Mark Goldberg


www.mhgoldberg.com






Beyond 140 characters in depth

Industry Minister James Moore is on a cross country tour, defending the government’s position for its wireless policy.

Various sides of the wireless debate have been lining up soundbites, trying to encapsulate complex issues into 140 character tweets.

It isn’t the way policy for critical digital economy infrastructure should be developed.

It is good that Canadians are getting engaged in the issue. It is important for economic development, for rural services, for our federal treasury.

So I am not sure Minister Moore is correct in stating that the major telephone companies have been unsuccessful in their publicity campaign.

As the National Post wrote:

He characterized the telcos’ campaign as “impressively unsuccessful” and said it has not, in his view, resonated with Canadians, but added it has stirred up enough questions that he felt the need to defend his government’s policy aimed at, he said, promoting competition for the benefit of consumers.

While the telco’s campaign may not resonate with consumers, it appears to have played well with editorial boards across the country. It is the newspaper editorials that may have created the urgent need for the government to respond with a defensive campaign.

Phone companies are an easy target. In my early days working in the telecom sector, we used to be thankful for the post office – it was the institution that people hated even more. These days, who cares about the mail. So that leaves the phone companies.

We all pay a phone bill every month and everyone wants that bill to be lower. I wrote a blog post years ago about a poll that clearly had a problem. The poll was reported as saying three quarters of Canadian consumers wanted lower prices for internet services. C’mon, now. Do you really believe 1 in four Canadians don’t want a lower price? Of course we want a lower price on something we buy monthly. But at what cost?

The issues are more complex and not well suited to simplistic solutions, as Industry Minister Moore has stated in interviews from this week. But Minister Moore also answered the question of why Canadian prices are not among the lowest in the world:

Canada is the second largest country in the world in size but 34th largest in population. We do have expectations and obligations to rural parts of this country to ensure that there is some comparable level of service

I have asked the question before: If Canadian wireless prices are so high vis a vis costs, doesn’t that create a great business opportunity for new entrants? Why aren’t competitors lining up to enter the market? Around the world, carriers get the same reports that show world leading average revenue per user (ARPU), but the carriers also understand that Canada also has world leading capital dollars per customer being invested by Canadian carriers.

Investors want to maximize their returns and perhaps as important, they would like some certainty they can exit a market when they choose to take their profits or cut their losses. This is where Canada’s ever changing policy framework creates the greatest risk.

In some of his interviews, Minister Moore has pointed out that the major carriers were comfortable with the rules set out in March. As he told IT World Canada:

The incumbent big three, by the way, were originally quite comfortable with our policies (announced March 7), they said good things about it. It’s only because in May Verizon made noises about exploring coming into the Canadian marketplace that the incumbents decided to put out a big joint effort to stop Verizon from coming into Canada.

I would suggest that the biggest issue wasn’t the new rules set down in March 2013, or the compromises found by “Solomon cutting the baby” with the 700MHz rules in March 2012. Our summer of wireless discontent was kicked off with the June 4 announcement that turned down TELUS acquiring Mobilicity.

Had the government simply said that the original AWS rules called for a 5 year hold and the acquisition was premature, that would be one understandable, and consistent message. But the government went further when it said:

Our government has been clear that spectrum set aside for new entrants was not intended to be transferred to incumbents. We will not waive this condition of licence and will not approve this, or any other, transfer of set-aside spectrum to an incumbent ahead of the five-year limit,” said Minister Paradis. “Our government will continue to allow wireless providers access to the spectrum they need to compete and improve services to Canadians. We are seeing Canadian consumers benefit from our policies and we will not allow the sector to move backwards. I will not hesitate to use any and every tool at my disposal to support greater competition in the market.

In addition, the Government also outlined improvements to the policy on spectrum licence transfers that will be released in the coming weeks, which followed consultations launched in March 2013. Going forward, proposed spectrum transfers that result in undue spectrum concentration—and therefore diminish competition—will not be permitted. This policy will apply to all commercial mobile spectrum licences, including the 2008 AWS licences.

