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Bulletin | Federal Election 2019

Calling All Voters - Be Wary of Wireless Promises this Election Season

Fasken
Reading Time 7 minute read
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Technology, Media and Telecommunications Bulletin | Federal Election

Now that election season is in full swing and the campaign is well-underway it is time for Canadians' favourite quadrennial political rite of passage - platforms that promise to slash wireless phone bills.

Affordability has become a central theme in this campaign and cheaper wireless makes for great politics.

But great politics doesn't always translate to great policy. This old refrain is worth repeating here, and a quick review of the laws and regulations governing telecommunications in Canada is needed in order to look critically at the platform initiatives.

Let's start with where the three largest parties stand.

Capped Fees, Lower Bills, Better Service… and a Chicken in Every Pot

The Liberals released their promise to "reduce the cost of wireless services by 25 percent within four years" by, among other things, ensuring "Canadian Competition in the market" and "prioritizing consumer choice and affordability".[1] While the Liberal plan does not include specifics on how this reduction will be achieved, it appears to include opening the market to Mobile Virtual Network Operators (MVNOs). More on MVNOs below.

While the Conservative Party of Canada has not released a platform plank on wireless, Andrew Scheer used a media scrum after the leader's debate to say that he believes "robust competition is the best way to make sure that Canadian's have affordable services…" He also criticized Justin Trudeau and the Liberal platform for offering "a goal without a plan" that is based on simply "asking companies to do it" (provide affordable services).[2] Further, a spokesperson for the CPC previously criticized the Liberals for a "heavy-handed regulatory approach [that] will only reduce investment and lead to less service for Canadians."[3]

Jagmeet Singh and the NDP were the first party out of the gate with a wireless announcement, promising a headline-catching promise to institute a price ceiling on retail wireless services, capping prices around the global average. Their platform online also promises a "Telecom Consumers' Bill of Rights" without further detail and a bold promise to "expand cell coverage… to ever community in Canada."[4]

All of these promises sound great at first blush, but they either neglect to appreciate the regulatory tools used by the federal government or ignore the economic trade-offs between price, on the one hand, and investment in service coverage and quality on the other.

So which promises are most likely to endure past election day?

Direct Regulation of Retail Wireless Prices

The Telecommunications Act grants the Canadian Radio-television and Telecommunications Commission (CRTC) authority to regulate the rate a Canadian carrier charges for services, either by establishing minimum or maximum prices for services or through a requirement that rates be approved.[5]

The CRTC also has the authority[6] to forebear from regulating classes of services provided by carriers when it finds, as a question of fact, that competitive market forces are sufficient to protect the interests of users and that forbearance would be consistent with Canada's telecommunications policy objectives, which are set out in section 7 of the Act.

Using this authority, the CRTC's policy since the early 1990's has been to forbear from regulating rates for retail wireless telecommunications services (i.e. the price that carriers may charge consumers).[7] In doing so, the Commission has consistently found that market forces stemming from facilities-based competition (competition among service providers that build, own and invest in telecoms infrastructure) is the best way to fulfill the objectives of the Act.

To put a finer point on this: platform promises that propose direct rate regulation for retail wireless services would undercut decades of economic policy and decision-making by Canada's expert commission on telecommunications.

This is not to say that the federal government doesn't use regulatory mechanisms to influence the market, but direct rate regulation of wireless has not been one of them.

Indirect Regulation of Retail Wireless Prices

Successive governments of different political stripe have instead relied on a combination of regulatory options to influence how prices develop in the market. Here are just a few of them.

Auction Set Asides

Section 5 of the Radiocommunication Act reserves for the Minister of Industry (ISED) a broad power to plan the allocation and use of radio spectrum for the efficient operation of radiocommunication in Canada, having regard to the policy objectives set out in the Telecommunications Act.[8]

Stephen Harper's Conservative government used this authority to set-aside valuable mobile spectrum in auctions for new entrants and smaller regional carriers in pursuit of its "fourth carrier policy". The rationale for this policy was that ensuring valuable spectrum went to a fourth carrier would inject additional competition into the industry and moderate prices in each region of Canada.

This policy was supplemented by the imposition of new rules respecting transfers of spectrum between carriers which was designed to ensure that competition was maintained and spectrum was not overly concentrated in the hands of one or more carriers.

ISED Minister Navdeep Bains has continued this trend of providing an implicit subsidy to smaller providers by consistently setting aside spectrum during auctions held since the Trudeau Liberals came to office.

Policy Directions

Under section 8 of the Telecommunications Act, the Governor in Council may, by order, issue a Direction giving guidance to the CRTC in how it ought to exercise its regulatory mandate.[9]

The most recent Direction to the CRTC came earlier in 2019, when Minister Bains called on the CRTC to "consider how its decisions can promote competition, affordability, consumer interests and innovation" and provided a set of criteria by which this is to be assessed.[10] The result is that the CRTC will consider how its decision-making advances these policy goals.

Guiding the CRTC's hand in decision-making is a more gentle form of regulation that balances the need of the government of the day to pursue its policy objectives without unduly interfering with the Commission's expertise.

Prior to this year, the last Policy Direction to the CRTC (and first under the Telecommunications Act) was issued at the start of the Harper Conservative government in 2006. That direction called on the Commission to achieve the telecommunications policy objectives by relying on market forces "to the maximum extent feasible".[11]

Mandating Wholesale Access

All of this brings us to the review of wireless services that is currently before the CRTC. Just days after Minister Bains announced the 2019 Policy Direction the CRTC initiated a consultation on mobile wireless services where it will (again) decide on whether to mandate wholesale Mobile Virtual Network Operator access to the incumbents' wireless networks.[12] MVNOs do not make major investment in their own telecommunications infrastructure and instead lease access to the network of facilities-based providers before reselling retail services to customers. 

The CRTC has declined to mandate MVNO access on several occasions but is now of the "preliminary view that it would be appropriate to mandate that the national wireless carriers provide wholesale MVNO access as an outcome of this proceeding".[13]

If mandated, the CRTC will establish the rates that a facilities-based service provider may charge an MVNO for access to their networks, thus indirectly influencing the relative price level in the market.

Conclusion

Evidence from the CRTC itself suggests that prices for wireless services in Canada have actually declined in recent years.[14] Meanwhile, some investment analysts have pointed out that promises of price reductions are based on outdated numbers and have already been achieved after a competitive summer.[15]

With the major economic potential of 5G wireless just around the corner, you might expect political parties to be racing to convince Canadians that they know how to stimulate investment in telecoms infrastructure. We know the federal government has plenty of regulatory levers available to achieve this.

But cheap wireless is great politics.



[1] Liberal platform.

[2] The Wire Report "Scheer refuses to specify if he'll take action on wireless prices", October 7, 2010. Online.

[3] Global News "Tired of high cellphone and internet bills? This election is full of promise(s)", September 21, 2019. Online.

[4] NDP platform.

[5] Telecommunications Act (SC 1993, c. 38) s. 24.

[6] Telecommunications Act, s. 34.

[7] Telecom Decision CRTC 94-15. Telecom Decision CRTC 96-14.

[8] Radiocommunication Act (RSC, 1985, c. R-2), s. 5(1), (1.1).

[9] Telecommunications Act, s. 8.

[10] Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives to Promote Competition, Affordability, Consumer Interests and Innovation. Online.

[11] Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives, SOR/2006-355. Online.

[12] Telecom Notice of Consultation CRTC 2019-57.

[13] Ibid.

[14] CRTC Communications Monitoring Report, Figure 2.2 

[15] The Wire Report: "Liberals promise access for qualified MVNOs, spectrum auction changes." September 23, 2019. Online.

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