What problem are we trying to fix?

An Economic Note [pdf, 871 KB] from the Montreal Economic Institute (MEI) is challenging the premise for elements of mobile wireless policy deliberations in Canada. Whether it is consideration of a spectrum set-aside for “new entrants” or ordering the CRTC to revisit its refusal to mandate resale for WiFi based MVNOs, the MEI study says “the minister’s justifications for the proposed change are groundless”.

The Economic Note challenges the preamble of Order in Council 2017-0557, where it claims “Canada has among the lowest adoption rates for mobile wireless telecommunications services among industrialized countries.” MEI says:

This assertion is drawn from a misleading OECD comparison based on the number of SIM cards per inhabitant (as opposed to the proportion of wireless users in the overall population). In many countries, users have more than one card for the same device in order to save money, which results in absurdly inflated “penetration rates,” in many cases far above 100%. The fact is that the vast majority of Canadians (81.6%) had a wireless device in 2015, a proportion that keeps increasing. Canadians are among the biggest users of data on tablets and smartphones (sixth out of 21 countries surveyed by Cisco for both categories). Moreover, in terms of smartphone market penetration, Canada ranks third out of 21 countries surveyed with a total of 83% of mobile subscribers using smartphones. And it ranks fourth in terms of the proportion of mobile users connected to the fastest network.

In its press release, MEI warns “Innovation Minister Navdeep Bains runs the risk of discouraging investment in the telecommunications industry”. The report contrasts reseller investment levels of just $30 million per year with the $11.3 billion being invested by national and regional carriers.

As Canada has one of the best wireless infrastructures in the world, and Canadians are among the most avid consumers of data in the world, there is no need to intervene in order to catch up with other countries.

The Montreal Ecoonomic Institute says its Regulation Series of reports “aims to examine the often unintended consequences for individuals and businesses of various laws and rules, in contrast with their stated goals.” I have written frequently about this kind of effect, such as “Driving costs higher” as an unintended outcome of a number of government measures originally meant to benefit consumers.

A few weeks ago, MEI commented in the Financial Post about the plans for a set-aside in the next spectrum auction. “Experience has shown that such measures essentially constitute public subsidies that are either lost to weak new entrants that consistently fail, or wasted on established regional players that would have had the means to bid for the full value of the spectrum.”

Whether it is a spectrum set-aside or ordering the CRTC to have a fresh look at its decision on resale versus facilities based competition, the Montreal Economic Institute report again challenges the premise that appears to be motivating increased government intervention in Canada’s mobile marketplace.

Earlier this year, FCC Chair Ajit Pai observed that “Building 5G networks will require huge capital expenditures–spending best incentivized with light-touch regulation.”

Canada needs to carefully consider the potential unintended consequences of further intervention in its mobile sector. To date, the facts show that Canadian carriers are investing, our networks are world leading in coverage and speed, and Canadians are among the world’s top users of mobile data.

What problem are we are trying to fix?