That June 4, 2013 policy changed the AWS investment rules in the middle of the game. When the government set down the rules for its $4.2B AWS auction in 2008, it had effectively bet that 5 years would be long enough for the new entrants to disrupt the marketplace through increased competition. The licenses all had the same transfer condition:

Licences acquired through the set-aside of spectrum may not be transferred or leased to, acquired by means of a change in ownership or control of the licensee, divided among, or exchanged with companies that do not meet the criteria of a new entrant, for a period of 5 years from the original date of issuance.

On June 4, 2013, two weeks after Industry Canada met with Verizon on May 21, the rules got changed. Investors in Canada’s telecom sector – new entrants as well as incumbents – got the rug pulled out with another change that I like to call Calvinball.

That isn’t how any game is supposed to be played, and especially not where the stakes are measured in billions of dollars.

Despite billions of dollars in Canadian equity value being played with, the level of hyperbole by both sides has gone over the top. When John Cruickshank, publisher of the Toronto Star said Prime Minister Harper “betrays the interests of his country for a foreign power“, it is difficult to take anything else in his commentary seriously. “Leninist economic planner”?

Really?

Such a sophomoric level of discourse is perhaps driven by responding to those who think Verizon is the white knight to fight “Big Telecom”. I have been unable to get a response to a question about whether Verizon is also part of the “Big Telecom” clique. As I wrote on Twitter:

 

It is time to raise the level of the debate, stop the name calling, deal in issues at the level of depth that it deserves.

The government knows very well that Canada actually has lower concentration of its wireless market than most countries. Nearly half the OECD has 100% of their wireless in the hands of 3 or fewer carriers. The OECD average is 93% share among the top 3, so Canada has more competition already despite what the Minister acknowledges as a small population across a large landmass.

Petitions from the Conservative Party or Open Media are going to do nothing but build a mailing list for their partisan fundraising. If Canadians want more competition in wireless, people should sign up for services from the competitive providers that are already out there.

It would be helpful to see the scorecard by which the government is measuring the state of competition, as implicit in its June 4 policy announcement.

It would also be helpful for people outside our urban centres to understand the lack of meaningful obligations to extend networks to rural communities under the current 700MHz framework.

I continue to believe it is time to push the reset button.

Minister Moore told Cartt.ca that the spectrum auction has been delayed twice already and it will not be delayed again.

We are playing a high stakes game; opening bids in the auction will be just shy of a billion dollars. With Parliament prorogued, is there really no time to take a breath, get everyone to dial down the rhetoric and ensure that we get it right?

As Tim Harper wrote in The Toronto Star, Minister Moore is well within his rights to decide against, or even ignore, the arguments being set out. But it is unseemly, on both sides, to turn this important debate into a white hats – black hats showdown.

Is the public interest best served by pushing ahead?

3 comments to Beyond 140 characters in depth

  • TNSF

    Its sad that the Minister only has 30 minutes available to meet with the CEOs of critically important Canadian companies, but has unlimited time to do a cross-country media tour during which he engages in nothing more than “a sophomoric level of discourse.”

  • moosebump

    Yes it’s Calvinball but really so what. The original intent was to establish a 4th player in each market and that has failed. It is fair to say the intent was not for the incumbents to then pick up that subsidized spectrum 5 years later. The government miscalculated what it would take to attract capital to the industry and actually accomplish their goals. The debate about whether we need 4 players or whether the market is really competitive should have happened 6 years ago.

    The fact that Shaw, with a customer base, billing system, wired infrastructure, media assets etc. couldn’t make an economic case tells you the conditions weren’t generous enough 5 years ago. I don’t care what the rest of the world is doing. Europe appears to meddle in much more damaging ways than we are doing here.

    So our government is revising thing as they go along. Are they supposed to through up their hands and say “we tried but our first attempt failed so our only choice is to now give up”?

    The government is issuing licenses to do business when they allocate spectrum. They restrict concentration of TV and radio licenses so why not wireless?