The University of Calgary School of Public Policy released an important paper today, providing what it calls the first study that assesses the state of competition in wireless services in Canada. Based on the authors’ analysis, “there is no evidence that there is a competition problem in wireless services in Canada.”

The paper takes aim at simplistic analysis that has led various critics to have accused the industry of being “woefully uncompetitive” and “dysfunctional and in desperate need of an overhaul.”

This paper establishes that there is not a competition problem in mobile wireless services in Canada. The government need not, and should not, intervene to promote competition on the basis that increased competition will lower prices; efforts to do so will likely be unsuccessful and inefficient.

The paper warns that in the long run, the effects of government intervention are likely to lead to “reduced investment, misallocated spectrum, lower quality, and perhaps even higher prices.”

Today’s report was authored by Jeffrey Church, a professor in the Department of Economics and the Director of the Digital Economy Program in The School of Public Policy at University of Calgary, together with Andrew Wilkins, a Research Associate in the School. Dr. Church has testified on behalf of the Competition Bureau in the 2006 CRTC hearing looking into Essential Services. Today’s report documents the results of a long standing research program in telecommunications markets and regulation in Canada. An OpEd that appeared in the Globe and Mail in early July provided a preview of some of the points that are expanded upon in today’s report.

Although it is 50 pages, the report is quite readable and it is an important scholarly contribution to the wireless policy debate. It directly targets naive claims that high ARPU and low penetration rates are evidence of an uncompetitive sector, saying “the facts are not consistent with this simplistic analysis.”

Those who single out high ARPU as an indicator that something is wrong with prices — and therefore competition — are fundamentally misinformed about the meaning of ARPU and why it is high in Canada.

The authors say that it is ill-advised for the government to try to enhance competition by committing to four competitors in every region, saying the policy is based on “unsophisticated and misinformed textbook economics — that more competitors are better — which is simply inappropriate for services where there are important economies of network size, including economies of scale and scope.”

Similar to ideas in a blog post I wrote a few weeks ago, the paper warns that low prices can lead to networks that are not funded sufficiently to support future generations of devices and services.

Efforts to create competition in the short run, that increase the number of carriers, will simply squeeze margins in the short run and likely will not be sustained in the long run, as carriers exit and consolidate to reduce competition and restore margins consistent with profitability and the natural limit. And, while consumers might gain in the short run from lower prices, everyone is likely made worse off in the long run from the misallocation of spectrum, reduction in scale of carriers, and reduction in incentives to invest from such intervention.

The authors recommend that the government should reverse course on policies that reduce or restrict incentives for investment by the incumbent carriers and their access to spectrum. Instead, the focus should be on measures that foster competition in investment and network characteristics, such as speed, reliability, and capacity.

The conclusion is that Canada does not have a problem with competition in Wireless, and steps being taken to artificially incent new competitors may provide short term pricing benefits but likely brings deleterious long term impacts.

Perhaps the Industry Minister could refer the question to the Competition Bureau for an assessment. That is Canada’s independent agency charged with ensuring “that Canadian businesses and consumers prosper in a competitive and innovative marketplace.”

With auction stakes measured in billions of dollars – as well as the possible negative impact on investment in digital infrastructure – should we be asking whether the Competition Bureau agrees with the presumption that policy measures to incent competition are appropriate?

The University of Calgary School of Public Policy report concluded there is no evidence of a competition problem in Canada’s mobile wireless industry. On such an important issue of sector competitiveness, will the Competition Bureau be engaged to confirm or reject this finding?

My wife and I are in the market for a new car. We’re looking for something with a lot of features, but I am having trouble finding all of the features I want on the same car.

My wife wants leather seats (but not black leather), built in navigation and Bluetooth. She doesn’t like a sun-roof. She wants a remote starter. I’d like to have parallel park-assist, back-up camera and a radar warning that there is a car in my blind spot. I would like the driver’s power seat to have a memory linked to the key fob of the driver, so that I don’t bang my knees getting in.

Why don’t all the car companies offer all these options in all of their cars? For that matter, why do I have to pay an extra $1000 or more to get built-in navigation when big box stores sell external GPS units for a little over $100?

I know that we are going to have to make some decisions about priorities and compromise when it comes down to the final decision. Different features and capabilities get bundled differently by each of the car companies. Some higher end options, like park assist, seem to be available in lower end models, while other car companies don’t offer it at all. Should Transport Canada regulate this?

