In a report — their second — the authors maintain there’s no compelling evidence Bell, Rogers and Telus have market power

Two Calgary economists are standing firm on their argument that Ottawa is wasting its time trying to promote a fourth wireless carrier in the country because Bell, Rogers and Telus are competitive enough.

In a paper released Tuesday, authors Jeffrey Church and Andrew Wilkins of the University of Calgary’s School of Public Policy rebut claims by the federal Competition Bureau that the big three have market power and monopoly profits. The bureau’s report was in response to a Church/Wilkins study  last year that there is no evidence to justify federal regulatory or policy changes to encourage competition.

But in their latest paper the academics hold their ground, saying the Competition Bureau “fundamentally mischaracterized and misunderstood both out methodology and our findings.”

“It is not enough that there may be some evidence of inefficient market power,” Church and Wilkins write. “The evidence must be compelling: to be compelling, the evidence must not only indicate a substantial and durable inefficient exercise of market power, but that evidence must also be robust.

“An indicator is robust if it is not fragile to changes in assumptions or data. The substantiality of the evidence and its level of robustness are clearly related to the probability of an error: again given the relative costs it is better to favour false negatives than false positives. The evidence
must indicate a substantial exercise of inefficient market power and substantiality must not disappear with alternative assumptions.”

So emphatic are they that Ottawa is stubbornly ignoring evidence is their report is entitled “Damn the torpedoes! The triumph of politics over economics.”

When the Harper government set the rules for the 2008 AWS spectrum auction, where frequencies were set aside for new entrants that incumbents couldn’t bid on, obliged incumbent carriers to allow new entrants to roam on their networks (for a fee) and to put antennas on their towers (also for a fee), it did so believing more competition is needed in the country.

The evidence included the fact that Bell, Rogers and Telus held over 94 per cent of wireless subscribers. In addition to SaskTel in Saskatchewan and Manitoba Telecom Services (MTS) in Manitoba, there had been two other regional carriers: Microcell and Clearnet/Fido. But Telus bought Clearnet in 2000 (while removing a competitor, it allowed Telus to become a national carrier), and Rogers bought Microcell in 2004.

Ottawa’s goal has variously been to support a fourth national carrier, and later to assure that there are at least four cellular carriers in every region — for example, Videotron in Quebec, Eastlink in the Maritimes, SaskTel in Saskatchewan and Manitoba Telecom Services (MTS) in Manitoba.

The 2008 auction spawned Mobilicity, Wind Mobile, Videotron’s wireless division, Eastlink’s wireless division and Public Mobile. But the big three still control 90 per cent of the market. Meanwhile Mobilicity is in protection from creditors, Telus has bought Public Mobile and Wind Mobile’s largest equity shareholder is tired of financing the company. At a spectrum auction earlier this year Wind couldn’t participate because it didn’t have the money.

Videotron, a Quebec-based cable/wireless company did buy spectrum in B.C., Alberta and Ontario, saying it is thinking about expanding its wireless network outside its home province — but only if it gets help from Ottawa by forcing Bell, Rogers and Telus to lower the domestic roaming rates it charges new entrant carriers.

Next month the CRTC will open hearings into roaming and other wireless policies. In the meantime Ottawa has capped the domestic roaming fees incumbent carriers can charge new carriers.

Meanwhile, the Harper government has changed its policy on allowing new entrants to sell their spectrum to the big three. That was one of the rules for new companies that went into business with AWS spectrum after the 2008 auction. But Telus’s repeated attempts to buy Mobilicity have been rebuffed by Industry Canada. Similarly, Ottawa has been frosty to Rogers’ attempt to buy Shaw Communications’ unused spectrum.

But Church and Wilkins insist that not only do Bell, Rogers and Telus provide enough competition between themselves, but a fourth national carrier is unlikely to be financial viable without subsidies.

“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.”

Jeffrey Church is a professor in the UofC’s economics department and director of its digital economy program, while Andrew Wilkins, is a member of the university’s School of Public Policy.

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