Queen’s gambit

When novices plays chess, they move pieces in the moment, simply capturing the immediate advantage without anticipating the impacts and potential responses of their opponent. In the mini-series Queen’s Gambit, we follow the fictional chess prodigy Beth Harmon (played by Anya Taylor-Joy) as she learns to look ahead, anticipating consequences of her moves in preparing her strategies.

Of course, frequent readers will know that it takes little effort for me to find a telecom metaphor embedded in championship chess. A number of times in the past I have made reference to chess in examining telecom policy issues. Simplistic analysis often fails to look beyond the immediate effect of a policy, like a novice chess player quickly capturing a piece without considering the consequences.

For example, when we auction spectrum to maximize revenues, we fail to consider the impact on consumer prices. Carriers will bid on the spectrum to the point that the business case can no longer support any higher amounts, but there is clearly a consequence that arises from higher costs. This was a recurring theme at The Canadian Telecom Summit last week.

Some critics have looked at the Rogers – Shaw transaction and immediately conclude that any contraction in the number of entities participating in the market results in a lessening of competition. Keep in mind that Shaw has indicated that the company is unwilling to continue to invest at the levels required to upgrade the capabilities and reach of its network. As a result, there are many Shaw wireline customers (such as Manitoba and Saskatchewan and parts of BC and Alberta) that are outside the reach of the Shaw mobile network and there are Rogers mobile customers in Western Canada unable to bundle services with residential wireline. It is widely expected that Shaw’s wireline network will provide Rogers with local infrastructure to accelerate the roll-out of competitive 5G services in all of Western Canada.

As Rogers SVP of Regulatory Affairs told The Canadian Telecom Summit last week, there are no places that Rogers wireline business competes with Shaw wireline. Even on the wireless business, it isn’t clear that combining Rogers and Shaw will result in a lessening of competitive intensity in every geographic market. For example, in BC, the combined Rogers and Shaw would have about 40% market share, similar to that of TELUS (according to NBI Michael Sone Associates). Bell would have roughly half their share. What would one expect in terms of competitive intensity in the BC market as a result? In Alberta, TELUS has roughly half the mobile market. A combined Rogers and Shaw would have about 30% and Bell would have about 20%. Again, couldn’t this result in an increase in competitive intensity?

The communications sector in Canada is a $75B business and there is a $26B transaction being reviewed by the CRTC, with a week of oral hearings starting today. The transaction will also need approvals from the Competition Bureau and the Federal Government (ISED).

Just as I have said that we need to explore policies for the digital economy with the thinking of a chess master, the same depth of analysis needs to be applied in considering spectrum policy and the impact of the Rogers – Shaw transaction.

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