Permissionless innovation: is regulation penalizing infrastructure investments?

The MEI think tank has released a new paper calling “for the CRTC to stop overregulating the telecommunications sector and penalizing infrastructure investments.” The MEI paper argues in favour of a presumption of competition for policy making and against the presumption of regulation.

In the context of the continuing discussion on telecommunications service pricing, we often forget that Canada has top quality telecommunications infrastructure, that the MEI claims is despite a regulatory framework that is very restrictive for the sector.

Canada’s mobile speeds are among the fastest the world, thanks to investments per connection that are nearly twice as high as in Europe. According to the MEI press release, “Canada’s relatively high prices are explained in part by the country’s low population density, by the quality of the infrastructure, and by the substantial investments that are made.”

“Canada does well despite its regulatory framework, not because of it. The country could do even better!” according to Gaël Campan, Senior Associate Researcher at the MEI and author of the publication, “Permissionless Innovation: For an End to the Presumption of Regulation in Telecommunications”, written in collaboration with Daniel Dufort, Director of External Affairs at the MEI.

The easy to read report is divided into 3 main chapters, as listed below with some highlights:

  • Chapter 1 – Innovation, Growth, and Regulation
    • The main source of growth in an economy is figuring out new approaches for being more productive with the same resources: in a word, innovation
    • By making it more expensive to run a business, or invest in a new technology, regulation delays projects, or diminishes the chances that projects will be undertaken
  • Chapter 2 – Regulation by Default: A Misconstrued Approach to Markets and Competition
    • Consumers commonly substitute across markets, as when cellular phones — originally considered separate and distinct — came to offer a compelling alternative to fixed line telephone monopolies, eliminating the market power of legacy network providers.
    • Customers of fixed line providers in an industrialized country aren’t captive at all, since alternative services (such as satellite, mobile, and cable operators) are already available and improving fast, but also because of the emergence of “third places” such as coffee shops offering good Wi-Fi speed.
    • The number of mobile and fixed operators has not changed much over the past few years, but the number of their suppliers has decreased drastically, with a few equipment manufacturers becoming giant players, and their bargaining power increasing significantly.
    • Equipment manufacturers, terminal manufacturers, internet service providers (whether wireless, wireline, or cable companies) and content providers all belong to the same ecosystem, and must adapt their strategies to each other’s progress, always driven by what the general public is willing to pay for.
  • Chapter 3 – Reintegration of the Telecommunications Industry under the General Competition Regime
    • Rescinding the specific regulation of the telecommunications industry will create immediate economic value, as some financial and human resources currently devoted to compliance matters will be freed up and made available for productive use.
    • Commercial offers which were banned by the regulator even after having already found their customers, such as the zero-rating practices banned by the CRTC in 2017, will likely be reinstated if possible.

The MEI argues that as a sector specific regulator, the CRTC can have a tendency “to see the state of the market and of competition as a fixed reality, rather than an evolving one.” In calling for regulatory humility, the MEI expresses its concern that regulations can slow investment and create a drag on technological and service innovation as well as new business models. “The CRTC must rescind its special regulatory policies as soon as possible and let the sector fall under the general competition regime in order to enjoy the proceeds of unhampered competition.”

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