Why favouring wireless resellers undermines competition

Over the past decade, the Canadian government and the CRTC have adopted various policies aimed at increasing the number of players in the wireless sector. Although such policies have had several negative consequences, there is today a well-established fourth wireless provider, owning its own infrastructure, in almost all regions of the country.

But even this state of affairs does not appear to have moderated Ottawa’s appetite for additional regulation of the telecom sector. Indeed, the federal government now wants the Canadian Radio-television and Telecommunications Commission to provide regulatory privileges to resellers of wireless services. Resellers are small players with no wireless network of their own that instead lease access from larger players and resell a cheaper service.

Wireless providers are currently obliged to offer wholesale roaming on their networks to other wireless providers at regulated prices, ensuring that Canadians are able to use their devices anywhere in the country, even where their provider has no cellular towers. But the CRTC has always refrained from forcing providers to share their networks with resellers who have no infrastructure of their own.

Innovation Minister Navdeep Bains, though, has asked the CRTC to reconsider its decision in a recent dispute between Rogers and small reseller Sugar Mobile. The latter, whose clients use their devices primarily by connecting to public and private WiFi networks, wanted this «WiFi first» arrangement to count as an infrastructure of its own. It would therefore benefit from the mandated wholesale roaming regime and be able to access the networks of facilities-based providers at regulated rates. The CRTC, in its original decision, wisely rejected this reasoning.

There are several reasons why the CRTC should refuse to adopt regulations that would artificially favour resellers. First of all, it is not true, as the government’s order-in-council claims, that «Canada has among the lowest adoption rates for mobile wireless telecommunications services among industrialized countries.»

The vast majority of Canadians (81.6 per cent in 2015) have a wireless device, and this proportion keeps increasing. Canadians are also among the biggest users of data on tablets and smartphones, and Canada ranks third out of 21 countries in terms of the proportion of mobile subscribers using smartphones. There is therefore no need to intervene to catch up with other countries.

It is already possible for resellers to conclude wholesale roaming agreements with wireless providers on a commercial basis. It can indeed be profitable for wireless carriers to strike agreements with resellers when they have surplus network capacity.

However, mandating larger carriers to enter into resale agreements at regulated rates would be misguided, as it would undermine these carriers’ incentives to invest and innovate. Such a measure would only sustain artificial competition, without any of the benefits entailed by real competition in a market-based economy.

A change in regulation would also undermine the government’s own fourth-player policy. These fourth providers – Eastlink in the Maritimes, Videotron in Quebec and Eastern Ontario and Shaw in Western Canada and Ontario – are still in the process of trying to gain market share. Resellers would compete more directly with them than with the three established national providers.

Finally, let’s be honest: While Sugar Mobile offers its own application to make calls over a WiFi connection, there’s nothing particularly special about its technology.

More than a decade after the federal government issued a policy direction to the CRTC instructing it to «rely on market forces to the maximum extent feasible,» it is now sending the opposite message by asking the regulator to undermine property rights, market forces, and sound competition, all while creating a new category of privileged players protected from competitive pressure. Canadian consumers will clearly be better served if the CRTC informs the minister, after reviewing his request, that it sees no need to modify its rules for wholesale roaming services.

Martin Masse est rédacteur et réviseur principal à l’Institut économique de Montréal, Paul Beaudry est chercheur associé à l’IEDM. Ils sont les auteurs de « Services sans fil : la réglementation doit-elle favoriser les revendeurs? » et signent ce texte à titre personnel.