During the summer of 2017, when I was working for AT&T as IT support in one of their Canadian offices, I was shocked to see and hear about the low prices that Americans have for their wireless plans. For virtually the same plan as my own at Telus, AT&T consumers were paying anywhere from 50-70% less. Upon realizing how much I was paying, I started looking at different providers and quickly discovered that all my options stemmed from the networks of the Big 3: Bell, Telus, and Rogers.
At the time I did not realize it, but what I had stumbled upon – and what millions of Canadians also inevitably experience – is a lack of competition in an industry that is of ever-increasing importance. Where Americans typically have dozens of options for wireless providers, Canadians tend to only have around three, sometimes less. I was even more astonished on a recent trip to Alberta, where I discovered that some of my family was paying much more than what I was paying back in Ontario –– nearly 100% more than what I was used to seeing when I worked for AT&T.
From a business perspective, the issue is not that difficult to wrap your head around. The fewer competitors there are in an industry, the less pressure there is for those competitors to truly compete against each other with innovation and lower prices. It’s only natural that the three big telecommunication companies became content not fighting each other for market share. What allows the Big 3 to reach this level of comfort are the high barriers to entry in the Canadian telecommunications industry. The combination of a large and complex landscape and a relatively small population makes Canada a difficult market to break-into for unestablished telecommunication firms.
This lack of competition is not just the domain of businesspersons and economists, however. The law has a large role to play in ensuring that these sorts of problems do not become progressively detrimental to Canadian consumers. This is the role of competition law, and in many cases, the Competition Bureau of Canada.
Just before the new year, the Bureau delivered a number of submissions to the Canadian Radio-Television and Telecommunications Commission (CRTC) with the goal of creating a new wireless policy aimed at lowering prices for Canadian consumers. Both the Bureau and the CRTC recognize that competition is a driving force behind high quality and innovative services at affordable prices across Canada. The Bureau based their submissions to the CRTC on extensive confidential data from Canadian wireless carriers and international wireless markets.
They discovered that regional competitors who operate their own networks, such as Freedom Mobile and Sasktel, are increasingly capable of disrupting the wireless market. Where wireless disruptors are operating in Canada and have achieved at least a 5.5% market share, prices are 35-40% lower. Similar results have not been found with Mobile Virtual Network Operators. MVNOs simply utilize the network infrastructure of larger firms, typically the Big 3.
As such, the way forward for a more competitive industry is to facilitate the entry of wireless disruptors into the marketplace. Significant price reductions can be achieved if these new competitors were to gain a 20% market share. While MVNOs are useful for providing consumers with more choice and variety in products and services, an over-saturation of these types of firms risks diluting the benefits that wireless disruptors have the potential of bringing. An increased amount of MVNOs, who are effectively renting the network of larger firms, means market share will continue to be concentrated toward the Big 3 rather than directed towards new competitors who seek to compete with lower prices.
Ultimately, the Bureau recommends a temporary MVNO policy that is focused on incentivizing and accelerating facilities-based competition from disruptors. The proposition is to allow wireless disruptors to act as an MVNO while they transition into becoming a full-fledged provider.
While it has yet to be seen how the CRTC will act on these submissions, it ought to be comforting to Canadians that there is a body of economists and lawyers both in the public and private practices working towards the best interests of consumers. Problems with market competition surround us in our market economy, and as such, the law of competition will play an increasingly important role in ensuring that the free market works best for those it is meant to serve.
The full Bureau report submitted to the CRTC may be read in the Competition Bureau’s website (https://www.competitionbureau.gc.ca).