We need to fix Canada’s telecom problem

The Organisation of Economic Co-operation and Development ranks Canada as having one of the most restrictive telecom sectors in the world. “Canada has restrictive foreign ownership rules in telecoms and broadcasting which are intended to support Canadian cultural objectives but which also reduce competitive pressures”.

Comparing phone plans to the United States, where companies like AT&T charge only $80 for unlimited data, calls, and texts (including free roaming in Canada and Mexico); Canada lags far behind as carriers like Bell charge $110 for 6GB data inclusive of voice and text roaming in the US. The issue is simple: Canadian telecom companies are providing lower quality services compared to their American counterparts, at a significantly higher price. Hence, it is not surprising to see that complaints against telecom carriers rose by 57% in 2017-2018.

So how is the US different from Canada? Why does the US have far cheaper and more efficient telecom services than Canada? The answers lie in the US’s competition policy for telecom carriers. Canada has 3 main carriers: Bell, Telus, and Rogers (The Big Three). Any other carriers (Fido, Koodo, and Virgin) are, in fact, all subsidiaries of Bell, Telus, and Rogers. While the latter options are cheaper, their services and connectivity are worse than The Big Three. Each of these three carriers have approximately ? of the market share.

This form of cartelism has effectively snuffed out any possibility of a fourth independent carrier coming into play. The US, on the other hand, has four competent carriers: Verizon, AT&T, T-Mobile (a subsidiary of Deutsche Telekom), and Sprint. These four carriers have a good and competitive environment to run their businesses, and this has resulted in profit for the companies and savings for their customers.

We should look no further than India for the best example of market competition in the telecom sector. Vodafone India’s most expensive mobile plan, which allows for international roaming, 200+500GB data, and unlimited calling and texting is a mere $40; their cheapest mobile plan with 40GB data is only $8 per month.

So why hasn’t there been a fourth player yet? Operating profitably requires very significant capital investment and a large customer base to support it, both of which result in the taking on of massive risk for potential market entrants. Most Canadian telecom players have evolved from state ownership, explaining their strong infrastructure, long history, and breadth of product offerings.

Canada’s spectrum sales to new entrants is also problematic. Instead of making more money by selling shares in the open market, Canada prioritizes new entrants by blocking The Big Three from buying. This way, the government makes less money and often gives these spectra to inefficient players in the market.

A similar story in Europe regarding the government’s involvement in the telecom space in the mid-2000s led to regulators giving asymmetrical treatment to new entrants in an attempt to stimulate competition. Europe now faces some of the slowest and least reliable wireless networks in the industrialized world. This is mostly due to artificially increased competition, resulting in forced lower prices and short term consumer satisfaction.

Canada must allow the free market to naturally take its course, instead of trying to forcibly stimulate competition. Encouraging free market competition has reaped benefits for companies and people alike, while protectionism does the exact opposite. Doing so would immediately lead to a lowering of prices, improved quality of services, and a drop in customer complaints. The path to success for the Canadian telecom sector requires the abolition of big government protectionism.

What do you think about Canada’s telecom problem? Let us know in the comments below!