With apologies to Sir Walter Scott, what a tangled web of policy we create when first we practice to manipulate.

Getting the policy right for the Canadian telecom industry is difficult now largely because we’ve had it wrong for so long in so many ways.

First, the industry was protected long after it was necessary to protect it for national security (the initial basis of protection of the telecom industry in most western jurisdictions).  With no foreign competition, the CRTC and The Competition Bureau had to make sure there was adequate domestic competition and thus limited the scale of domestic players.  As recently as 2007 when Bell was in play, the merger of Bell and Telus was discouraged.  So decades of protection of the Canadian industry left Canadian companies with uncompetitive scale relative to international players.

In the same period, American telecom players were able to merge and then grow internationally on the strength of their much larger domestic scale.  Other markets opened up to international competition and grew international competitors.  For example, Deutsche Telekom, once a bloated, German utility, was protected just long enough for it to become internationally competitive and only then were foreign competitors unfettered in Germany, which resulted in a competitive German market and an internationally competitive national champion.

Second, a belated effort to open the Canadian market gradually by offering spectrum only to new players in 2008, failed to recognize the importance of scale within Canada.  Spectrum granted to small players created a flurry of new consumer offers, but no viable competitors to Telus, Bell and Rogers.  Unable to grow fast enough against entrenched players, these new entrants are on the ropes now seeking more policy favours, merger partners or perhaps bankruptcy protection in the future. 

This has now led to the policy change to allow foreign acquisitions of up to a 10% market share limit, inviting the Verizon proposal to acquire Wind Mobile.  Now, the industry is claiming that the policy favours such foreign competitors:  they have access to spectrum not available to the major Canadian players; they can acquire companies that the Canadian players are forbidden to acquire; and they can piggyback on the pre-built infrastructure.  In addition, buyers like Verizon have scale that the Canadian players were not allowed to achieve historically. 

A playing field now tilted in favour of foreign competitors is the unintended consequence of policy that over-reached, trying to construct a desired outcome.

How do we untangle this mess? 

Policy should provide a framework of competition, i.e. the rules for a fair fight and a referee; it should not strike blows for one side or the other.  The Canadian telecom policy framework needs to change but should not be used to manipulate the industry toward a particular outcome.

If it is desirable to have more large-scale competitors, then they will have to come from abroad.  However, the same access to spectrum and acquisitions should be available to all.   If Verizon is allowed to enter and does, (and it would surely be followed by others), then there would no longer be a case to keep Bell, Telus, Rogers or others apart.  If it deemed no longer necessary to protect the Canadian industry, then let them fight on a level playing field for spectrum, acquisition targets and foreign partners. 

In the latter case, we could expect most, if not all, of the Canadian industry to be sold to larger scale international competitors – perhaps a poetic consequence of decades of protective policy, but it would be yet another Canadian industry sold off and regulators would then be left with the task of forcing affordable service coverage to the far corners of the nation.

 

As printed in the Toronto Star, August 25, 2013.