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Competition Bureau Weighs In On Wireless Marketplace

Posted by Matt on January 29, 2014         Tagged with: crtc, wireless

The CRTC has been intent on letting everyone know they have a "pro-consumer" agenda lately. One of the ways they've done that is with the Wireless Code - a set of rules released in June 2013 that governs the kinds of terms that can appear in contracts for cell phone service. For example, the Code requires that wireless contracts use "plain language" and the customer must be able to cancel the contract after two years.

Another way in which the CRTC has been pushing it's pro-consumer agenda is by digging into the issue of wireless roaming fees. These aren't the roaming fees that you pay as a customer when you go to the USA and post your vacation pics to Facebook. These are the roaming fees that cell phone providers pay to other cell phone providers when they use each other's networks. These are important because new providers will likely have to rely heavily on the networks of the incumbents, at least at first. This means that the roaming rates set by the incumbents have a huge impact on how easy it is for new competitors to enter the market. In August 2013, the CRTC started a "fact-finding" exercise, asking wireless providers to submit answers to a number of questions relating to roaming fees. Today the Competition Bureau waded into the fray, submitting their own thoughts on roaming fees and their effect on competition in the wireless marketplace to the CRTC.

Unsurprisingly, they disagreed with the position of some incumbents that wireless competition is fine in Canada and there's no need to regulate:

However, in this proceeding, Bell Canada ("Bell"), on behalf of a number of related entities, claims that the "wireless market in Canada remains robustly competitive". In support of its claim, Bell’s submission cites a recent report prepared by Jeffrey Church and Andrew Wilkins entitled "Wireless Competition in Canada: An Assessment" (the "C-W Report").

The analysis contained in the C-W Report has two significant limitations that should be noted. First, the profitability analysis that forms the centerpiece of the report:
(1) examines only one service provider,
(2) does not actually measure that service provider’s cost of capital, and
(3) when properly interpreted, does not support the conclusions contained in the report.

Second, the C-W Report appears to suggest that, because of the presence of significant scale and network economies in the provision of mobile wireless services, entry by an additional competitor in the market would lead to significant cost inefficiencies. Such a conclusion is premature; an in-depth analysis of the relationship between the limits on spectrum availability and the costs of network build-out is necessary to properly address any such effect. Bell’s submission also claims that its position is supported by assertions in the C-W Report that the level of concentration is comparable to foreign mobile wireless markets, and particularly the United States. However, Bell’s submission does not take into account that the U.S. Federal Communications Commission has repeatedly failed to conclude that U.S. markets for mobile wireless services are competitive.

In the Bureau’s view, the C-W Report does not provide adequate support for Bell’s claims that mobile wireless markets in Canada are competitive. Instead, based on the factors described above, the Bureau believes that incumbent service providers do have market power in the provision of retail mobile wireless services, and the CRTC should take this fact into account when considering this matter

They define "market power" as "the ability of a firm or firms to profitably maintain prices above competitive levels (or similarly restrict non-price dimensions of competition) for a significant period of time". So basically the Competition Bureau is saying that the wireless providers in Canada face no real competitive pressures and the CRTC should regulate roaming fees to help fix that.

I'm not typically a fan of regulating private industry to promote competition. But the lack of competition is partly due to OTHER regulations. If you're going to regulate an industry, may as well do it right.