Four wireless competitors one too many for Canada’s market: report

New entrants to Canada’s wireless industry are doomed to fail due to a “natural limit” on the number of competitors the market can support, said a report by a University of Calgary researcher. Jeffrey Church, a professor in the university’s school of public policy, said in the report released Thursday that Canada’s wireless industry is not facing a “competition problem” and studies that suggest otherwise are looking at the wrong statistics. He said an analysis of Canadians’ mobile use habits and Rogers Communications Inc.’s profit margins suggest the incumbents are not reaping the “excessive” profits that are characteristic of an uncompetitive market, and that policies to encourage more competition will reduce the incumbents carriers’ ability to improve their networks. “The government need not, and should not, intervene to promote competition on the basis that increased competition will lower prices,” the report said. “fforts to do so will likely be unsuccessful and inefficient.” A better approach to measuring competition in the industry, he said, is to measure the incumbent carriers’ profit margins, which he estimated at roughly 10 per cent. In the lead-up to its auction of prized 700 MHz wireless airwaves in January, Industry Canada has rolled out auction rules that limit incumbent carriers Rogers, BCE Inc. and Telus Corp. from acquiring more than one of four “prime” blocks of spectrum each. Those rules are aimed at promoting more competition in the industry. "Canada's largest wireless companies currently hold more than 85% of Canada's wireless airwaves and hold more than 90% of the Canadian market," says an Industry Canada website called "More Choice," which was set up to challenge the arguments of the incumbents. "Wouldn't it be nice to have more choice?" Agustín Díaz-Pínes, a telecom analyst with the Organization for Economic Co-operation and Development (OECD), told The Wire Report in July that markets with four competitors have “significantly more competition” than those with three, resulting in lower prices for consumers. “In many countries, we’ve seen competition and prices going up and down depending on how many competitors you have,” Díaz-Pínes said. “Our view is that you have significantly more competition with four—or five, as in some countries—than with three." Church said at a press conference on Parliament Hill Thursday that wireless markets in most countries with similar population characteristics to Canada have three established carriers, and that those with additional competitors have eventually seen the market contract to a “natural limit” of three. He said the high cost of building and maintaining wireless networks means new entrant carriers can’t attract enough customers to support themselves by catering to low-cost subscribers. Incumbents Bell, Telus and Rogers launched campaigns this summer that aimed to change the auction rules, which they said would allow a foreign competitor to unfairly acquire two blocks of prime spectrum while limiting them to one each. Leading U.S. provider Verizon Communications Inc. said this month that it will not enter the Canadian market through the auction, after previously mulling a market entry. BNN reported Thursday that the number two U.S. carrier, AT&T Inc., has also "looked at" entering the Canadian market, as has British telecom carrier Vodafone Group plc and Norwegian telco Telenor Group, though it was unclear how seriously the companies have considered Canada. Canaccord Genuity analyst Dvai Ghose said in a research note that there was a “low probability that a foreign carrier will enter .” Church said Thursday that the government’s efforts to limit how much spectrum the incumbents can acquire will reduce their ability to serve Canadians’ wireless needs. “t is also likely that consumers will be harmed because incumbents are denied spectrum, raising their costs (as they substitute capital for spectrum inefficiently), reducing the quality and coverage of their networks, and perhaps product variety, relative to what they might have been if the incumbents had more spectrum,” he said in the report. Church said the report was part of a digital economy research program at the University of Calgary's School of Public Policy. He said the project was funded by donors, including telecommunications companies, adding that the his research and the report were subject to a peer review process to ensure it wasn't biased. In a related development, AT&T said last week that it will develop fourth-generation LTE services on a previously underutilized block of the 700 MHz band, a move that could make that spectrum more useful to Canadian operators. The “A Block” was designated for mobile use in Canada and the U.S., though it was largely unused since it was considered to be located too close to over-the-air television stations' signals to be able to carry wireless signals without suffering from interference. John Donovan, AT&T's senior executive vice-president of technology and network operations, said at the Bank of America Merrill Lynch’s Media, Communications & Entertainment Conference in California on Wednesday that the company has developed a technological solution to reduce the risk of interference, and will roll out LTE services using that spectrum in late 2015. Adrian Foster, a spectrum expert and partner with McLean Foster and Co., said in a telephone interview Thursday that AT&T’s development of the A Block will encourage wireless device manufactures to begin making devices that can operate on that spectrum, allowing Canadian carriers to use that spectrum as well. “It’s just simply good news,” he said. While many industry players had assumed that spectrum would be eventually used for LTE, he said, its availability for use by 2015 would make the A Block a more coveted commodity in the upcoming Canadian auction. —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca --- CORRECTION: An earlier version of this story incorrectly identified Telenor as Finnish.

Four wireless competitors one too many for Canada’s market: report

News | September 12, 2013

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Four wireless competitors one too many for Canada’s market: report

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