Two new studies on wireless competition in Canada were released last week. Also, Bell announced that it was cutting roaming rates to the U.S.
“Wireless Competition in Canada: An Assessment” is by Jeffrey Church of the University of Calgary’s School of Public Policy’s Digital Economy Program. Based on an analysis of Rogers’ returns, Church argues that there is no evidence of excessive returns and that there is no evidence of a lack of competition in the wireless market in Canada. Any more than three competitors will likely result in viability problems. Church points to Shaw’s decision not to enter the market as evidence in favour of the argument, but not to Videotron’s or Eastlink’s decisions to enter the wireless market in their region.
I am sceptical of arguments claiming to show that three is the maximum number of firms in a market or a country. It ignores that there are only three or four national level wireless carriers in the U.S., a market ten times the size of ours. Also, prior to the Shaw announcement, Cox, a large U.S. cable company reversed itself and withdrew its entry into the U.S. wireless market. Shaw could have simply been following the U.S. precedent.
The experience of multiple participants in the wireless industries in developing countries as well as fast growing economic “tigers”, as we used to call them a few recessions ago, seems to contradict or at least call into question the idea that there is a natural number of only a few firms. To be fair, however, the federal government’s arbitrary selection of “at least four competitors” is equally arbitrary.
The other new study is by Navigant Consulting in the U.S. (Navigant has offices in Canada, the UK, China, Singapore and UAE). Navigant also believes that forcing more competition is artificial and likely counterproductive. Generally, it supports the North American policy and regulatory model and recommends that the Canadian one become more like the U.S. Eliminating foreign ownership restrictions and assigning responsibility for spectrum allocation to the CRTC or other government agency (like the FCC in the U.S.).
Like the Calgary study, it also has a number of interesting comparisons and statistics that show areas where the Canadian industry has done well. It is interesting to go through these comparisons but they are notoriously difficult to get right. The pricing, packaging and other rules are so different that accurate or valid comparisons require a detailed understanding of the assumptions. Even then analysts can endlessly argue over the results.
As an experiment, try this. Go to each of the three major wireless companies’ web sites to get alternative pricing and packaging so that you can make an informed decision on what best meets your needs and what you would want to buy if you did not already have a mobile phone. Then set up a spread sheet to compare your options. You will soon give up because it is next to impossible to compare even among Canadian suppliers alone. Analysts face even larger difficulties trying to compare pricing and packaging across countries.
Both of these studies generally support the arguments of Canada’s big three. Neither of them addresses the market advantages handed to the big three with free spectrum in the 800 MHZ and 1900 MHz bands. I can agree with some of the policy recommendations such as a level playing field with respect to spectrum, reducing foreign ownership restrictions and having the CRTC in charge of spectrum allocation instead of Industry Canada. But what is a level playing in spectrum when the big three established themselves in the market with free spectrum?
While there is much to complain about in the way that the federal government has moved towards more competition and the “four competitors” slogan is an artificial and simplistic policy statement, we have been lurching towards more competition and Canadian consumers have benefitted accordingly.
Bell has announced that it is cutting roaming rates to the U.S. by 50% and also reducing the travel package prices. Roaming, along with long distance rates and packages, are the main segments where big three pricing has remained too high by any kind of comparison. Bell will address the resentment of a large component of its customer base with this move and will also address some of the political momentum for policies that favour more competition. Once again, the threat of more competition is driving prices down.
1. This blog is based on press reports of the studies, not on a detailed analysis of the studies themselves.
2. The author consults for Ice Wireless, a wireless service provider competing in Canada’s northern territories.