Industry Minister James Moore issued a statement yesterday, indicating that the government intends to stay the course on Canada’s wireless policy.

Our Government’s telecommunications policy was not created overnight. It is the result of a vigorous consultation that started in 2008 [sic] and continues today. All players – industry, consumer groups and everyday Canadians – contributed to this policy.

The consultation for the wireless sector policy that introduced a new entrant set-aside for AWS was launched in 2007. For more than 6 years, we have seen measures introduced, intervening in the marketplace.

Let’s look at the recent history of regulatory actions imposed on the wireless market in Canada. Remember, Canada has multiple agencies that regulate the sector; both Industry Canada and the CRTC have been active in introducing measures. [The Telecom Policy Review Panel made recommendations regarding a restructuring of the sector’s regulatory institutions in its 2006 report – pdf]

When Canada’s 700 MHz policy was released in March 2012, it sought to enhance measures to encourage competition in the wireless sector. The policy framework decision was released nearly a year and a half ago, 15 months before the CRTC’s Wireless Code of Conduct decision. The Wireless Code consultation was launched in October 2012, following an investigation by the CRTC “to consider whether the conditions in the Canadian wireless market have changed sufficiently to warrant Commission intervention with respect to retail wireless services”.

In its decision, released in October 2012, the CRTC determined:

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.

Rate regulation was not required, nor was the CRTC moved to “interfere in the competitiveness” of the retail mobile wireless voice and data business. The consultation that led to this decision was launched in April 2012.

In the meantime, on the other side of the river, Industry Canada, made some additional pronouncements in March and June of 2013.

There have been a lot of forces acting on the wireless sector in the past year and a half; forces acting without the guidance of a stated national digital strategy. As we have pointed out in opening remarks at The Canadian Telecom Summit for many of the past events, nothing can change the profitability of the telecommunications sector faster than a pen stroke in Ottawa.

I pointed to a CNBC clip yesterday where analysts describe how European networks have lagged in deploying advanced technologies because of their perceived regulatory deterrents.

Maybe it is time to take a deep breath and examine all of the changes that have already been imposed on the wireless industry, many of which have not yet come into force. Perhaps the Minister of Industry could ask the Competition Bureau to review its submission to the CRTC’s Wireless Code proceeding, examine the state of the regulatory measures that are now in place for the wireless sector, and make recommendations for moving forward.

As I wrote yesterday, we need thoughtful, evidence-based decision making to guide the ongoing development of a sector that is so critical for Canada’s success in a global digital economy.

Maybe it is time to present the long overdue national digital strategy.

A thoughtful piece appeared in today’s Globe and Mail by Steven Shepard, the resident director of leadership programs at the University of Southern California’s Institute for Communication Technology Management. His concerns are similar to mine when he states:

It’s not the wireless carriers I worry about; it’s the ripple effect that a poorly thought-out and short-term strategy could create for customers, rural residents, pensioners and the Canadian investment community.

Since it was released early last year, I have had concerns about the 700 MHz policy, describing the compromises and lack of leadership as “700 MHz: Solomon cuts the baby“. The failure of this government to produce an overall national digital strategy leads me to the concern that there are potential ripple effects that could have a long term deleterious impact on Canada’s communications infrastructure, resulting in reduced opportunities for Canadian leadership in a global digital economy.

Just last week, there was an interesting discussion on CNBC of the dismal state of telecommunications carriers in Europe. The discussion talks about the trade-off between low prices and investment in improved services. Robin Bienenstock, Senior Analyst, European Telecoms at Sanford C. Bernstein said:

It’s the fault of the regulators, it’s no question. But what they got was really, really cheap services. The problem is that the services are now a lot worse than the services in the rest of the world and that’s what people care about. If you want better services, these companies have to make money and they have to have money to invest.

You should watch the entire video clip – it is only three and a half minutes. The end of the video takes a hard swipe at “legacy” regulatory environments that encouraged wholesale structures facilitating “free-riding” returns of 16-17% but “if you owned the infrastructure yourself, you made the cost of capital at best.”

Although some want to see Canadian wireless prices race to the bottom, there is merit to considering the impact on the investment climate that has enabled the deployment of world leading technologies in Canada’s networks.

Where is the thoughtful, evidenced-based leadership to drive Canada’s digital economy policy? With heavy intervention in the wireless sector coming from both Industry Canada and the CRTC, has there been sufficient analysis of the potential consequences?

The last few weeks have seen telecom policy as the lead story on national newscasts, and headlines on page one (above the fold) in newspapers. Bell, TELUS and Rogers have waged a very public battle over federal telecom policy, supported by 150 leading Canadian corporate CEOs and a major union. The national telecom giants have won the editorial support of the Globe and Mail and Toronto Star.

The battle is over the government’s ever shifting telecom policy: from transfer rules for spectrum to the auction timing and structure for the 700 MHz block.

The voices of smaller regional players may be getting lost in noise of the big guns being fired.

The government has stated that it wants four wireless players in every market. As I have indicated before, many parts of Canada already satisfy that objective. Strong regional service providers have been among the most successful competitors – in some cases (Saskatchewan and Manitoba), the regional carriers have more than double the combined market share of the big national brands.

But the auction rules for 700 MHz favour national market players.

Eastlink warned of this [pdf] last year in its comments on the 700 policy, challenging Industry Canada to reconcile its draft policy against its stated objectives:

Specifically, the Department said in Paragraph 6 of SMSE-002-12 Policy and Technical Framework for the 700 MHz spectrum band that its “main objectives for the decisions” outlined in the technical framework were:

• Sustained competition in the wireless telecommunications services market so that consumers and businesses benefit from competitive pricing and choice in service offerings;
• Robust investment and innovation by wireless telecommunications carriers so that Canadians benefit from world-class networks and the latest technologies; and
• Availability of these benefits to Canadians across the country, including those in rural areas, in a timely fashion.

