Blogs & Comment

Stuck in the messy middle: James Cowan

Doing wireless competition right.

(Photo: Kylie McLaughlin/Getty)

(Photo: Kylie McLaughlin/Getty)

Ever stop watching a movie halfway through? It changes the meaning. Think of Top Gun, the story of a pilot named Maverick, his hardening as a warrior and eventual victory. Turn it off early and it’s a tragic tale of Maverick accidentally killing his best friend, Goose. Without the destruction of the Death Star, Obi-Wan dies in vain in Star Wars. Without the townsfolk rallying, George Bailey is better off dead in It’s a Wonderful Life. Without the payoff , the messy middle is pointless.

Public policy, like Hollywood movies, can have an arc. Politicians ask the public to accept sacrifice (new taxes, new regulations) in exchange for a happy conclusion (lower public debt, a clean environment). But Canada’s wireless sector is mired in a never-ending middle act.

Ottawa wants to create a fourth competitor for the existing dominant players: Telus, Bell and Rogers (which owns Canadian Business). Chasing this goal has meant constant fiddling with the market. The Conservatives have rigged spectrum auctions, overruled regulators, rewritten foreign ownership requirements and blocked the sale of Mobilicity to Telus. They now appear prepared to allow the New York–based Verizon Communications to buy Wind Mobile. The purchase could allow Verizon to bid in the next wireless auction as an upstart player—despite being the second largest carrier in the U.S.

Each intervention is justified as necessary for nurturing a new competitor and lowering wireless prices. But those two items shouldn’t be the end goal for the government; they should be the byproduct. Canada should be fostering competition by eliminating rules, not by endlessly adding to them.

This is what the government’s own advisers have told them. A 2006 report on telecommunication policy concluded that “liberalization of the restrictions on foreign investment” would hike competition within the sector. Two years later, a panel on competitiveness led by Red Wilson, a former BCE president, said the same thing and added a lengthy list of additional benefits, such as increasing the number of sources for financing existing telecoms.

Both panels recognized that easing ownership restrictions needed to be done in a managed fashion. So they proposed a two-step process to take place over the course of a decade. In Act I, foreign companies would be allowed to create or purchase telecommunications companies with a market share of 10% or less. That’s the limbo we currently live in. Act II involves an even greater opening-up of ownership rules, but that part hasn’t been staged yet. It’s important. Unless all companies are treated equally, the policies meant to foster competition are, in practice, anti-competitive.

Which is exactly what is happening in the wireless market right now. If Verizon can receive preferential treatment in next year’s wireless auction, or purchase a competitor that Telus cannot, that places the Canadian company at a distinct disadvantage. So too does the government’s recent reneging on its promise that the existing players could buy wireless spectrum from Mobilicity and Wind after a five-year grace period. Instead, approvals will be granted on a case-by-case basis, meaning the playing field is not only uneven, it is covered with fog and liable to tilt sideways at any moment.

The Conservatives’ wireless policy is rooted in noble intent: fostering competition and eliminating undue restrictions on investment are good things. But at some point, the government started to mistake arbitrary thresholds for actual goals. (Why four national competitors, anyway? If four is good, isn’t six better? Why not a dozen?)

To set this story back on track, the government must first recognize it has intervened enough, that its actions have gone from “well-thought-out plan” to “frantic tinkering.” And then Industry Minister James Moore needs to articulate a final, principled goal—a market where all players, foreign and domestic, live by the same rules. In movies, it’s unforgivable to spoil the ending. In public policy, it helps if everyone knows what the finale should be.

James Cowan is deputy editor of Canadian Business.