The Fraser Institute says Ottawa’s rules handicap Bell, Rogers and Telus. Government should open telco ownership to all and control things through the Competition Bureau

Opponents to the federal government’s wireless telecom policy have gained support from a conservative think tank that agrees Ottawa’s rules for the upcoming 700 MHz spectrum auction handicap the country’s three biggest carriers.

 
“Preventing 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,” says the report issued Monday morning by the Fraser Institute.
 
It also says the Harper government should completely remove its 10 per cent limit on foreign telcom ownership to let any company buy Canadian telecommunications, cable and broadcast companies, and let the Competition Bureau deal with mergers and acquisitions that might be anti-competitive.
Briefly what the report argues is Ottawa is wrong to try to assure a minimum number of cellular carriers in the country. Instead it should let market forces rule –allowing Canadian companies to merge and big international carriers to come in — subject to anti-competitive controls.
 
Ottawa is trying to encourage at least four wireless carriers in the country with the rules in January’s 700 MHz spectrum auction that prevent large incumbent carriers like BCE Inc.’s Bell Wireless, Rogers Communications and Telus Corp. from buying all of the spectrum.

Bell, Rogers and Telus have mounted an intensive public campaign complaining that while the auction rules are aimed at increasing competition they unintentionally give huge international carriers like Verizon Communications — which is bigger than the three combined — an advantage over them, particularly if they buy Wind Mobile or Mobilicity.

The government says it has thought carefully about the rules it set up and any advantage a foreign company gets isn’t unintentional. Bell, Rogers and Telus control about 90 per cent of the market, it points out, and own over 80 per cent of the spectrum Ottawa has given out or sold.

Meanwhile Mobilicity is struggling financially and Wind’s prime investor, Amsterdam-based VimpleCom Ltd., is looking to sell the Canadian unit.

Wind and Mobilicity have been selling service for less than five years.
 
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Until last year, foreign companies could only buy just under 50 per cent of Canadian-controlled carriers. In an effort to improve the ability of smaller carriers to get investment, the Harper government changed the rules to allow carriers with less than 10 per cent of the market to be completely bought by a foreign company.

“Relaxing foreign ownership limitations would allow for new entrants to better compete with Canada’s big three telecoms,” said report author Steven Globerman, a institute senior fellow who has done consulting reports for Industry Canada and the Canadian Radio-television and Telecommunications Commission (CRTC).

“Just the threat of a takeover gives companies a greater incentive to provide customers with better pricing and service.”
 
Asked for comment on the report, Jessica Fletcher, director of communications in Industry Minister James Moore’s office said “our government has liberalized foreign investment rules, and we are implementing policies that will provide more choice for consumers.”
The report is “another voice urging the federal government to take a new look at its means of increasing competition because of the risk of unintended consequences,” said telecom analyst Mark Goldberg after reading the document. “The Fraser Institute says there are different approaches” than the government’s for having a competitive wireless market with competitive rates for subscribers. (For Goldberg’s blog on this today, click here)
 
What the report misses is the state of wireless competition in 2007-8 when the government started crafting its policy, said Iain Grant, managing director of the SeaBoard Group, a Montreal-based telecommunications consultancy.
While the author suggests there is evidence the wireless market is at least “workably competitive” today, Grant argues that’s only because of Industry Canada policies on ownership and the spectrum auction that protect new entrants.
“Bell, Rogers and Telus have shifted their historical behaviour in response to the competitive challenges of the new market entrants (Wind and others),” Grant argues.
Spectrum is a public resource, he pointed out, and its the government’s job to decide how the public benefit should be realized. Ottawa has decided to tweak the rules to ensure there’s another competitor, he said.

Eliminating the telecom ownership rule isn’t a new idea. In 2003 the House of Commons industry, science and technology committee recommended it, but the heritage committee opposed restrictions being lifted on content creators like broadcasters.

Ottawa has been sensitive to fostering competition in the cellular business because of the dominance of Bell, Rogers and Telus. There were more, but in 2000 Telus bought Clearnet Communications — which made it a national carrier — while in 2004 Rogers bought Microcell and its Fido brand.

That’s why for the 2008 spectrum auction it tailored the rules to encourage new companies to buy frequencies. The result was the creation of Wind, Mobilicity and Public Mobile, as well as the entry of Quebec cable company Videotron and Maritime cableco Eastlink.

In his report Globerman cites recently released studies for Industry Canada and the Organization for Economic Co-operation and Development (OECD) that Canada has a “workably competitive” cellular market.

The issue isn’t whether more competition is needed, he argues, but how the government does it. In his opinion Ottawa is promoting new competitors while handicapping incumbents.

Because there is “conclusive evidence” the industry is competitive, he added, there is no need for spectrum auction caps.

“There is a danger of promoting inefficient competition which makes most consumers worse off rather than better off. If there are gains at the margin from competitive entry and expansion, it is preferable to allow market incentives to encourage such entry and expansion,”

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