Globalive Wireless CEO Ken Campbell has written an article this morning in the National Post titled “Wireless Wars: Barriers to new providers”. He explains the Canadian Wireless industry and how the recent news from the CRTC could impact their plans and possibly impact consumers from having more choice when it comes to their wireless needs.
Read the article here, or below:
In a pair of decisions announced earlier this week, the CRTC decided for the first time in its history to hold a multi-party public hearing on whether a telecom carrier is complying with the Canadian ownership and control rules. It announced that it would subject Globalive Wireless to the first such public review. The decisions will further complicate and could delay the introduction of more competition into Canada’s wireless industry, an industry in which Canada lags behind the rest of the developed world. And they mean that the CRTC will be conducting a public hearing at significant expense to all parties involved – including the Canadian taxpayer – to duplicate exactly the same compliance review already performed by the Minister of Industry. To what end?
Canada’s wireless industry is one of the weakest in the developed world. Merrill Lynch ranks current Canadian wireless penetration at 65% – just ahead of Indonesia and Iraq – but dead last among 22 developed countries. Similarly, the International Telecommunications Union (ITU) has tracked a steady decline in Canada’s wireless penetration rank: from 35th in 1998 to 128th in 2008.
What’s contributing to Canada’s falling wireless rank? In short, Canadians are being asked to pay more to get less. According to Merrill Lynch, over the past year, Canadians paid an average of 10 cents per minute (US$) and used 435 minutes per month. At the same time, Americans paid 5 cents per minute (US$) and used 830 minutes per month.
Who benefits from high wireless prices? Obviously, the Big Three incumbents, Rogers, TELUS and Bell, which control about 95% of the Canadian market (partly through their ‘flanker brands’ like Fido, Koodo, Solo and Virgin Mobile). Wireless Intelligence indicated that as of the end of Q1 2009, profit margins for Canadian wireless providers were amongst the highest in the developed world – about 44%, compared to the global average of 34%.
Recognizing this, last year the Canadian government took the bold step of designing its cellular spectrum auction in a way that would attract new companies to compete. Despite vigorous opposition from the Big Three, Industry Canada set aside approximately 40% of the new wireless spectrum to be licensed only to new players. It also introduced policies allowing tower sharing and national roaming – policies designed to optimize resources and reduce barriers to entry. With bids totaling $442 million, Globalive Wireless was the highest bidder for a large amount of that new entrant spectrum.
After the results of the auction were announced, Industry Canada carefully reviewed the legal credentials of all auction winners, and on March13th, confirmed that Globalive Wireless complied with applicable law, including – significantly – the rules requiring Canadian control of telecommunications carriers.
Globalive Wireless has since been racing to bring its offering to market as quickly as possible. By next summer, without the delays occasioned by the CRTC review, Globalive Wireless would have launched its services in many Canadian markets, employed an estimated 2,000 people and spent over $1 billion building its network.
The incumbents responded to the threat of new competition in predictable ways: they cut prices and suggested they would provide better customer service. Fair enough although one wonders whether that would have happened without the threat of more competition. Somewhat more cynically, they sought to game the regulatory system in a way that could delay and seriously complicate the introduction of wireless competition. Led by TELUS, the incumbents asked the CRTC to hold a ‘multi-party’ public hearing process to review the legitimacy of new cellular entrants under section 16 of the Telecommunications Act. On Monday, the CRTC granted them their wish. After having spent several months holding public consultations on the issue of whether there ought to be a public review of Globalive’s ownership structure, the CRTC announced that going forward – but with retroactive application to the new entrants – it would use a “framework” based on the complexity of the applicable ownership structure to determine the level of public scrutiny to bring to the ownership review. First up, Globalive Wireless. Next, expect to see the other new entrants subjected to similar challenges.
What could be wrong with a transparent, public review? In principle, nothing. In practice, lots. First, The CRTC itself acknowledges that it has never done so and that it is a process that can be abused to create process obstacles for new entrants. The CRTC is fully capable of looking at the material Globalive has provided and rendering judgment. It has done so countless times before. In the past it has acknowledged that system is more efficient, prevents “gaming” by competitors and protects commercial confidentiality. Although the CRTC process contemplates some documents potentially being reviewed on a confidential basis, the CRTC has the discretion to determine which of Globalive Wireless’ competitively sensitive information is offered up to its competitors. Finally, the uncertainty regarding both the timing and the substance of the outcome of such a review will prevent Globalive from concluding operationally critical agreements and financing. The market place will wonder – as industry analysts have already begun to speculate – what happens if despite examining the same facts and using the same standards, the CRTC comes to a different conclusion than the one reached by Industry Canada? Those analysts are now suggesting that the CRTC decision is good news for the incumbents because competition may well be delayed or weakened, the opposite of what the government’s policy was intended to accomplish
How does this benefit the Canadian consumer? We see nothing but downside for all Canadians other than those fortunate enough to be shareholders of the incumbents.
Globalive Wireless is proud to be a Canadian-controlled company that has found financial support abroad. It has repatriated significant Canadian talent from innovative wireless companies in other countries. We intend to continue to comply with all Canadian law. We believe however, that if the incumbents – are allowed to introduce additional risk and uncertainty through a public hearing process, declines in Canadian innovation and productivity will only accelerate in the wireless sector. Canadians deserve better.