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PostPosted: Mon Jun 25, 2007 7:18 am

Telus designs all-Canadian Frankenstein
Drop into a Tim Hortons coffee shop nearly any time between sunup and sundown and you're likely to see at least one small entrepreneur on a cellphone, making deals even as he takes a break.

It's one of the visible signs of how wireless technologies have transformed our lives, becoming a powerful productivity tool for everybody from top executives to guys with a pickup truck and a one-man renovation business.

How sad, then, that flabby government regulation has made it harder and more costly for Canadians to make use of this basic tool. Sleepy regulators have permitted competition to dwindle in less than a decade from a barely adequate five companies to what industry analyst Iain Angus appropriately terms a "cartel" of three that really don't compete very hard.

With the proposal by Canada's second-biggest telephone company, Telus, to take over the biggest, Bell, the cartel would shrink to two, leaving the combined company with a stunning 60 per cent of the wireless market.

Meanwhile, the Harper government, which has fumbled one important economic issue after another, is doing it again: insisting it will take a hands-off attitude toward the most anti-consumer deal in recent memory and leave us to the tender mercies of the same regulators that have already made a mess.

It's perfectly fine to regulate with a light hand when you have vigorous competition.

But in Canada, there's so little true competition that consumers are skinned alive while the economy is deprived of the dynamic, affordable wireless sector that we desperately need in order to be competitive. A Telus-Bell deal would make things far worse.

Even now, the profits of Canadian wireless providers and the rates charged cellphone users are among the highest in the world, while the percentage of Canadians with a cellphone is among the lowest.

A recent study by Grant's firm, The SeaBoard Group, concluded that prices in Canada are so high that they suppress demand for wireless services.

The study found that an average cell-phone user in Canada pays 33 per cent more than in the U.S. and a heavy user 56 per cent more.

Canadian prices for wireless service are so high that the percentage of the population with a wireless account is second-lowest among 30 leading industrial nations. And remember, Canada used to be a world leader in cell-phone use in the early 1990s.

Today, Canadian wireless penetration is just 58 per cent. In the U.S. it's 78 per cent. In Sweden, where it's common for people to have more than one account (for personal and business use, for example) it's 120 per cent.

We certainly could support more cell-phone competitors. In Australia, another big country whose population is one-third smaller than Canada's, there are five.

Telus, which fought ferociously not to let new competitors into the wireless cartel until just a few days ago, has done a screeching 180-degree turn. Now that it wants to buy Bell, it says Ottawa can cure any concerns about monopolization of the wireless business by opening up the wireless radio spectrum to new competition.

It's true that Ottawa should do this - specifically, by setting some aside for a new company while excluding existing firms so they can't squeeze new guys out. A spectrum auction is expected late this year or early in 2008.

But Telus's logic - that it's okay to let a couple of giants monopolize the business as long as some new guy can eventually get into the business - is bizarre.

Law professor Michael Geist, a specialist in high-tech issues at the University of Ottawa, notes politely that even with three roughly equal competitors, "I don't think the market is particularly competitive."

It would hardly become more so with two huge bruisers, Telus-Bell and Rogers, and one brand-new pipsqueak that would have to build a whole network before it could even do business.

It would take at least a couple of years of network-building before a new competitor would start to compete effectively, estimates Michael Janigan, executive director of the Public Interest Advocacy Group. And at the end of this process, we would still have a less competitive market than today's very flawed one.

So what's the argument for the Telus takeover? Simply that it's an "all-Canadian" deal, apparently based on the ridiculous assumption that competing offers for Bell that include some foreign backing would somehow undermine the country.

As best I can figure out, "all-Canadian" is shorthand for: "This deal stinks so badly that this is the only selling point we can invent."

Here's a better idea: kill Telus's all-Canadian Frankenstein, but by all means, set aside the spectrum to create a fourth competitor. That wouldn't mean truly vigorous competition, but at least it would be a step in the right direction.

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