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Spectrum set-aside will bring more distortion to wireless market, not consumer benefits

Montreal, March 28, 2018 – Innovation Canada’s decision to go ahead with its proposal to set aside 43% of available licences for smaller players in the upcoming 600-MHz auction will not bring the intended benefits to consumers, says a telecom policy analyst at the MEI.

Touted as a way to help smaller players compete against the big ones, and ultimately bring lower prices to the wireless sector, this policy tool has only wasted resources and led to an inefficient allocation of spectrum since it was first used in the 2008 AWS spectrum auction, and then in subsequent auctions. Unfortunately, it seems the federal government hasn’t learned from its past mistakes about the perverse effects of such a policy.

In effect, the set-aside 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.

“Such measures essentially constitute public subsidies that are either lost to weak new entrants that consistently fail, as was the case with Wind, Public Mobile and Mobilicity, or wasted on established regional players that would have had the means to bid for the spectrum at full value,” explains the MEI’s Martin Masse, author of the annual State of Competition in Canada’s Telecommunications Industry, whose 2018 edition will be released in early May.

Set-asides have also delayed the use—or the more efficient use—of spectrum frequencies that were either wasted on the failed companies or simply went unused for years due to speculation. Some license holders bought them at a cheap price but never used them and made windfall gains when they sold them to other providers years later. This made spectrum scarcer and more expensive to deploy, which ultimately hurt consumers.

The set-aside policy is even less justified today than it was ten years ago. All the regional players that will benefit from it are financially strong companies that do not need this subsidy.

“There’s no point in having a competitive auction, whose goal is to ensure a more optimal allocation of resources than arbitrary decisions by politicians and bureaucrats, if the rules are rigged to ensure a specific outcome,” concludes Mr. Masse. “If the government really believes we need more competition in the wireless sector, it should just let it happen.”

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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.


Interview requests: Pascale Déry, Vice President, Communications and Development, MEI, Tel.: 514-273-0969 ext. 2233, Cell.: 514-502-6757, Email: pdery@iedm.org

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