Ottawa is hurting consumers by encouraging artificial competition in the telecommunications industry, says a new research paper from the Montreal Economics Institute (MEI).
“As Europe’s experience shows, high levels of government regulation and competition may bring down prices, but they also discourage investment and innovation,” says Martin Masse, senior writer and editor with the MEI. Masse co-authored the paper, titled “The State of Competition in Canada’s Telecommunications Industry – 2014,” with Paul Beaudry, an associate specializing in competition law with the legal firm Stikeman Elliott.
Since the Harper government came to power in 2006 it has adopted a policy of promoting the growth of a fourth wireless carrier in each of Canada’s regional markets, but has failed to foster a dynamic and efficient telecommunications industry, the report says.
From the start, the government said it would look to market forces as much as possible to achieve its telecom policy objectives. But the MEI says that the government has instead employed set-asides, spectrum caps, mandatory network sharing and other interventionist rules that have distorted the market process, leading to a misallocation of resources.
“Well established regional players that benefited from preferential treatment in the 2008 auction very likely did not need the subsidy,” says Beaudry. “And as for the new entrants that likely would not have entered the market without the subsidy—Public Mobile, Mobilicity and Wind Mobile—they have not fared well.”
The federal government’s handling of telecommunications has wider implications too, says Michel Kelly-Gagnon, president and CEO of the MEI. “The government changing the rules in order to prevent Telus from acquiring Mobilicity is very worrisome, not only for the telecommunications industry but for the economy in general,” Gagnon says. “It sets a dangerous precedent of state intervention into economic matters that will harm the development of dynamic industries, and the consumers they serve.”
The paper provides data to back its contention that Canada’s telecom sector is not the underperformer many think it is. It also looks at the federal government’s failed attempts to foster the emergence of a fourth wireless player and the “meagre” results it has achieved in the wireline sector through its mandatory network sharing policies.
The paper recommends that Canada’s foreign investment regime in the telecom sector be liberalized, along with the spectrum licence transfer rules.
The MEI is an independent, non-profit research and educational organization. In defining its mandate, the MEI says that it “stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.”
