Montreal, October 5, 2017 – A decade after we first debated the appropriateness of setting spectrum aside to foster the emergence of new wireless players, it seems the federal government hasn’t learned anything about the perverse effects of such a policy, says a telecom policy analyst at the Montreal Economic Institute.
The consultations on the framework of the upcoming 600-MHz auction (likely to take place in 2019) ended earlier this week. Ottawa has once again proposed to reserve 40% of available licences for smaller players. In effect, this means that Shaw’s Freedom Mobile, Videotron, SaskTel, and Eastlink will not have to bid against the Big Three—Bell, Rogers, and TELUS—for these licences and will therefore be able to acquire them at a cheaper price.
Martin Masse, coauthor of a yearly research paper on the state of competition in Canada’s telecommunications industry, notes that “experience has shown that such measures essentially constitute public subsidies that are either lost to weak new entrants that consistently fail, or wasted on established regional players that would have had the means to bid for the full value of the spectrum.”
The biggest beneficiaries of the federal government’s interventionist rules have been the shareholders of WIND, Public Mobile, and Videotron, who arbitraged their government-subsidized spectrum acquisition to secure a windfall. The federal government’s rules have also delayed the use—or the more efficient use—of spectrum frequencies that were wasted on the failed companies or were simply unused by the license holders.
Mr. Masse contends that inefficient usage of spectrum has been one of the most damaging unintended consequences of this flawed policy. It made spectrum scarcer and more expensive, which is the exact opposite of the government’s stated intention of adopting policies that are conducive to lower consumer prices.
“Why have an auction if you’re going to rig the rules in order to ensure a specific outcome?” asks Michel Kelly-Gagnon, President and CEO of the MEI. “Open, competitive auctions are supposed to lead to a more optimal allocation of resources than arbitrary decisions by politicians and bureaucrats. The proposed set aside defeats that purpose. If the government really believes we need more competition in the wireless sector, it should let it happen, plain and simple.”
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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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