Why the Canadian government’s telecom policy is an unmitigated disaster. Part 1: The war of 2013

Canada's telecom policy

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Over the last 5 years the CRTC has gone from a puppet of the telecom industry to a consumer advocate with a mandate to increase competition, lower prices, and improve service. And it has failed miserably at all 3. It’s time for the government to go back to the drawing board.

Canada’s wireless market is a complete disaster and it is no secret that we have some of the highest cell phone costs in the world. As far back as 2008, the government recognized this and wanted to spur competition by setting aside blocks of spectrum for new entrants to bid in the 1700mhz auction. It worked. Wind Mobile, Mobilicity, Public Mobile, and Videotron emerged as new entrants into the market.

However, right from the start, problems started to emerge. Wind Mobile was nearly shut out of the market because the majority of it’s financing was provided by Oracscom, an Egypt based telecom carrier, headed by billionaire Nassef Sawiris. This put Wind in contravention of CRTC guidelines requiring the majority of carrier ownership to be in the hands of Canadians. Fortunately, in 2009, the government intervened and overrode the CRTC, paving the way for Wind to enter the market.  The rules were later relaxed further to allow foreign controlled companies to participate in the telecom market as long as they had less than 10% market share.

But this government intervention in the market has been a problem in and of itself and has created a great deal of uncertainty and has raised questions such as, what will happen if a carrier captures more than 10% market share?

5 years after government intervention, the new carriers are all teetering on insolvency. In the end, none of the new entrants could convince enough Canadians to sign up because they were perceived as offering an inferior service. The new entrants also miscalculated the market by offering unlimited calling, just as Canadians were shifting to high end smartphones, with the Big 3 heavily subsidizing the purchase price of the handset.

Consumers, it turns out, cared more about being able to use their phone everywhere, and the cheap prices of the new entrants fed into a perception of getting the service you paid for.

But a saviour appeared to be on the way: Verizon.

Verizon had the finances, expertise, resources and heft to give the Big 3 a run for their money. Upon learning of their interest in entering Canada the Canadian government practically rolled out the red carpet for Verizon.

And so began the telecom war of 2013.

With the upcoming 700mhz spectrum auction, the stage was set for a major showdown between the incumbents and Industry Canada.  The incumbents cried foul and pointed out that Verizon, a company with a market cap 4 times greater than all 3 put together, would be able to bid on the spectrum set aside for new entrants and it wouldn’t be fair.

The carriers started a high profile PR and social media campaign that plead their case called “Fair For Canada,” taking out full page ads in newspapers across the country and running ads like this one:

Canadian consumers weren’t stupid and saw right through this disingenuous appeal to emotion. In fact, it made them even more angry. The federal government recognized a political opportunity and launched their own campaign at an expense of $9 million of taxpayer’s money.

After this months long battle  Verizon didn’t enter the market and both carriers and the government came out of 2013 looking like complete fools. The reason for not entering was largely attributed to Verizon completing a share buyback, but there is a lot of evidence that there were other reasons as well.

What are they? I will cover it in my next post.

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Andrew Seipp

Principal Consultant at Telclarity
Andrew Seipp is the principal consultant for Telclarity. His company helps small to enterprise clients navigate the world of telecom and find significant savings. Having worked in the telecom industry for nearly a decade he brings unparalleled insider knowledge to the table.

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