Although it would be convenient, I don’t think regulation of vehicle options is on the government’s agenda.

I was thinking of my car shopping experience as I read an article calling for CRTC regulation of roaming prices. Over the weekend, Michael Geist wrote:

regulated roaming pricing is overdue and an important step in meeting the government’s goal of “more choice, lower prices, better service.”

Actually, I think that regulating roaming rates would reduce choice and may not lead to lower overall prices.

Why would the government intervene in consumer roaming prices? There are lots of choices available for consumers today. I visit the US frequently. I have SIM cards for pay-as-you-go services in the US as well as a couple of other international destinations. As I have written previously, services like Rogers One Number allow me to receive calls to my cell phone at no charge, and enable me to call anywhere in Canada for free.

Entrepreneurial companies such as Roam Mobility and Roam Simple have built businesses to help people find options for mobile services when they are on the road.

I have written a number of times in the past about alternatives that are available for consumers who roam, casually or frequently [for example, see here, here and here].

WIND Mobile has made international calling and roaming one of its competitive differentiators.

Prior to developing its code of conduct for the wireless industry – the Wireless Code – the CRTC conducted a review of wireless pricing, specifically to determine “whether the conditions in the mobile wireless market have changed sufficiently to warrant Commission intervention with respect to mobile wireless services”. In its determination at that time, Telecom Decision CRTC 2012-556, the CRTC said:

the Commission determines that the conditions for forbearance have not changed sufficiently to require the Commission to regulate rates or interfere in the competitiveness of the retail mobile wireless voice and data services market.

That was less than a year ago. Roaming was considered at that time.

While parties did point to a number of studies that address the rates and competitiveness of the mobile wireless market, the Commission notes that market indicators demonstrate that consumers have a choice of competitive service providers and a range of rates and payment options for mobile wireless services.

Are there fewer choices for roaming today than we had at the time? I suspect that consumers have more options today than ever before, including a wider range of options from their own carriers. Further, the Wireless Code introduced some significant consumer safeguards related specifically to roaming.

To paraphrase the issue as it was considered last year by the CRTC, have the conditions for forbearance have changed sufficiently to warrant the regulation of consumer roaming rates?

What would be the impact on the market if government regulation took away the price advantage offered by smaller service providers? What is the impact on the development of innovative services and technologies?

Wholesale rates – the fees charged by carriers to other carriers – are a completely different matter.

It would be a lot easier on me if every option was available in every colour on every car. It would save me from having to make some of the tough choices in buying my next car, but it would cost the after-market specialty shops the chance to install a remote starter.

It must have been a lot easier deciding which car to choose when Henry Ford made them all black. Still, I think most will agree that we are better off today.

I have choices and decisions to make.

This evening marks the start of Rosh Hashana, the start of the Jewish calendar year 5774. Our offices will be closed for the rest of this week.

As I have explained in previous years, this is a period of personal reflection quite different from the partying that characterizes December 31. Instead, a stentorian blast of the shofar [ram’s horn] in our synagogues heralds a time of personal and communal introspection, examining the deeds of the past year and looking forward to a year of improvement ahead.

In writing the content for this blog, and my Twitter feed, it has been my intent to challenge my readers to examine issues from a different perspective.

I hope that I have been able to succeed in doing so, without resorting to personal attacks. If I have failed and caused hurt through my words, I am sorry; allow me to express my regret.

The timing was somewhat fitting for last week’s inspirational farewell post by Link Hoewing at the Verizon Public Policy Blog. He wrote:

I think respect for others is a key part of good policy making. I have seen over the years far too many instances in which someone participating in a policy debate is attacked, not for what they have said, but because of who they are or where they get their support.

This perspective, tolerance for, as well as learning from, alternate views, came through a tweet from Kirstine Stewart at Twitter Canada:

How much intellectual capital has been wasted because of failures to consider alternate ideas, an unwillingness to challenge our own convictions and refusing to entertaining other’s thoughts, whether we accept their position or not.

I hope that the year ahead is one filled with good health, with inspiration, personal and professional growth and with peace.

In the wake of Bloomberg reporting Verizon’s CEO Lowell McAdam’s statement that “Verizon is not going to Canada,” it is perhaps time for the government to pause and reflect on its telecommunications policy.

Over the past year and a half, between Industry Canada and the CRTC, Ottawa has liberalized foreign ownership regulations, implemented a stringent code of conduct for wireless providers, added new mandatory roaming and tower sharing rules and changed the conditions for transfer of spectrum licenses. None of these changes have been in place long enough to have yet had a significant effect.

