According to a 2013 OECD Report, Canadians pay some of the highest prices for some of the worst telecom services in the industrialized world. For example, for most data-only plans (used by iPads and tablets) Canada is one of the most expensive countries in the OECD; we’re lagging in 32nd place out of 34 countries. Meanwhile, Big Telecom companies in Canada are some of the most profitable as a result of their high prices. Canadian carriers have the third-highest revenue-per-user in the G8, and the fourth-highest across the OECD.
The big reason why Canadians pay such high rates: the Canadian marketplace is dominated by the big three companies: Bell, Rogers and Telus. These three firms control 90% of the market. In a submission to the CRTC, the federal Competition Bureau accused the big three of blocking Canadians’ access to affordable alternatives. The big three have been accused of charging extremely high rates to new entrants into the market for using their infrastructure.
The Conservative government under Stephen Harper has attempted to introduce new competition into the market by reserving high value spectrum for new entrants. This has had little impact on the market, as the new entrants don’t have the necessary capital to compete. Eventually they have been purchased by Rogers, Telus or Bell.
So what is the solution? The Canadian government should create a Crown corporation for telecommunications. The government would create the company and acquire the necessary spectrum by purchasing some of the struggling carriers in Canada. A Crown corporation for telecom would temporarily provide a well-financed fourth competitor for Bell, Rogers and Telus in the Canadian market, and would encourage more investment in the Canadian industry.
The government could use the corporation to purchase mobile phone and high speed internet infrastructure, which would allow greater access for other companies and increase competition. The government could also build better infrastructure in rural areas poorly served by the private sector. Access to high speed internet, cable and mobile phone services has become essential for development and economic growth, and all Canadians should have equal access.
Once the government owns the infrastructure for telecom services, it could provide access to all companies in the Canadian market place, ensuring equal access to domestic and foreign competition. As for the Crown corporation itself, the government could continue to operate it as is, and use profits to pay for social programs. Otherwise, it could privatize its retail operations once the market matures.
Another option for dealing with the oligopoly of telecom services would be to break up the big three, forcing them to split in to smaller companies. There is little political will amongst the major federal parties to break up profitable Canadian companies Roger, Bell or Telus, for fear of job losses.
A third option would be to completely remove regulation of foreign ownership of telecom. There is little appetite from the public for removing regulations for fear that Canadian firms would be swallowed up by larger foreign companies. The government recognized this concern when they introduced changes to regulations in March 2014. They removed regulations on foreign ownership provided the company has only a 10% share of the Canadian market.
The government has tried to encourage foreign investment in Canada’s telecom industry, but has found it to be more difficult than they imagined. Foreign companies are not inclined to enter the Canadian market in the current environment. A small population spread out over a large geographic area won’t attract firms to Canada, particularly when having to piggy-back on the infrastructure owned by Bell, Rogers or Telus at a high cost or build their own.
The government has tried some free market solutions to save people money on their cell phone, cable and internet services. It is time to admit it hasn’t worked, and they need to go in another direction.
Chris Logel is the creator of the blog Outside the Ottawa Bubble. This post was contributed to The Tête-à-Tête as part of our Discussion on policies for the 2015 Canadian Election.
One thought on “Policy proposal: Create a Crown corporation for telecom”
This is an interesting suggestion. I definitely think the government needs to engage in markets with natural monopolies – which certainly seems to include telecom. They would have to carefully study the idea first to make sure they weren’t wasting a lot of public money if it turned out to be infeasible. But to have either tightly regulated or nationalized essential infrastructure seems like a no-brainer from an economic (and social) perspective.