When Industry Minister Franços-Philippe Champagne directed Canada’s telecommunications regulator to boost competition among internet and wireless phone providers in the name of lowering prices, he aligned with telecommunications industry observers who believe the interests of consumers should guide Canadian policy. The key difference however is that many experts disagree with his means of greater regulatory intervention in the market.
Lawyer and former Competition Bureau head Calvin Goldman for instance is among those who say it’s about time to go one step further and ditch the ownership rules that restrict how foreign-based companies can participate in our market—rather than keeping the industry under domestic control, as Ottawa has done for decades.
“A good number of my colleagues and I view these restrictions as outdated. I think they were designed at a time when the governments wanted to encourage Canadian-based growth for reasons that were more valid at the time than they are today,” Goldman said in an interview with The Hub. Today, he said, “Consumers should be the priority.”
Writing in The Hub, Peter Menzies, senior fellow with the Macdonald-Laurier Institute and past vice chair of the CRTC, agreed. “The answer to the question ‘should telecommunications in Canada be opened up to foreign ownership’ ought to be a straightforward ‘yes.’ ”
Although it’s impossible to know how the market would respond if the government liberalized the foreign ownership restrictions under the Telecommunications Act, there is a view among many industry observers that the status quo of the so-called “fourth-player policy,” which involves a series of policy interventions to support greater competition, isn’t working.
Many of the players who’ve entered the market have either exited altogether or are failing to grow and compete on market terms. The policy framework, which started under the Harper government and has persisted under the Trudeau government, is intended to foster a fourth national carrier in the hope that the additional competition will benefit consumers. Yet it has required ongoing subsidies and other policy support to sustain the new entrants.
Critics of current government policy say that if policymakers in Ottawa want to make the telecommunications sector more responsive to Canadians’ needs, they need to consider a number of questions, including the two below.
Is it time for Ottawa to ditch the so-called ‘fourth-player’ policy?
Since 2008, Ottawa’s fourth-player policy has aimed to increase competition in the wireless cellular market. The policy involves using government interventions to tilt the playing field in favour of broadband and wireless providers other than the “Big Three,” with the ultimate goal of giving consumers a fourth option in every region of Canada.
Under the fourth-player policy, the federal government reserves particular frequency bands, known as “spectrum,” exclusively for new market entrants. (Spectrum refers to ranges of radio frequencies used to transmit data over wireless networks.) The Big Three can’t bid when the government holds auctions for the right to broadcast over these frequencies. With the big players excluded from the process, bidders designated as new entrants can typically obtain the reserved spectrum at, or close to, the minimum price set by the government. Conversely, critics argue, this drives up the price of the remaining spectrum that the Big Three can bid on. Canada is the only country in the OECD that “routinely” sets aside spectrum for smaller providers, according to an Analysys Mason report for TELUS.
According to communications policy commentator Robert W. Crandall, the set-aside policy has forced Canada’s three national carriers to invest an average of $514 per cellular subscriber as of December 2020, compared to an average of $133 per subscriber for a group of European providers he selected. Canada’s big three providers, he wrote in Policy Options, have to “charge their subscribers an average of $74 per year—equal to 9.4 per cent of the average bill—just to cover the cost of acquiring these spectrum rights.”
Since acquiring Freedom Mobile from Shaw as a consequence of the 2023 Rogers-Shaw merger, Quebecor has emerged as the company most likely to grow into a fourth major national telco. Industry Minister Champagne has said as much. But Quebecor has a long way to go, given that the 3.6 million Canadian subscribers across its Videotron, Freedom and Fizz brands represent about a 10 percent national market share.
Leaving aside the question of whether Quebecor will assume the mantle of the long-promised fourth national player, the federal government shouldn’t be so focused on creating one, said Ian Scott, former chair and CEO of the Canadian Radio-television and Telecommunications Commission (CRTC) and visiting scholar at McGill University’s Max Bell School of Public Policy.
Speaking with The Hub last month, he noted, “We’ve had a policy of wanting to have [four] or more regional competitors, and it may not necessarily be the right formula for increasing competition and the desired outcomes.”
According to critics, the most contentious aspect of the fourth-player policy (as we recently explained in a DeepDive), is it has systematically raised spectrum (cellular signals) costs for the incumbent players—which have in turn passed those costs to consumers, because of the so-called “set-aside policy,” which restricts spectrum available to the Big Three.
Crandall and other advocates of dropping the fourth-player policy say it could allow for fairer spectrum auctions, and in turn, lower costs for everyone.
What do consumers really need? Is it as simple as lower prices?
Even if the federal government wants to make consumers the driving force behind telecom policy, defining their needs might not be so straightforward.
“There are so many different ways to define consumer welfare,” Menzies noted during his podcast appearance with The Hub. Traditionally, he said, the CRTC has considered access, service quality, and affordable pricing.
But what do any of those criteria actually mean? “Affordability,” which has often become the focus of the public debate around telco policy, could be a contentious principle, Menzies noted; the word means different things to different people.
Other industry observers said the debate shouldn’t centre on pricing alone: Connectivity and network quality matter, too. Scott said Canada’s existing Big Three telcos have done an “impressive” job of connecting customers in the country’s remote regions with quality broadband and cellular service.
“If you don’t have connectivity,” he said, “then affordability or other issues, [like] the degree of competition, [are] all moot.”
Vass Bednar, executive director of McMaster University’s master of public policy in digital society program and author of The Big Fix, agreed that a preoccupation with price also shouldn’t crowd out discussion about other policy changes that could help consumers, such as making it easier to change providers or unsubscribe to services.
In an interview with The Hub, Bednar noted that a single-minded pursuit of low prices could blind policymakers to other consumer interests.
For example, modern 5G cellular networks perform best when the number of companies operating in a given area is limited. When more than three or four cellular providers operate in a given area, the spectrum can become “crowded,” causing the quality of service to decline. That means squeezing in a fifth carrier for the sake of competition and lower prices could involve a frustrating tradeoff for consumers.
In other words, she said, prices shouldn’t be the only consideration if and when Canada reimagines how its telecommunications sector is structured.
“I think people are a little obsessed with price and price comparisons.”
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Editors Note: A change was made to clarify remarks made by Vass Bednar.
