verizon or another U.S. carrier to enter the Canadian wireless market so long as they are not given special advantages to do so. In the telephone poll of 1,189 Canadian adults released Monday, Forum said 57 per cent of respondents approve of Verizon’s potential entry, while 65 per cent did not want to see any U.S. provider given “preferred access” to Canadian spectrum. The poll, which was taken on Aug. 23 and which is accurate to within three percentage points 19 times out of 20, also found that 68 per cent of respondents believe a Verizon entry would lead to lower mobile rates in Canada, while 57 per cent believe it would lead to better services. —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Wireless policies could lead to entry of ‘inefficient’ competitors: report

News | August 26, 2013

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Wireless policies could lead to entry of ‘inefficient’ competitors: report

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