Competition and Canadian Wireless Telecommunications

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Competition and Canadian Wireless Telecommunications University of Calgary PRISM: University of Calgary's Digital Repository Graduate Studies Master of Public Policy Capstone Projects 2013-09 Competition and Canadian Wireless Telecommunications Lo, Justin Lo, Justin. (2013). Competition and Canadian Wireless Telecommunications ( Unpublished master's thesis). University of Calgary, Calgary, AB. http://hdl.handle.net/1880/51617 report Downloaded from PRISM: https://prism.ucalgary.ca MASTER OF PUBLIC POLICY CAPSTONE PROJECT Competition and Canadian Wireless Telecommunications: Evaluating the Government of Canada’s Wireless Policies following the 2008 Wireless Spectrum Auction for Advanced Wireless Services Submitted by: Justin Lo - Approved by Supervisor: Dr. David Bercuson Submitted in fulfillment of the requirements of PPOL 623 and completion of the requirements for the Master of Public Policy degree September 9, 2013 ACKNOWLEDGEMENTS I would like to thank my capstone supervisor, Dr. Bercuson for encouraging me to pursue my interest and providing me the ability to freely explore the topic to its fullest extent. I also thank family and friends who pushed me to pursue my ambitions with enthusiasm. Finally, this effort could not have been possible without the longstanding support and encouragement of my amazing fiancée, Jennifer. 1 EXECUTIVE SUMMARY The following report looks at the Government of Canada’s policies regarding competition in the Canadian wireless telecommunications sector, and the transition of the Government of Canada’s approach in telecommunications from regulation to increased competition. Specifically, this report looks at the impact of Wind Mobile and the other new wireless entrants on Canadian wireless telecommunications since their entry into the market following the 2008 wireless auction for advanced wireless services. The report also looks at the historical approach to telecommunications regulation in Canada, and finds that the development of Canada’s national telecommunications network was accomplished in a highly regulated environment that saw the emergence of a series of provincial monopolies and the dominance of a single national long distance exchange carrier. This regime persisted until the Alberta Government Telephones v. Canadian Radio-Television and Telecommunications Commission and CNCP Telecommunications ruling by the Supreme Court of Canada and the passing of the 1993 Telecommunications Act, which would become Canada’s first amalgamated, national, legislation regulating the Canadian telecommunications industry. The Act established the Canadian Radio-television and Telecommunications Commission as the primary regulator in Canadian telecoms, and also allowed for a greater degree of competition in the Canadian telecommunications market. 2 The rapid advance of wireless technology in Canada resulted in a review of telecommunications policy in Canada, and the 2006 panel review of the telecommunications policy in Canada noted that competition in the Canadian wireless industry has been dominated by three incumbent carriers who, at the time, possessed over 95% of the Canadian wireless market. As a response to the lack of competition in the Canadian wireless industry, the Government of Canada adopted the panel review’s recommendation to increase wireless competition and would do so by setting aside a series of wireless spectrum licences for new entrants in their 2008 wireless spectrum auction. The auction resulted in the entry of three new wireless carriers to the Canadian wireless market: Mobilicity, Public Mobile, and Wind Mobile. These three new carriers would compete with incumbent carriers Bell, Rogers, and Telus and hopefully increase competition in the Canadian wireless sector, while providing better prices for Canadian consumers. The report measures changes in subscriber growth, subscriber market share, and average revenue per user from 2009 to 2012, capturing the period in which the new wireless entrants began operating to the last available annual report from Bell, Rogers, Telus, and Wind Mobile. Due to the private nature of Mobilicity and Public mobile, neither is required to publicly report their earnings or growth and neither carrier is used in the comparison. The report finds that, while Wind Mobile has managed to grow its subscriber base at a comparable rate to the three wireless incumbents, its market share is still only 2% of the total wireless market. 3 However, the market share of the incumbent carriers has also steadily fallen since 2009. Consequently, one can assume that the new wireless entrants have made some success in making the market competitive, though the results are still not large enough to definitely determine if this is a long term trend. When looking at average revenue per user, Wind Mobile fails to generate revenues comparable to the three wireless incumbents, and it is assumed that Public Mobile and Mobilicity are experiencing similar difficulties. This suggests that the new wireless entrants are having difficulty maintaining financing competitiveness compared to the three incumbent carriers. Recent news indicates that all three of new wireless entrants are experiencing some degree of financial difficulty. This is consistent with the average revenues per user found in the evaluation of Wind Mobile. The report concludes that the Government of Canada’s policies to generate increased competition in the Canadian wireless market have been met with mixed success, providing not guarantee of long term competitiveness. With the anticipation of another wireless spectrum auction in 2014 and a lack of data to evaluate long range outcomes, it is recommended that the Government of Canada: Continue to encourage increased competition in the Canadian wireless telecommunications market. Proceed with the 700 Mhz wireless spectrum auction in January 2014 as planned, with spectrum specifically set aside for new bidders and entrants from the 2008 wireless auction. 4 Continue to enforce the 5-year moratorium period on transfer of spectrum following the conclusion of the auction. In addition, it is also recommended following the auction to: Modify future auction rules so that winning bidders only pay 5% of the winning bid within the first 10 days, and require the remainder be paid at the end of the five year period to reduce initial start-up costs. Develop explicit rules regarding return of spectrum to the public ownership in the event of firm failure or failure to pay for spectrum at the conclusion of the five year transfer moratorium. Allow for up to 49% foreign ownership of Canadian telecommunications providers. Review and reconsider the CRTC’s role and mandate in the existing Canadian telecommunications industry, and define its role as a new wireless regime emerges. Evaluate outcomes following the five year moratorium period of the 700 Mhz auction to assess capacity to accommodate additional competition in the Canadian wireless telecommunications industry long term (10 years and beyond). 5 TABLE OF CONTENTS INTRODUCTION ............................................................................................................................... 8 BACKGROUND ............................................................................................................................... 11 Telecommunications Regulation History in Canada ................................................................. 11 The 2006 Telecommunications Policy Review .......................................................................... 13 2008 Wireless Spectrum Auction and Wind Mobile ................................................................. 16 LITERATURE REVIEW ..................................................................................................................... 20 EVALUATION METHODOLOGY ...................................................................................................... 25 FINDINGS AND DISCUSSION .......................................................................................................... 27 Subscriber Growth .................................................................................................................... 29 Market Share ............................................................................................................................ 30 Average Revenue per User ....................................................................................................... 32 POLICY IMPLICATIONS .................................................................................................................. 35 2008 AWS Auction Rules ........................................................................................................... 36 Telecommunications Act Restrictions on Ownership ............................................................... 38 Recent Developments ............................................................................................................... 41 Long term Implications ............................................................................................................. 43 EXPECTED OUTCOMES AND RECOMMENDATIONS ...................................................................... 45 Licence Transfers and Foreign Ownership ................................................................................ 45 6 Regulatory Outcomes ............................................................................................................... 49 Long term Competition ............................................................................................................
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