Fourth wireless player would push prices down
Last year’s explosive battle over the potential entry of wireless giant Verizon into the Canadian market may be a distant memory, but the debate over the state of wireless competition remains very much alive. Industry Minister James Moore has pointed to a modest decline in consumer pricing and complaints as evidence that government policies aimed at fostering a more competitive market are working.
The big three wireless carriers remain adamant that the Canadian market is competitive and that while pricing may be high relative to some other countries, that is a function of the quality of their networks. In other words, you get what you pay for.
There is seemingly no major international entrant on the horizon, but the Canadian Radio-television and Telecommunications Commission (CRTC) is currently grappling with an assortment of policy measures aimed at improving the competitiveness of new entrants and facilitating the development of a more robust market for virtual operators who could enhance consumer choice. Moreover, the gov- ernment is planning another spectrum auction early next year that would benefit new entrants.
At the heart of the debate is whether creating a fourth national carrier is a legitimate policy goal or a mirage that will do little to decrease pricing or create market innovation. The major carriers argue that the Canadian market is too small to support a fourth national carrier and that competitiveness is not directly correlated to the number of national operators.
Conversely, the government, supported by independent analysis from the Competition Bureau, believes that more competition is needed given the “market power” wielded by the big three incumbents. The creation of a fourth national wireless carrier is often cited as an important target that would alter the competitive dynamic.
The government’s position received a major boost this week with the release of a new study by the Organization for Economic Cooperation and Development (OECD), a leading international governmental body that counts most developed economy countries as members. The OECD report focused specifically on whether the number of carriers within member countries is linked to consumer pricing or marketplace innovation.
After reviewing the recent experi- ence in 11 OECD countries, it concluded that a fourth carrier makes a difference. The study finds that with four or more competitors “there is a higher likelihood of more competitive and innovative services being introduced and maintained.” For example, France and Israel experienced price reductions and the introduction of unlimited usage plans with the entry of a fourth carrier. In the Netherlands, the study finds that the imminent launch of a fourth carrier has led to more competitive consumer offers, including Europe-wide roaming. The study also identifies other areas where new competitors have had a significant impact on marketplace dynamics. Fourth carriers have often been the source of better international roaming offers, forcing established players to respond by reducing their own prices or enhancing their plans. Similarly, virtual operators have targeted niche markets by expanding access to prepaid plans more aggressively than established carriers.
Just as more competition helps, reduced competition can hurt. For example, the study notes that a 2009 Australian merger that decreased the number of wireless competitors has led to less vigorous retail competition.
Notwithstanding fears that new entrants or virtual operators might reduce earnings and thereby the incentives to invest in new networks, the OECD data suggests those concerns are largely unfounded. Reviewing nearly 15 years of data, the study finds that investments in telecommunications networks have remained remarkably stable.
In other words, competition works.
This finding will not come as surprise to most observers, but in the contentious world of Canadian telecom, where incumbents seemingly fear the prospect of new competitors as much as actual competition, the OECD report provides yet another reason for the government to maintain its policy approach and for the CRTC to use its regulatory powers to foster a more competitive marketplace. Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can be reached at mgeist@uottawa.ca or online at michaelgeist.ca.