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Newsflash!

November 1, 2013 — Newsflash!!

The Harper government has decided that its ongoing battle with Rogers, Bell and TELUS, our “big three” wireless companies, is over.

The telco lobbyists have convinced the government that the majority of voters – well, at least those in a half dozen or so ridings in Ontario and Quebec – actually like them. Therefore, in the interests of family values, motherhood and apple pie – and the voters in those half dozen ridings – the government has announced the following:

As of today, the government will stop all artificial efforts to force more competition – it will stop all subsidized spectrum set asides, and stop all efforts to artificially force prices down.

It has announced that, in the interests of Canadians, rather than encouraging more competition, it is henceforth closing the market for wireless service in Canada. After all, the prices currently being charged are necessary for the telcos to provide high quality service and earn a reasonable return.

The Harper government is going further: Rogers, Bell and TELUS are now to stop all efforts to compete with each other, whether on network coverage, data speeds, handsets, or prices. “Consumers derive no benefit from having the telcos try to outdo each other on any of those things – it would only be a race to the bottom,” a government spokesperson said. “Consumers will benefit more from cooperation and coordination among the big three.” The government has made it clear that it will legislate and enforce regulation to that effect.

However – the details of that cooperation and coordination cannot be left to just anyone, certainly not economists. Canadians need the people who “know” the business to make those decisions. The government is therefore appointing a board of industry representatives – people from Rogers, Bell and TELUS – who will determine what the “Canadian” wireless prices will be; determine the extent of network coverage; decide the maximum amounts of data they will allow across the networks; limit the speeds at which they will permit it to flow; and control what handsets will work on “their” networks and be available to consumers.

And from now on, wireless prices and rate plans will be based purely on what those Rogers, Bell and TELUS representatives, collectively, decide is the cost of providing the service – plus, of course, what they determine is an appropriate level of profit for their efforts. The government recognizes that Canada’s geography, subscriber usage and other factors have, to date, led to the highest wireless capital investment per subscriber in the world, so it is acknowledged that Canadian prices will now go up significantly to reflect that level of cost.

To ensure that these prices and this effort is protected, the government will, by way of our international trade arrangements and other regulation, stop all efforts to attract foreign industry players – indeed will prevent anyone, domestic or foreign, from setting up a new wireless company. After all, the only way the system will work is by way of a closed market. Each of the big three will be allocated a certain quota, and from now on, the only way anyone will be able to get into the wireless business in Canada will be to buy part of the quota that Rogers, Bell and TELUS already have, and join the system. Indeed, anyone who dares try to offer wireless service outside the system – for example with data speeds different that what the system decides – will be fined and shut down.

The Harper government has acknowledged that this will result in higher profits for the big three telcos, and will spark a significant increase in the share price for all three. However, the telcos have assured the government that they will use those greater profits, and enhanced access to capital, to innovate and become more efficient (other than, of course, the portion that will go to the telco lobbyists, who will need to spend a lot of money to keep the government on side).

Hmmmm.  A bit preposterous?

Of course. But that’s exactly the protectionist, market-controlled supply management system we already have in Canada with dairy, poultry and eggs – the artificial protection given to what is a tiny fraction (barely 6%) of Canadian farmers. It ensures that the average Canadian family pays upwards of $300 more a year for basic foodstuffs of milk, cheese, chicken and eggs than they should – which is bad enough for all of us, but it hurts single parent families living in poverty the most. Why is it that Canadians are so upset about over cellphone bills, but not artificially high prices for basic food necessities? Is it because we “like” farmers more than the telcos? Perhaps, but – ironically – by far the majority of the other 94% of Canadian farmers, those who grow and produce non-protected things like beef, pork, grains, oilseeds and pulses are in fact disadvantaged by the system that creates real impediments to their access to world markets.

This approach is so obviously ridiculous for the wireless industry. So why do we still have it for dairy? Maybe it’s the estimated $80-100 million dollars a year spent by the dairy lobby. The much-criticized ad campaign this summer by Canada’s large telcos was like the last drop of milk squeezed from a cow’s teat compared to the bucket-full of propaganda waged to keep Canadians paying far more than they should be for basic food.

For a full description of the supply management system, the challenges it causes, and, most importantly, positive recommendations for an exit strategy that is win-win – including for dairy farmers – see this report from the School of Public Policy.

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