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Phone-y competition in Canada’s wireless sector
by Martin Masse
Nobody should be surprised to have learned in recent days that three of Canada’s small wireless companies – Wind Mobile, Mobilicity and Public Mobile – are now for sale and may soon disappear as independent players. The federal government’s attempts at artificially creating more competition in this market were never based on a realistic assessment of the Canadian market, or on sound economic theory.
It all started in 2008, when Ottawa set aside for new wireless players part of the spectrum being auctioned off that year, and forced existing carriers to open their networks and share their transmission towers with the new entrants. I wrote at the time in this page that this amounted to a subsidy to new entrants and would distort the allocation of resources in this market.
We simply don’t know the optimal number of wireless networks in a market like Canada’s. Market forces (including an unbiased spectrum auction that reproduces market rules as much as possible) are supposed to determine this.
In theory, more competition is a good thing. It forces players to lower their prices and to offer better services to attract clients. But how many more players should we have, in addition to the big three? Would we be better off with one more wireless network, three, five?
Such networks cost billions of dollars to set up from coast to coast. Obviously, at some point, it becomes wasteful to add another one and it’s better for society if these resources are spent elsewhere.
We had seen earlier in the decade how difficult it was for smaller players to remain viable. Clearnet was bought out by Telus in 2000 and, after seeking bankruptcy protection in 2003, Microcell was taken over by Rogers in 2004.
It is true that among the recent new entrants, Videotron in Quebec and EastLink in Atlantic Canada have been able to establish a foothold. They have a loyal local customer base in their regional markets and they can offer packages of cable telephone services, broadband Internet access, and digital television in addition to wireless telephone services. In the West however, Shaw decided that it could not make a decent return on invested funds and has been sitting on its spectrum ever since.