Canada’s competition conundrum


Canada needs more competition to drive prices down and expand coverage. Annie Turner explores the options on the table

Competition – or the lack of it – in telecoms services has long been a hot topic in Canada. The country is frequently cited as having some of highest prices in the world for fixed and mobile services. Before the last national election in October 2019, Prime Minister Justin Trudeau pledged that if his government were re-elected, it would lower the cost of mobile services by 25% if the carriers failed to do so.

A written response from the Ministry of Innovation, Science and Economic Development (ISED) to Capacity’s questions about the government’s pre-election promise read: “After more than one year of tracking, the government is encouraged to see declining prices against the benchmark on a number of plans across Canada. Prices on most plans have declined between 9% and 25% compared with the benchmark prices collected in early 2020. It is clear prices on these mid-range data plans are moving in the right direction, although there is still more work to be done.”

Incremental progress on a segment of tariffs faded into oblivion with a series of controversial rulings in recent months that could threaten competition. The telecoms sector is in a state of flux, with ongoing legal and other challenges to regulation, and approvals in train. Canada’s big three – Bell Canada, Rogers Communications and Telus – declined to contribute to this article.

The highest-profile issue is Rogers’ intended acquisition of Shaw Communications, announced in March for C$26 billion (US$20.7 billion). The deal will require approval by the Competition Bureau, the ISED and the Canadian Radio-television and Telecommunications Commission (CRTC). The deal isn’t expected to complete regulatory hurdles until next year – assuming it does.

Damage to competition?

If approved, Toronto-based Rogers would own Canada’s largest and fourth-largest mobile businesses, the two largest cable infrastructures and one of the country’s two direct-to-home satellite services. It would also reduce the number of mobile operators from four to three in Ontario, Alberta and British Columbia in western Canada, where Shaw provides mobile services through a subsidiary brand, Freedom Mobile, as well as Shaw Mobile.

Keen to address concerns about reduced competition, Joe Natale, president and CEO of Rogers Communications, said when the proposed acquisition was announced: “We are at a critical inflection point where generational investments are needed to make Canada-wide 5G a reality. 5G is about nation-building; it’s vital to boosting productivity and will help close the connectivity gap faster in rural, remote and Indigenous communities.

“Fundamentally, this combination of two great companies will create more jobs and investment in western Canada, connect more people and businesses, deliver best-in-class-services and infrastructure across the nation, and provide increased competition and choice for Canadian consumers and businesses.”

This was a savvy move, playing to the government’s apparently revised thinking in the light of Covid-19. Michael Geist, professor and holder of the Canada Research Chair in Internet and E-commerce Law at Ottawa University, explains: “In the [pandemic] aftermath there’s a pretty clear shift towards some of the talking points the big three have been raising around their investment in networks and the health of that sector.

“The importance of reliability of the networks became more apparent than ever once Covid hit and those companies were viewed as being good corporate citizens by stepping up in a number of different ways. They are benefiting from that right now with a government that has shifted its perspective from one that was much more consumer focused.”

Geist stressed that where there is greater competition – such as Quebecor in Quebec and Eastlink in the north east – mobile prices are lower.

Will 5G be the deal saver?

5G may well prove a pivotal issue regarding approvals for the deal, but in an unexpected way. At Canada’s 5G spectrum auction in July, Quebecor, a subsidiary of Videotron that offers mobile and cable services in Quebec, spent C$830 million on licences for parts of western Canada and Ontario where it does not currently operate.

This came after its president and CEO, Karl Péladeau, told a parliamentary hearing in April that the Rogers-Shaw tie-up would hurt consumers unless Freedom Mobile is excluded from the transaction. He hinted his company might be interested in buying it. So, the outcome of the 5G auction could pave the way for Rogers gaining approval, if Freedom is excluded as an anti-trust remedy.

MVNO anyone?

The CRTC took another step in April to boost competition in the mobile market, ruling that “regional providers that invest in network infrastructure and spectrum… to offer Canadians more choice and affordable options” will have wholesale access to the dominant mobile operators’ networks to support mobile virtual network operators (MVNOs) in areas where competition is limited. In May, Telus sought leave to appeal.

In the same month, the CRTC announced that by July 14, Bell, Rogers, Telus and SaskTel “will be expected to offer low-cost and occasional-use plans in most markets, as well as promote them on their websites, in person and over the phone” for the benefit of seniors, low-income earners and those who use their mobile phone sparingly.

Andy Kaplan-Myrth, VP, regulatory and carrier affairs at TekSavvy Solutions, is scathing: “They are about C$35 for 3GB per month at slower speeds of 3Mbps, which isn’t enough to do anything. They have this idea of the [less well-off] consumer as people who are going to use their phones for texting and looking up business hours or something.

“We are a serious backwater. I’m not just complaining about the price being too high, this is connected to competition; it is not coincidence that service is so bad, and the prices are so high – we don’t have any real form of competition on mobile.”

Broadband regression?

There are fears about a retrograde step in competition in fixed broadband too after the CRTC ruled in May that larger operators can charge wholesale rates similar to those set in 2016. Those rates were reduced in a subsequent ruling by the regulator in 2019 (itself under appeal), which found larger infrastructure owners should make retrospective payments to smaller internet access providers.

The CRTC said in a written response to a request to explain its thinking: “As a result of stay applications filed by several companies, these 2019 rates, therefore, never came into effect and the existing interim rates continued… The Commission reviewed the record and determined that there was substantial doubt as to the correctness of Order 2019-288. For the reasons outlined in the 2021-181 Decision, the Commission determined that the best course of action was to revert to the interim rates, with some adjustments.”

Some parties claim the latest ruling favours the big three and accuse Ian Scott, chair of the CRTC, of bias – and there have been calls for the government to remove him from office: he is known to have held private meetings with representatives from some larger operators, which doesn’t appear to tally with the notion of public officials being publicly accountable. ISED said in a written response that CRTC is “an independent, administrative tribunal” and any questions pertaining to its processes should be directed to the CRTC.

Kaplan-Myrth is a vocal critic of the policy reversal. TekSavvy is an internet service provider with about 300,000 subscribers across Canada and has launched two appeals against the ruling. He explains: “One is to the courts for appeal and the other is to the government for what’s called a petition to the governor and council – that’s essentially a political appeal of a decision by the CRTC.”

Again, in a written response, the ISED said that as it had already received one petition and could receive more, it could not comment on the situation.

Kaplan-Myrth says: “I think [the big three] are happy competing with each other for new territory and deploying new technology. I think they see [competition] as excluding smaller providers like TekSavvy, as it solidifies their exclusive role as big players in the market and that gives them a lot of control.

“They think they provide better services for consumers because ‘Look at the great networks we build, right? Like, whoa, we just built all this fibre, that’s great for consumers’. But that’s not really what consumers mean when they say competition. They don’t want to be stuck with one or two operators. They want to have some real options from other companies that actually care about them as a consumer, or protect their privacy, or offer better customer service, or lower prices, or whatever it is.”

He continues to say that, in certain communities where it’s “uneconomic for those carriers to move in, you hope some of the independents make a run at it… which is why this decision is so harmful: You are hurting the very companies that are often among the most active in smaller communities.”

Kaplan-Myrth concludes: “There has never been a real obligation for anybody to build broadband networks to underserved areas. Instead, there are funding mechanisms… I think that if the government doesn’t step in and fix it, or if the appeal is not successful, broadband in Canada is going to look a lot more like mobile – fewer choices, even higher prices.”