06/05/2013 04:46 EDT | Updated 11/13/2013 08:45 EST

How Big Telecom Lost the Wireless War

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For the past few years, there has been a lively debate on the state of the Canadian wireless marketplace. Consumer advocates and others have argued that Canadian market is not sufficiently competitive and that aggressive policy action is needed to foster greater competition and to adequately protect consumers until market forces can be fully relied upon. The incumbent telecom companies and the CWTA present a far different story, contesting multiple international studies and painting Canada as a market leader.

The events of this week -- the introduction of a CRTC consumer wireless code and the Industry Canada decision to uphold its set-aside spectrum policy by killing the Telus -- Mobilicity deal -- point to the fact that this debate is now over in the minds of the government. Government telecom policy in 2006 was focused on deregulation and a hands-off, industry-led approach. Those days are long gone as the government has now adopted a consumer-focused, populist approach premised on the view that a public fight with the telecom companies is a political winner. Moreover, the government may have shifted, but the incumbent providers clearly have not, failing to adapt to the new policy terrain.

This shift has been underway for some time. As early as 2007, Prime Minister Harper shuffled then-Industry Minister Maxime Bernier (who most believed was opposed to government intervention in the form of a set-aside or other measures) with Jim Prentice. Within months, Prentice unveiled the government's policy with the headline "Government Opts for More Competition in the Wireless Sector." In case there was any lingering doubt about where the government stood, the release noted:

Recent studies comparing international pricing of wireless services show Canadian consumers and businesses pay more for many of these services than people in other countries. These services are key to strengthening the competitiveness of Canadian business.

In the years that followed, the government continued to support measures for greater competition - backing the Wind Mobile entry despite concerns about foreign financing ("The policy of our government is to encourage choice and competition in wireless and Internet markets. Ours was the government that set aside spectrum during the 2008 auction to allow new entrants to compete. New entrants mean more competition, lower prices and better quality services for Canadians.") and later relaxing foreign ownership restrictions for the smaller players in the telecommunications market ("the goals remain steadfastly the same: increased innovation, increased competition, better service and better prices for consumers"). The icing on the cake came in 2011, with the public fight over usage based billing (not a wireless issue, but related to Internet access pricing). With over a half a million signing on an online petition calling for a policy change, the government recognized that telecommunications had emerged as a major consumer issue that could be a ballot box winner.

Within weeks of Jean-Pierre Blais being named CRTC Chair in 2012, it became apparent that his mandate was to adopt a consumer-focused perspective at the Commission. The incumbents didn't quite believe it, but killing the Bell-Astral deal (at least temporarily) ensured that everyone took notice. Yet some may have still bet that Bell-Astral was a broadcast issue and that telecom would not be affected in the same manner.

That turned out to be a bad wager. The CRTC's wireless code extends far beyond what the industry thought it would get, with the Commission effectively bringing three-year contracts to an end. The CWTA paid a heavy price on the issue as the new entrants walked away from the association in part over the association's support for three-year contracts (which are about customer lock-in, not a relatively modest difference in the amortization of device subsidies). Further, Paradis made it clear in March that he was uncomfortable with incumbents acquiring spectrum that had been set-aside, but Telus still (wrongly) figured the government would not stand in the way of a Mobilicity acquisition.

Beyond these headline-grabbing events, two other developments highlight just how badly the CWTA and the incumbent providers read the situation. On Sunday, the CWTA leaked a study to the media that purported to find that Canadians actually pay too little for wireless services. Relying on consumer surplus metrics, the study claims that Canadians would actually be willing to pay far more for wireless services given how much they love their smartphones. It is hard to think of any study more out-of-touch with prevailing public and government sentiment than industry claims that Canadian wireless services are a bargain.

Meanwhile, within hours of the CRTC code and the government's decision on Telus - Mobilicity, the Conservative party was actively fundraising on the developments, positioning itself as the consumer wireless defender. The party launched a Standing Up for Wireless Customers campaign, stating "we're putting Canadian consumers first and making sure there is more competition in the market."

The campaign is reminiscent of the campaign against the iPod tax, with the government betting that consumers will remember who took their side on a "pocketbook issue." The industry may argue that the government and public have it all wrong, but government and public positions on the issue have solidified. The debate is no longer about whether the Canadian market is competitive. It is now about how to fix an uncompetitive market.

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