New year, new solutions – it’s time to break up the big telcos

January 23, 2024

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Happy 2024! With January typically being when many people reflect and make changes, it’s a good time for Canada to chart a new course for its failed telecom market.

A new direction has never been so badly needed. Competition has been crushed and customers continue to get fleeced during a time of staggering unaffordability and oligopolistic profiteering across multiple industries.

It’s clear what that new direction must be. It’s time to break up the big telecom companies.

Rogers showed why almost as soon as the calendar flipped. The company started 2024 off by informing many customers that their bills will be going up. Like a good oligopolist, Bell followed suit. No word from Telus yet, but where the other two go… well, we know the drill. This, on top of consumer complaints skyrocketing 14 per cent over the past year, led by Rogers and its 44-per-cent surge.

These increases are making waves because Canada is supposed to be experiencing a new era of competition, especially in wireless.

Industry Minister François-Philippe Champagne last year blessed Rogers’ acquisition of fellow cable giant Shaw, who in turn sold Freedom Mobile to Quebecor. Champagne said this would bring prices down and vowed to watch the companies “like a hawk” to ensure it.

The CRTC also proclaimed a new competition “milestone” last year when it set rules for smaller regional telcos to negotiate access to the Big Three’s wireless networks on a wholesale basis so that they too could offer or expand services.

Given all this, people want to know why prices – already among the highest in the world – are going up. Members of Parliament have asked the House of Commons Standing Committee on Industry and Technology, which in 2022 urged the government to reject Rogers’ purchase of Shaw, to study the problem.

Further study is needless. Everyone who is feeling the pain of the affordability crisis knows what the problem is.


Real Wholesale is the Fix

So far, most efforts to fix the market have focused on encouraging new competitors to spend billions on infrastructure to compete with the big telcos. The lack of results shows this approach simply does not work.

The only real solution is wholesale, where multiple providers can offer services to the public by paying the few existing network owners to use their infrastructure. This approach creates competition and therefore lower prices for consumers.

The problem is that Canada’s big telcos do not want wholesale competition under any circumstances and they fight it with every tool at their disposal.

Those tools are considerable. From armies of lawyers and lobbyists who influence and delay rule changes to buying out smaller players to wining and dining policy makers, they have been expertly deployed to successfully kill competition.

Such is the case with home broadband. There, the CRTC has been unable to set fair wholesale access rates, which would allow companies such as TekSavvy to properly compete, for more than a decade. In recent years, virtually every major independent provider has exited as a result. Better rates may arrive someday, but for them it is too late.

It’s the same in wireless. So far, the CRTC has opted for having would-be competitors negotiate wholesale access with Bell, Rogers and Telus, and the results speak for themselves.

Cogeco – one of the regional companies that many thought would become a new competitor – won’t commit to a timeline for launching services. Mint Mobile, a wholesale-based wireless provider in the United States backed by Canadian actor Ryan Reynolds, won’t set foot here. Only time will tell what Videotron, another key regional player, will do.

The next obvious step is for the CRTC to set wholesale rates itself and force the Big Three to adhere to them, but even that is only likely to replicate the home broadband disaster.


Foreign Ownership is a fairy tale

Some believe that loosening foreign-ownership restrictions to lure new competitors is the solution, but that’s a naive hope for the same reasons.

Whether it’s former executives in government roles or ex-ministers now serving as executives, the big telcos are so entrenched in policy-making that any competitors – local or international – are outgunned at every turn.

Just ask Amsterdam-based Orascom, the last foreign company to try. The company’s head, Egyptian billionaire Naguib Sawiris, regretted bankrolling the 2009 launch of Wind Mobile, which ultimately became Freedom Mobile, because of this cozy situation.

“Why aren’t [the Big Three] everywhere if they’re so good?” he said in 2011. “The answer is simple, here they’re protected.”

The only outcome that current ownership restrictions prevent is the buying of Canada’s big telcos. Loosening the rules would likely only result in their being bought by foreign players, resulting in the same number or fewer competitors. That would not be progress.


Break Them Up

The CRTC can at least stabilize Canada’s telecom market with its current ongoing review of wholesale services, but the broader fix will require a structural and cultural change. Splitting the big telcos into separate parts is the only way to achieve that.

Preventing companies from both owning networks and selling retail services would remove roadblocks to competition and create incentives to embrace it. Rather than trying to kill wholesale-based competitors, network owners would instead treat them as proper customers and encourage their proliferation and prosperity.

Such an arrangement would put a stake through the heart of the lobbying monster by removing the incentives of network operators to game the system for the benefit of one retail customer (their owner). It would create a lower-risk and less expensive way for new competitors – local or foreign – to enter the market and grow.

Ultimately, consumers would benefit from actual competition rather than just the take-our-word-for-it kind we have now, which is predictably resulting in frequent price increases that are only adding to some of the most unaffordable telecom bills in the world.

So, we say: break them up.

We’ll have more to say about splitting up the big telcos – a process known as “structural separation” that has been successfully implemented in several countries – and how it can work in our next blog post. Stay tuned!

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