Economists Say Canada’s Wireless Market is Competitive Enough, No Need for Fourth Carrier

It seems intuitive: more competition will lead to lower prices for Canadian wireless customers.

But a new report released by the University of Calgary’s School of Public Policy is claiming the opposite.

The report, written by economists Jeffrey Church and Andrew Wilkins, is in response to criticisms made by the Competition Bureau of Canada that a previous report written by the pair—which argued that Canada does not need a fourth wireless competitor—suffered from a flawed methodology.

In the new report, Church and Wilkins argue that their methodology is sound and that Canada’s wireless companies don’t have what’s called “market power,” which the Competition Bureau defines as “the ability to set prices above competitive levels.”

The “Competition Bureau has fundamentally mischaracterized and misunderstood both our methodology and our findings,” the pair claim.

“We remain unconvinced that market power is a problem in wireless services or that additional competition in wireless services is efficient,” Church and Wilkins write. “The expert evidence prepared for the Competition Bureau on both points is simply insufficient to warrant regulation and subsidization of competition.”

The Competition Bureau first took issue with Church and Wilkins’ previous report in late January—after it was used as evidence by Bell to argue against regulation of wireless roaming rates at a Canadian Radio-television and Telecommunications Commission hearing.

“Canadian mobile wireless markets are characterized by other factors that, when combined with high concentration and very high barriers to entry and expansion, create a risk of coordinated interaction in these markets,” John Pecman, the Commissioner of Competition and head of the bureau, wrote in a submission filed to CRTC. “Given these factors, the Bureau’s view is that incumbent service providers have market power in Canadian retail mobile wireless markets.”

Pecman goes on to say that the previous Church and Wilkins report, is flawed it “examines only one service provider, does not actually measure that service provider’s cost of capital, and when properly interpreted, does not support the conclusions contained in the report.”

Pecman also says the Church and Wilkins claim that a fourth national wireless carrier would be inefficient are “premature.” Howeverm according to Church and Wilkins, the decision to only look at one carrier, Rogers, in the previous study makes sense because it is Canada’s largest and has been the market leader for years.

The pair also claim a report prepared for the Competition Bureau, which also studied Telus, was significantly flawed itself.

Instead of unfair competition, Church and Wilkins say that Canadian carriers’ higher average revenue per user (ARPU), when compared to other countries, “is explained by Canadians’ high usage of wireless telecommunication services, particularly of data … Competition between networks has focused not just on price, but also on the quality of the network—coverage, capacity, and speed—as well as handsets. The emphasis on quality results in greater investment, higher demand, and higher usage. The greater demand and usage results in higher revenues that support network investment and the cost of providing higher quality.”

Church and Wilkins also argue that if the federal government’s efforts to create a fourth national carrier are successful, it likely won’t be sustainable without a government subsidy.

“Efforts to enhance competition, even without considering the burden of subsidization, are unlikely to be efficient and to improve the welfare of Canadians. The costs of such efforts will likely be greater than the benefits, with the result being that the value of goods and services produced by Canada’s scarce resources will likely be reduced,” the pair write.

Church and Wilkins previous report was also accused of being “bought research” with critics alleging that the pair were flown across the country by the big three to speak on their behalf.

Those allegations were not addressed in the new report.