Canada is a world leader for high mobile prices, low handset penetration and astronomical revenue per user. These are the results that typify a market in which incumbents aren’t disciplined by either competition or regulation.
Price-gouging and prejudicial contract terms are an established feature of both retail and wholesale markets – one important reason among many for all the failures among Canada’s new entrants. Some of us believe strongly we will never enjoy a fair and competitive retail market unless and until major reforms are made to the way the wholesale market has been allowed to develop.
The CRTC announced in February it was launching a proceeding to look into a number of contentious issues, in particular “to determine whether the wholesale mobile wireless services market is sufficiently competitive, both now and in the future” (Notice of hearing, Telecom Notice of Consultation CRTC 2014-76, para 11). The public hearing phase begins on September 29. Ben Klass and I are intervenors in this proceeding, and the staff liked our filings so much they’ve invited us to appear at the hearing.
Here are a few other details on the Commission’s goals:
13. … [T]he Commission will examine the market conditions for wholesale roaming and wholesale tower and site sharing in Canada, as well as the market conditions for other wholesale mobile wireless services.
14. Specifically, the Commission will examine the relevant product and geographic markets for wholesale mobile wireless services. The Commission will further examine the supply and demand for wholesale mobile wireless services in their defined markets, and will identify trends (at the retail and wholesale levels) that may influence future supply and demand for the services. The Commission will review the impact that the wholesale mobile wireless services market has on the development of the downstream retail services market and the effect on sustainable competition in that market.
15. The Commission will also consider whether greater regulatory oversight, including mandating access to any existing or potential wholesale mobile wireless service, would be appropriate if it were to find that the wholesale mobile wireless services market is not sufficiently competitive. In the event of such a finding, the Commission will consider whether its existing powers under the Act are sufficient or whether it should reassert its jurisdiction to apply certain provisions of the Act that are currently forborne in order to impose regulatory measures on wireless carriers with respect to wholesale mobile wireless services.
The takeaway: if the Commission finds that the wholesale mobile wireless market is not sufficiently competitive, it reserves the right to re-regulate service areas where they have previously forborne from regulation. Bell, Rogers and Telus are having a shit fit about that prospect.
One particular outcome the incumbents may fear most is being required to provide fair and reasonable support not for facilities-based new entrants (like Wind or Mobilicity), but for MVNOs (mobile virtual network operators) – the independent ones like 7-11 (Ztar), not the incumbent flanker brands like Koodoo (Telus) or Virgin (Bell).
What we told the Commission
The importance of MVNOs for a healthy, competitive market is one of the main talking points in our August 20 intervention. Here’s the setup for that document (the pdf is uploaded here):
- The heart of the issue in this proceeding is whether wireless markets iin Canada are sufficiently competitive to justify continued forbearance of wholesale wireless services. It’s hardly a secret that they are not, although one must contend with a number of arguments to the contrary from parties with a vested interest in maintaining the status quo.
- The Telecommunications Act permits forbearance when it is consistent with the policy objectives of the Act, and then only when it will not result in the suppression of existing or future competition. In fact, reliance on market forces as a means to achieving the policy objectives in lieu of regulation presupposes that markets are already (or will soon be) sufficiently competitive and efficient. Today’s wireless market is neither competitive nor efficient, and there is little likelihood that it will become sufficiently competitive to achieve the policy objectives without regulatory intervention.
- The Policy Direction says that market forces ought to be relied upon to the maximum extent feasible to achieve the objectives. But under the current wireless market structure, Canadians are not enjoying even the most basic benefits, such as high quality, affordable services. The Direction recognizes that proportionate, efficient regulation may be required when market forces do not “deliver the goods.” Since Industry Canada has consistently taken the position that wireless services should be more affordable, and that the efficiency and competitiveness of the Canadian wireless market need to be enhanced, we must conclude that the present level of forbearance places too much reliance on firm behaviours and market forces.
- The question we must ask therefore is how can the Commission best ensure that the policy objectives are achieved in an efficient and effective manner in the wireless market? This proceeding identifies the potential avenue to improvement as a new framework for wholesale services, including roaming, tower/site sharing, and “other” wholesale services (MVNOs and MVNEs).
- A number of factors suggest that continuing to forbear from regulation of wireless wholesale services would not be appropriate, as status quo market forces have proven insufficient to protect the interests of regular consumers and of users of wholesale services. In our view, a carefully considered, properly executed framework for regulated wholesale would be effective and less intrusive than other potential measures, such as retail rate regulation, functional separation or divestiture.
In order to assist the Commission in making its determinations, we present this intervention in three stages. First, we assess the extent to which existing market forces contribute to the achievement of the relevant policy objectives. Second, we discuss the negative effects of existing barriers to entry. Finally, we consider the role of MVNOs, and suggest that mandated access for third- party service providers is necessary to ensure sufficient and sustainable levels of competition.
Further polemics from all sides to follow in due course.