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By pursuing its interventions in the telecommunications sector, Ottawa is hurting both the industry and consumers

Montreal, May 7, 2015 – The numerous interventions carried out by the federal government to encourage the establishment of a 4th wireless telephony player across the country will hurt consumers by undermining innovation in this industry. This is all the more worrisome given that important technological revolutions are in the works that will require billions of dollars of investments from the country’s telecommunications companies.

This is one of the conclusions of the 2015 edition of The State of Competition in Canada’s Telecommunications Industry, a Research Paper published today by the MEI.

“In telecommunications, true competition, which allows consumers to enjoy better services at a better price, comes from new technology and not necessarily from having an additional player in the market,” maintains Martin Masse, co-author of the study. “Competition over new services will increasingly come from foreign giants like Apple and Google, and other innovative companies that are as yet unknown. That’s where the action really is. The government’s many interventions designed to favour the emergence of a new competitor, which continued this year, are just a costly distraction.”

For example, in the case of wireline technology, competition today does not come from an additional player, but rather from the wireless technology that is in the process of supplanting it. In 2013, 21% of Canadian households had decided to abandon their residential telephones and keep just their wireless subscriptions. As for the Internet, the percentage of Canadians subscribed to mobile broadband services in 2013 was 50.2%, compared to 32.8% for fixed broadband services, due to the growing popularity of smartphones and tablets.

Contrary to what some would have us believe, the telecommunications industry in Canada is competitive and healthy, the authors show, citing a series of international studies. Indeed, Canadian consumers enjoy one of the most advanced and efficient wireless networks in the world. For example, Canada is ranked 12th out of 33 OECD countries when it comes to mobile download speeds.

The authors worry, however, that the repeated interventions of the government and the CRTC will end up hurting the dynamism of the industry. “By limiting the access of large telecommunications companies to new spectrum in favour of smaller players, and by forcing them to share their networks with their competitors at regulated rates, the government and the CRTC are missing the mark, because the effect is to discourage current players from investing in new technologies. These policies risk harming consumers in the coming years,” notes Paul Beaudry, co-author of the publication.

Watching films or sporting events on a smartphone or a tablet requires greater and greater bandwidth, and therefore increasing amounts of spectrum. This spectrum must therefore not be “wasted” by being sold at a discount, ostensibly to encourage competition, to companies that will not make optimal use of it, explains the researcher.

The government’s goal of promoting the establishment of an additional player in all regions of the country also goes against the global trend. In recent years, the number of national wireless players has gone from four or five to three in Australia, Austria and Japan. Since the publication of last year’s edition of this Paper, Germany and Ireland have been added to the list of countries with only three national players, and this is now the norm in the industrialized world.

The 2015 edition of the Research Paper on The State of Competition in Canada’s Telecommunications Industry was prepared by Martin Masse, Senior Writer and Editor at the MEI, and Paul Beaudry, Associate Researcher at the MEI. This publication is available on our website.

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

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Interview requests: Mariam Diaby, Communications Director, Montreal Economic Institute / Tel.: 514-273-0969 ext. 2231 / Cell.: 514-668-3063 / Email: mdiaby@iedm.org

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