Let’s abandon CRTC’s interference in telecoms and learn from US antitrust laws

Last week, at a Parliamentary Committee hearing, CRTC Chairman Ian Scott was questioned by various MPs about competition in Canada’s telecoms markets. It was tense at times as members of all political parties questioned Scott about the prospects for American companies entering the Canadian market.

Unfortunately, the focus on American companies is misplaced. We often forget that American players, notably AT&T and Southwestern Bell, have long histories in our markets, dating back to the time when Professor Bell sold his patents for the US and Canadian telephone to American interests in 1880. (Canadian investors refused to buy the patents.) That US owner became the Southwestern Bell Company (SBC). SBC swallowed AT&T in 1995, and the rebranded AT&T didn’t sell its 20 percent stake in Bell Canada until 2002.

Encouraging competition in Canada’s small telecommunications market, which is spread over large distances, has never been easy. During the 1970s and early 1980s, CNCP Communications, a joint venture between the two railroads, tried unsuccessfully to enter the long-distance communications market. This company, renamed United, was then sold to Rogers, which was also unsuccessful. Rogers sold United to a consortium of banks and AT&T, which had the largest stake in the company at 33 percent. The merger with AT&T leadership (and renamed Allstream) was also unsuccessful and AT&T exited the Canadian market for good in 2004. Allstream stays on the market.

Why do MPs think foreign companies – mostly American telcos – are keen to enter Canada’s telecoms market?

Of course, any American competitor could enter the market today. Changes to foreign ownership rules in 2012 mean the only restriction is buying up one of the largest existing companies like Bell, Rogers, Shaw or Telus. Presumably, Americans, who are never afraid to take advantage of market opportunities, would jump in if there was an unmet need. But burned once, twice, why try again? Story aside, if MPs want Canada to more closely emulate America’s market approach, what should change?

First of all, we should get rid of all the meddlesome CRTC regulation of inter-telecom relationships that doesn’t exist south of the border. For more than five years, burgeoning competitors in Canada’s telecom market have seemingly focused all their energies on endless battles in the CRTC instead of serving customers. In the most bizarre of these, the CRTC cut the fees internet resellers had to pay to use someone else’s network by more than 80 percent, then cut them even further by another 30 to 40 percent, and then rolled back a bit — but didn’t all – of the cuts when they realized they had made a mistake.

It’s hard to blame resellers for putting all their eggs in this regulatory basket: At one point in the back-and-forth, they wanted to collect more than a quarter billion dollars in unexpected payments from the companies that own them set up the broadband networks used. You read that right: you would be payed by their suppliers.

Of course, when this is explained to our supposed American rescuers, it is met with equal parts bewilderment and bewilderment. To put it mildly, most Americans believe that all stakeholders should move forward with creating a business plan rather than a regulatory strategy.

Rather than managing day-to-day relationships on a small scale, Americans focus on enforcing their merger and antitrust laws when competition is truly threatened. This is the most urgent lesson for Canada as the Competition Bureau and Industry Secretary review Rogers’ proposed acquisition of Shaw and Freedom Mobile. The US experience of the proposed consolidation offers some important lessons.

When AT&T attempted to buy T-Mobile in 2011, US competition authorities blocked the transaction entirely. T-Mobile was a smaller disruptive wireless entrant that took on three other incumbents. AT&T was the second largest airline in the United States. After the transaction was blocked, T-Mobile continued to compete with AT&T — and eventually overtook it. T-Mobile proposed to acquire Sprint in 2018. This merger was approved after extensive debate and analysis in 2020 following the ordering of large divestitures to ensure full competition in mobile services is maintained.

Rogers and Shaw cannot complete their consolidation announced on March 15, 2021 without the approval of the Secretary of Industry, the CRTC and the Competition Bureau. MPs need to ask who is looking out for consumers in these assessments, and they should look to the existing tools at the government’s disposal to ensure assessments are properly conducted and consumers are protected. The relevant American lessons to be learned are about ensuring that antitrust tools are used to promote competition and protect consumers, not about trying to encourage American companies to enter our market .

Finally, it’s worth noting that if a Canadian company made a bold attempt to buy AT&T Wireless, it would run into U.S. regulatory restrictions, which are specifically designed to prevent foreigners from making any large-scale investments in the telecoms sector. Sounds familiar doesn’t it?

Leonard Waverman is Professor of Finance and Business Administration and former Dean of McMaster University’s DeGroote School of Business.

Comments are closed.