Industry Canada prepares for 3G debate, commissions study on wireless competition

Industry Canada is gearing up for what could be a contentious consultation on the release of spectrum for third-generation wireless networks and has initiated additional background research into the Canadian wireless market. Two weeks ago, Canada’s spectrum regulator released a study it commissioned from Ottawa-based telecom consultants Wall Communications, which assessed the current state of competition in Canada’s mobile wireless industry – and assigns it a top grade. The goal of the study was to provide the department with a clear picture of the state of competition in the sector and to make recommendations on how to improve certain challenges with the potential to impede the formation of a competitive environment. The report, A Competitive Assessment of the Canadian Mobile Wireless Industry, was submitted to the department last November and provides figures and analysis up to August 2001. (It can be found at http://strategis.ic.gc.ca/SSG/sf02092e.html.) In the 85-page study, Wall Communications compares various indicators to determine the level of competition within the Canadian wireless industry. It looks at factors such as the number of players, the diversity of service packages, the rates of those packages, the variety of handsets, the impact of integrated wireless/wireline operations, and other elements. The assessment also looks at regulatory matters such as entry/exit barriers, availability of spectrum, access to capital, and current foreign ownership rules. In general terms, Wall Communications gives the Canadian wireless landscape a higher than average score in terms of the current level of competition. While this may be the case, the consultants also say there is room for improvement in certain areas and that ongoing monitoring of the industry is needed to make sure that competition is sustainable. On the competition front, the study concludes that there is a high level of competition in Canada. There are four wireless operators offering a variety of products and service features. "From pre-paid options to numerous number-of-minute packages, from handset and service features, from combination packages of anytime minutes, long distance and calling features, all the way to highly customized packages, the Canadian market offers numerous product/service choices," the report states. On the regulatory front, however, the report raises some concerns about the ability of new entrants to enter the market. While there are several minor impediments, the company notes that current foreign ownership limits are significant barriers because the effects are wide reaching. Wall Communications has been an advocate for the relaxation of current foreign ownership limits and has previously released a report detailing the potential benefits of such a move (RoW, July 10/00). It is widely accepted by the sector that one of the primary effects of foreign ownership restrictions is to increase the cost of capital for Canadian carriers, and Wall Communications agrees. According to the report, countries with tighter restrictions on foreign ownership of telecom service companies have traditionally lower per capita telecom investment. Despite that fact, Canada has performed well, but in recent years it has begun to lose ground to other countries, such as the U.S., Australia, Japan, and several European countries. "The rules tend to increase the cost of capital to Canadian firms and therefore the attractiveness of entry into the Canadian market," the report states. "For example, Canadian firms are forced to utilize less equity financing and increase their reliance on high yield debt financing. This is particularly critical for new entrants, which account for an increasing share of capital spending relative to incumbent carriers." The report also notes that in the future, wireless carriers are going to have to continue to build out their networks to handle increases in traffic and to take advantage of new revenue streams such as wireless data services. "The foreign ownership rules work against achieving this investment, not only due to the higher cost of capital, but also because finding and obtaining capital from limited Canadian sources or having to seek financing outside the country slows the process," the report states. "More importantly, the rules prevent a particular class of entrant (i.e. foreign-owned) from fully participating in the Canadian market. Given the presence of several vigorous mobile operators in the U.S. and elsewhere the Canadian environment loses out on the competitive discipline which their entry would provide," it says. Wall Communications suggests a number of options to boost competition. It says the department should consider a review or ongoing monitoring of dual regulation by itself and the CRTC, the behaviour of integrated wireless/wireline operations, and the conditions of network sharing agreements (such as the Bell Mobility and Telus Mobility agreement RoW, Oct. 30/01). The consultants also recommend that Industry Canada continue to examine set-aside for new entrants. While Wall Communications doesn’t believe that to be necessary at the moment, it indicates that the department can gain some leverage from withholding some spectrum and releasing it later in case competition diminishes. An issue currently receiving widespread attention in the U.S. is local number portability (RoW, Jan. 22/02). Wall Communications says that since there is already healthy competition, "there appears to be no need to force (wireless number portability) on carriers at this point."

Industry Canada prepares for 3G debate, commissions study on wireless competition

News | March 18, 2002

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Industry Canada prepares for 3G debate, commissions study on wireless competition

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