The government may wish to consider whether the spectrum auction rules and the other policy and regulatory changes are appropriate for encouraging capital investment and sufficient to ensure consumer protection in a competitive market.

It is perhaps time for the government to take a deep breath, as I wrote earlier this summer.

With a number of market participants seeking and needing investment to stay afloat, let alone grow, that breath may need to be taken quickly.

The House of Commons Standing Committee on Industry, Science and Technology (INDU) is meeting behind closed doors tomorrow afternoon to discuss a “Request to Undertake a Study of Telecommunications Policy“. The 4 members of the Committee who apparently requested the meeting may find support from expert reports sitting on the shelf of the Government library.

I have been writing this blog for about seven and a half years now, close to a quarter of my 33 years in the telecom sector, creating an archive of materials that highlight telecom policy and strategic issues over a reasonable period of time.

I find it interesting sometimes to take a fresh look at some of the more than 2,000 posts on this blog to see which issues are coming up again.

For example, two years ago, I wrote a piece “Time for another review,” highlighting the recommendation from the 2006 Report of the Telecom Policy Review Panel [pdf] to have a fresh look at policy issues every five years.

The Minister of Industry should be mandated by legislation to undertake a comprehensive review of telecommunications policy and regulation every five years.

It has been 7 years since the Telecom Policy Review Panel delivered its report in 2006.

How different would the wireless discussions have been this summer if the government had acted on this recommendation? Indeed, legislation mandating such a review would really not have been required; simply an act of digital policy leadership.

Earlier this morning, the Fraser Institute released a report, “Spectrum Auction Rules and Competition Policy: An Assessment” [download report, pdf], further contributing to the discussion about Canada’s digital policy.

The paper argues that while the issue of the competitiveness of the wireless sector in Canada is unsettled, initiatives to ensure that the large established carriers do not unduly restrict competition in the future can and should be addressed through the Competition Act, rather than by “handicapping” the competitive process, including spectrum auctions. As well, the likelihood of established carriers being able to restrict competition would be substantially diminished if all existing restrictions on foreign ownership in the sector were eliminated. In all other respects, efficient competition is more likely to be realized if asymmetric rules regarding the acquisition and use of assets, including spectrum licenses, are eliminated.

The Fraser Institute says that the number of competitors can be “an unreliable guide to the strength of competition in that market”; markets can be “workably competitive with as few as two or three competitors.”

The report goes on to say that recent evidence shows that Canada’s wireless carriers perform as well or better than their US counterparts. Since many observers argue that the US wireless sector is “workably competitive,” this finding suggests that Canada’s wireless market is as well.

The report says that its main conclusions are that handicapping incumbents can have adverse consequences for efficiency that will ultimately reduce the welfare of Canadian wireless consumers.

Four years ago, during the Globalive/Wind Mobile foreign ownership review at the CRTC, I wrote about what the Telecom Policy Review Panel has said about liberalization of the ownership restrictions.

In the recent past, our government has commissioned a number of expert reports, many of which end up on book shelves with too few of the recommendations adopted.

We now have our third Industry Minister since the Digital Economy Strategy consultation was launched, seeking input on 24 questions under 5 broad themes. As I wrote at the time, then Industry Minister Tony Clement said:

Canada can and should be a leader in the global digital economy. Nothing prevents us from being the best place in which to invest, grow a digital business or create digital content for the world.

Now is the time for the private sector to step up. To contribute its ideas. And then, when the digital strategy is in place, implement the game plan.

Yes, Canada can and should be a leader in the global digital economy. But we need to be asking some very hard questions about whether the current policy framework makes it “the best place in which to invest, grow a digital business or create digital content for the world.”

Thankfully, the private sector hasn’t waited for a digital strategy to be “in place” before launching such initiatives as affordable computers and broadband for low income households, without the government.

When the House INDU Committee meets, its members may want to consider that the study on Telecom Policy is already 2 years overdue according to Recommendation 9-4 of the Telecom Policy Review Panel. It may want to ask if the absence of such a review and the absence of having “a digital strategy in place” are inhibiting Canadian leadership in a digital economy.

Perhaps the government will agree to have a fresh look at its overall communications policy.

Is it time to commission a new panel to “undertake a comprehensive review of telecommunications policy and regulation” as was recommended 7 years ago?