09/25/2013 12:29 EDT | Updated 11/25/2013 05:12 EST

Back to the Drawing Board: What Wireless Policies Might the Government Now "Aggressively Pursue"?

Industry Canada released the names of the bidders for its forthcoming spectrum auction yesterday with the disappointing news that no major new entrants will be using the auction to enter the Canadian market. That is rightly viewed as a big win for the incumbents, who should have little trouble acquiring the spectrum they want in the upcoming auction and will not face any new competition from deep-pocketed global wireless players. Instead, despite the persistent efforts of the federal government to convince new competitors to enter the market, the Big 3 will continue to dominate Canadian wireless services for the foreseeable future. With prices high by global standards and mobile broadband penetration lagging compared to other countries (an ITU study released over the weekend ranked Canada 32nd worldwide for mobile broadband penetration), consumers are the immediate and obvious loser for the moment.

Yet the incumbent victory did not come easily, coming at the cost of a scorched-earth public relations war with the federal government that the incumbents are already trying to downplay. However, having failed to address market concerns through new competitors, it may now fall to the government to shake things up through increased regulation. There are no shortage of options, with two big steps (the consumer wireless code that limits contract length and potential CRTC regulation of wireless roaming pricing) already underway. After yesterday's release, Industry Minister Moore stated that "in addition to this auction, our Government will continue to aggressively pursue policies that ensure consumer interests are at the core of all Government decisions."

What policies might Minister Moore have in mind?

There should be little doubt that the mere threat of regulation can lead to lower prices and market reforms (witness Bell's decision to slash U.S. roaming prices in half weeks after the CRTC roaming initiative). In fact, just as the incumbents sought to delay the spectrum auction when it appeared that Verizon was going to enter the market, we can expect calls to delay any further policy action until there are further studies or opportunities to take stock of recent developments.

In this case, the government need not hand the incumbents another victory by delaying much-needed policy reforms. Full pricing regulation is rightly viewed as a last resort, yet there are other possibilities. For starters, the elimination of foreign investment restrictions in both the telecom and broadcast distribution sectors as well as tougher tower sharing requirements and domestic roaming rules to make it easier for smaller players to expand their networks.

Another mechanism to generate more competition would be to create a regulated mobile virtual network operator market, a vehicle that Verizon reportedly explored using as part of a potential Canadian entry. MVNOs typically do not own spectrum or network infrastructure. Instead, they purchase network access at wholesale rates from existing operators and offer it to consumers with their own retail pricing. MVNOs such as Canadian-owned Ting have become a hit in the U.S. but are not even available in Canada. By setting the wholesale price, the government could use regulation to create a new batch of MVNO competitors in Canada, much as it has tried to do with Internet access services.

The other big alternative step is full structural separation. Peter Nowak has been advocating this approach for some time, arguing for splitting the incumbents into companies that manage phone and Internet networks and companies that offer services to customers. It is unquestionably a major market change, but with the Canadian wireless environment seemingly stuck in neutral, the government would receive well-deserved plaudits for taking bold action to address the ongoing competitiveness concerns.

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