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Why the Big Three Are Right About Verizon

08/01/2013 12:10 EDT | Updated 10/30/2017 19:46 EDT
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NEW YORK, NY - JUNE 06: A Verizon Store is seen on June 6, 2013 in the SoHo neighborhood of New York City. News leaked yesterday, June 5, that the U.S. government had been obtaining Verizon's phone records for years through a secret court order and that the government has been monitoring business phone calls both nationally and internationally. (Photo by Andrew Burton/Getty Images)

Judging by the comments I hear or read on the Internet, many people don't have much trust in Canada's three major telecom companies. They see Bell, Telus, and Rogers as an oligopoly that tries to smother competitors in order to keep prices high.

Admittedly, private businesses don't necessarily like having competitors any more than government bureaucracies do. Even a staunch defender of free markets like Adam Smith wrote that "people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." Competition forces you to work harder, to be more efficient and innovative in order to keep your clients -- and who wants to have to do that?

At first sight, the reaction of the three big players to Verizon's possible entry onto the Canadian market seems to be another illustration of this tendency to quash competition. In the past couple of days, Bell has run full-page ads in daily newspapers across the country urging the government to change the rules, and senior managers at Rogers , Bell, and Telus have all raised the alarm. A casual observer might be tempted to think that they're trying to secure government protection against a new player that poses a real threat to their market shares.

In fact, nothing could be further from the truth.

Since 2008, Ottawa has been favouring the emergence of new players to compete with the big three. Back then, the government set up the spectrum auction in such a way as to guarantee new entrants a major portion of spectrum at bargain prices, the right to use specific bandwidths being a key component of mobile phone service. It also adopted new rules forcing the big guys to share their infrastructure (the use of cell towers, for example) with the little guys.

The results have been mixed. Although Vidéotron in Quebec and EastLink in Atlantic Canada were both able to establish successful mobile phone services in their home markets, three of the new players -- Wind Mobile, Mobilicity and Public Mobile -- are now in difficulty and up for sale. Verizon is said to be considering purchasing at least one of these companies.

Now, it's one thing to help fledgling companies establish a foothold in a market, although I don't believe there's much support to be found in economic theory for such heavy-handed government intervention. It's quite another, however, to grant those same privileges to giant foreign companies, which is what would effectively happen if Verizon bought one of the small players and was consequently considered a small player itself in the Canadian market.

Although we've been talking about the "big three" telecom players, Verizon is in a whole other league. With some 100 million subscribers in the U.S. -- four times more than the client base of all the telecom firms combined in Canada -- it's more like a behemoth. Any arguments about small players not being able to compete with the big ones do not apply in this case.

In this sense, Telus CEO Darren Entwistle is perfectly right when he says that "all we are asking for is not to be punished. And if we are going to compete against foreign entrants such as Verizon, we feel we have earned the right to a level playing field by the investments that we have made in this country."

Even more fundamentally, it's hard to understand why the federal government is so intent on seeing the establishment of a fourth major player in all the country's regional markets, as if this were the only way to bring about "real" competition in the provision of telecom services.

Various reports have shown that contrary to popular belief, the Canadian mobile phone industry is already quite competitive, and prices are comparable to those found in the U.S. and Europe. A recent study commissioned for Industry Canada and the CRTC found that prices for cellphone services have fallen by 13 per cent since last year, placing Canada in the middle of the pack internationally.

It's certainly okay to let foreign competitors enter our market. But the big three Canadian players, like them or not, are right to ask that the rules be the same for everyone. There can be no real competition if the market is rigged by government policy to favour certain players. And nothing justifies treating Verizon as if it did not have the means to compete on a level playing field.