Eastlink submits that this auction framework, as described in the Consultation and as subsequently described by the Department does not appear to support these policy objectives. Instead, new entrant and regional service providers will be participating in this auction at a considerable disadvantage to national incumbent providers, putting both sustainable competition and meaningful rural deployment at risk.

Videotron also indicated its concerns [pdf]:

Canada’s spectrum policy framework has always recognized the substantial benefits that flow from a vibrant regional carrier presence and has always worked to encourage this presence. Indeed, since 2008, it has been the new entrant carriers, all of whom have a regional presence, that have transformed the traditionally oligopolistic Canadian wireless sector, improving responsiveness to consumers and generating substantial consumer savings in the process.

Now is not the time to undermine these achievements. Whatever spectrum auction format the Department adopts must not impede the ability of these regional new entrant carriers to secure the additional spectrum resources they need to extend and deepen their networks.

SaskTel also clearly stated its concerns [pdf] in its 700 MHz consultation comments:

Overall however, SaskTel finds that the suggested rules for the acquisition and deployment of this important spectrum make it much less likely that regional players will be able to access 700 MHz spectrum with its unique ability to help rural areas to bridge the digital divide.

The AWS auction of 2008 collected billions of dollars from regional carriers that have provided the most successful sources of competition for Canadians in urban and rural markets.

Amid all of the noise, will the concerns of regional carriers continue to go unheard?

According to the most recent Industry Canada timeline, deposits for participating in the 700 MHz auction in Canada are due at noon on September 17.

That date also marks the most likely deadline for definitive agreements to be reached for mergers and acquisitions in Canada’s wireless sector.

Let me explain why.

According to the “collusion rules” [see Section 5.4 of the Licensing Framework (pdf), and Section 2 of the Q&A] associated with the auction,

From the date of application until the deadline for the final payment on winning bids, each applicant is prohibited from cooperating, collaborating, discussing, negotiating or entering into agreements, arrangements or understandings with any competitors regarding the licences being auctioned, bids or bidding strategies in the auction, or the post-auction market structure. Each applicant is also prohibited from signalling its bidding intentions, either publicly or privately, from the application deadline until the end of the bidding process.

If a deal has not been concluded – or at least a proposed deal with a massive break-up fee – then the parties would have to stop working together, or agree that only one of the parties will be participating in the auction. Agreeing to forego participation in the auction could be suicidal in terms of its future Canadian business opportunities for a company to voluntarily withdraw from contention for the 700 MHz band, in the hopes of concluding a deal post-auction.

For this reason, one might expect considerable pressure for deals to be concluded over the coming 8 weeks. Given the time required for spectrum transfer approvals, one might expect deals to include substantial break fees to try to compensate for having to sit out the auction on the bench in case deals do not close for any reason.

Jamie Sturgeon of Global News wrote a story yesterday about new 2-year wireless plans being rolled out in response to the CRTC’s Wireless Code‘s effective ban on wireless agreements longer than 24 months.

As the story says, “customers may shake their fist at the Canadian Radio-television and Telecommunications Commission (CRTC) when the first bill arrives.”

Witnesses at the CRTC hearing had warned that this would be an outcome. Simple math suggests that if a $600 smartphone subsidy is paid off over 2 years instead of 3, the monthly price will increase.

Even the lawyer for OpenMedia acknowledged that its proposal would raise prices. In an exchange with CRTC Commissioner Candice Molnar, OpenMedia was asked to clarify its position:

3255   COMMISSIONER MOLNAR: If I could just kind of put back what I think I heard you say and you can tell me if I understood you?
3256   It is better ultimately for the industry for the potential cost of devices over time and due to the pressures of competition that will be increased by eliminating the switching cost. So it is better over time even though customers may have to pay more upfront. The long term benefits outweigh deferring that payment.
3257   MR. ISRAEL: Right, because the service fees will go down.
3258   COMMISSIONER MOLNAR: Do you promise?
3259   MR. ISRAEL: I’m sorry.
— Laughter
3260   MR. ISRAEL: I promise.
3261   Do I get a commission?
— Laughter
3262   COMMISSIONER MOLNAR: We are going to tell everybody that you said the fees would go up.

So it was a little disingenuous for TechVibes to write yesterday “OpenMedia Communications Manager Lindsey Pinto saw this travesty coming.” OpenMedia didn’t just see “this travesty”; it asked for it. OpenMedia Communications Manager Lindsey Pinto was sitting with her lawyer when he asked the CRTC for provisions in the Code that he acknowledged would make prices go up.

There are a number of other provisions in the Wireless Code that are increasing costs for all of the industry participants. Indeed, beyond the Wireless Code, a number of CRTC and Industry Canada projects are driving costs that can be expected to be passed on to consumers:

• Enhancements to 9-1-1 service to enable call-in-progress location updates and text messaging;
• Database for lost and stolen phones;
• Wireless Code projects including data thresholds, early termination provision tracking, new contracts;
• Wireless site reporting database;
• among others on the way.

As the Treasury Board notes, there is a significant cost of red tape. According to Treasury Board, Canadian regulators are supposed to prepare regulatory impact statements and exchange regulations on a one-for-one basis.

With implications for consumer prices, it might be interesting to see red tape impact statements as part of CRTC decisions.