Last week, at a Parliamentary Committee hearing, CRTC Chair Ian Scott was grilled by various Members of Parliament about competition in Canadian telecommunications markets. It was tense at times, with members of all political parties asking Scott about the prospects for American companies to enter the Canadian market.
Unfortunately, the focus on American companies is misplaced. We often forget that American players, especially AT&T and Southwestern Bell, have a long on-again, off-again history in our markets dating back to when Professor Bell sold his patents for the telephone in the U.S. and Canada to American interests in 1880. (Canadian investors declined to purchase the patents.) That U.S. owner became Southwestern Bell Company (SBC). SBC swallowed up AT&T in 1995 and the renamed AT&T only sold its 20 per cent interest in Bell Canada in 2002.
Fostering competition in the smallish Canadian telecoms market distributed over long distances has never been easy. In the 1970s and early 1980s CNCP Communications, a joint venture of the two railroads, unsuccessfully attempted to enter the long-distance telecom market. This firm, 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 share of that firm, 33 per cent. United with leadership from AT&T (and renamed Allstream) was also unsuccessful and AT&T finally left the Canadian market in 2004. Allstream remains in the market.
Why do MPs think that foreign firms — principally American telcos — are hungry to jump into the Canadian telecoms market?
Of course, any American competitor could enter the market today. Changes made to the foreign ownership rules in 2012 mean the only restriction is on buying out one of the largest existing companies like Bell, Rogers, Shaw, or Telus. Presumably the Americans, never shy about pursuing market opportunities, would enter if there was an unmet need. But once, twice burnt, why retry? Leaving history aside, if what MPs want is for Canada to more closely emulate the American approach to the market, what should change?
To start, we should get rid of all the meddling CRTC regulation of relationships between telecom companies that has no equivalent south of the border. For more than five years aspiring competitors in Canada’s telecom market have focused seemingly all their energy on endless battles at the CRTC instead of on serving customers. In the most bizarre of these, the CRTC cut the rates internet resellers had to pay to use someone else’s network by more than 80 per cent, then cut them even further by an additional 30-40 per cent, then rolled back some — but not all — of the cuts when they realized they had made a mistake.
It’s hard to blame the resellers for putting all their eggs in that regulatory basket: at one point in the back and forth they were going to collect more than a quarter-billion dollars in windfall payments from the companies that build the broadband networks they use. You read that right: they were going to be paid by their suppliers.
Of course, when this is explained to our supposed American saviours, it’s met with equal parts bewilderment and bemusement. To put it mildly, most Americans think everyone involved should get on with building a business plan instead of a regulatory strategy.
Rather than micromanaging day-to-day relationships, the Americans focus on enforcing their merger and antitrust laws when competition is really threatened. This is the most urgent lesson for Canada, as the Competition Bureau and the Minister of Industry consider Rogers’ proposed acquisition of Shaw and Freedom Mobile. The U.S. experience on consolidation of the kind being proposed offers some key lessons.
When AT&T attempted to buy T-Mobile in 2011, competition regulators in the U.S. blocked the transaction entirely. T-Mobile was a smaller disruptive wireless entrant taking on three other incumbents. AT&T was the second largest carrier in the United States. After the transaction was blocked, T-Mobile continued to compete with — and eventually overtook — AT&T. T-Mobile proposed to acquire Sprint in 2018. That merger, after extensive debate and analyses was approved in 2020 after major divestitures were ordered to ensure full competition remained in mobile services.
Rogers and Shaw cannot complete their consolidation announced March 15, 2021, without the approval of the Minister of Industry, the CRTC, and the Competition Bureau. MPs need to ask who is looking out for consumers in those reviews and they should pay attention to the existing tools available to the government to ensure that reviews are done properly and that consumers are protected. The relevant American lessons to learn are about making sure antitrust tools are used to foster competition and protect consumers, not about trying to encourage American firms to enter our market.
Finally, it’s worth noting that were a Canadian company to make an audacious attempt to buy AT&T Wireless, they would run into the U.S. regulatory restrictions expressly designed to prevent foreigners from taking large interests in the telecom sector. Sounds familiar, doesn’t it?
