Canada’s Wireless Problem Not Related to Competition, But to Politics, Study Says

by Istvan Fekete on September 13, 2013

The government has misdiagnosed the Canadian telecom industry: the problem with the wireless landscape isn’t the lack of competition among the players, but rather the political interference that will restrict investment and access to spectrum by the Big Three, according to a recent study published by The School of Public Policy.

“There is no evidence that there is a competition problem in wireless in Canada. In fact, the opposite is the case,” says the report, released Thursday, by The School of Public Policy, which also maintains that prices and the number of major carriers in this country are not out of line with other similar markets.

“Efforts to create competition in the short run that increase the number of carriers will simply squeeze margins in the short run and likely will not be sustained in the long run as carriers exit and consolidate to reduce competition and restore margins consistent with profitability,” the University of Calgary think-tank said.

“Rather than continue to misdiagnose a problem — insufficient competition — the government would do better to focus on policy measures that promote inter-network competition and reverse course on its policies that reduce or restrict incentives for investment by the three incumbent carriers and their access to spectrum.”

The government responded to Canadian consumers’ prevailing mood that they are getting gouged by the incumbents: it introduced policies intended to sustain and nurture the competition Ottawa created back in 2008. They are barred from acquiring spectrum, struggling wireless players, etc.

But the study sees the wireless market’s problem from a totally different perspective. The authors say the problem isn’t with the Big Three, but with the market, which is too small to allow more players.

You may recall the recent buzz around Verizon’s potential foray into the Canadian wireless market. It turned out that the US wireless giant opted to buy out Vodafone’s stake in the company rather than entering Canada.

The real reason behind Verizon’s decision: returns are too low, the study says.

“So, the bottom line is there is no evidence of excessive returns consistent with the exercise of market power. There’s not a lack of competition. If anything, returns are too low,” said Jeffrey Church, who co-authored The School of Public Policy study with Andrew Wilkins.

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Written by: Istvan Fekete. Follow by: RSS, Twitter, Facebook, or YouTube.

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