Another Church report blasts efforts to ‘enhance’ mobile competition

University of Calgary economists Jeffrey Church and Andrew Wilkins are back at it, criticizing government attempts to bring more competition to Canada's wireless sector and insisting those efforts amount to a subsidization of non-viable companies by taxpayers with no justifiable benefit to consumers. In Church and Wilkins’ latest report, released Tuesday, the pair argue there is little evidence that Canada's wireless market does not have sufficient competition, that policies implemented by the government have supported businesses that would otherwise be unviable, and that these interventions have limited the innovation and products that customers might otherwise enjoy from wireless incumbents BCE Inc., Rogers Communications Inc. and Telus Corp. "One wonders how long the federal government and its agencies will continue the failed policy of attempting to 'enhance competition' in wireless markets beyond its natural limit and what the final cost to Canadians of an economically vacuous commitment to the proposition that competition is measured by the number of competitors," the report concluded. The arguments were similar to ones Church and Wilkins made in a report released last September. This time around, Church and Wilkins criticized counterpoints that have come forth in the intervening period from the Competition Bureau, which said in May, among other things, that a fourth national carrier could result in up to $1 billion a year in benefits to consumers. Church and Wilkins noted in this latest paper that the assertion was derived from a report by the Brattle Group, commissioned by the Competition Bureau, which said retail prices in wireless would fall by about two per cent as a result of a fourth national carrier. "The benefits of entry determined by the Brattle Group are not reliable and, if anything, likely overestimate the effect of entry," the two academics said in the report. James Reitzes, a Washington D.C.-based principal with the Brattle Group, said in an Tuesday email that he and his team "stand by our report," though he would not comment further due to the report being among the materials the CRTC is using in its ongoing review of the wholesale wireless market. Mélanie Beauchesne, a spokeswoman with the Competition Bureau, said in an email that her office is "confident in its experts’ findings. The Bureau will address challenges to its evidence and the evidence of its experts in the CRTC’s ongoing proceeding." The latest Church and Wilkins paper outlined some of the various means the federal government has used to try to bolster competition in the wireless sector. For example, it noted how Industry Canada has either limited spectrum that can be bought by incumbents or provided set-aside bandwidth for new entrants in past AWS and 700 MHz auctions, as well as in the upcoming AWS-3 auction. Looking at the AWS auction in 2008, which helped launch Wind Mobile, Mobilicity and Public Mobile (now owned by Telus), the report said: "Instead of allocating AWS spectrum to the incumbents, who would use it to increase the speed and capacity of their data networks, it has instead been allocated to entrants who have focused on voice and text. As a result, Canadians ended up with an incorrect mix of networks (e.g., at least three additional networks with a focus on voice and text) and an inefficient allocation of spectrum (too little to the three incumbents to meet rising demand for data transmission)." In reference to rules that will reserve 60 per cent of spectrum in next year's AWS-3 auction for "operating new entrants" in areas where the spectrum is available, the report said that "there will be a transfer from Canadian taxpayers — as owners of the spectrum — to shareholders of these firms ." The report also noted price caps for domestic roaming that were set as a result of this year's budget bill, and a review by CRTC that is expected to result in more regulation on domestic roaming prices. The paper said that "using wholesale roaming rates as a mechanism to subsidize what would otherwise be unviable entry may have unintended consequences. If competition is artificially sustained, firms may find their margins squeezed such that they do not earn sufficient quasi-rents to recover their investments." In response to this report, Jake Enwright, press secretary for Industry Minster James Moore, said in an email that, thanks to the government's policies, wireless prices have dropped 22 per cent since 2008 "and we will continue to support policies that lead to more choice and lower prices for Canadian wireless consumers.” Wind Mobile chief regulatory officer Simon Lockie likened this latest report to "kicking a dead horse," while adding in an email that it "is even more puzzling given that it comes mere days after the CRTC found that Rogers has been unjustly discriminating against Wind for years, which it could not have done without the market power this report argues they don't have." He was referring to a decision issued by the CRTC late last month that said Rogers has committed "unjust discrimination" in domestic roaming agreements with "certain new wireless providers," one of which is presumed to be Wind. Lockie added: "The CRTC's determination is a clear and unquestionable validation of the government's imposition of roaming caps. This measure and measures such as spectrum set-asides are not subsidies of new entrants; they are the base conditions needed to ensure much-needed sustainable competition for Canadian consumers in a sector that direly needs it." Bell CEO George Cope, in an Aug. 7 conference call to discuss the company's second-quarter financial results, said that in 18 of Canada's top 20 markets, there are at least four wireless carriers already. "People keep writing that we're suddenly going to have a new fourth carrier," he said. "We've had a fourth carrier in those 18 markets for six years. How they're capitalized, how they're not capitalized, how they're successful in execution will just remain to be seen in the marketplace." — With reporting by Derek Abma at dabma@thewirereport.ca and editing by Peter Henderson at phenderson@thewirereport.ca

Another Church report blasts efforts to ‘enhance’ mobile competition

News | August 19, 2014

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