Paying for spectrum policy

In an article in the Financial Post this past Friday, an economist calculates that Canadians’ mobile bills include a hidden tax of 12-16% to cover the fees paid by carriers to the government for spectrum.

Robert Crandall calculates the spectrum fees paid by Canadian carriers to be 4 times what European carriers are paying, adding more than $4 billion per year to Canadians’ mobile services bills. According to Crandall, “If spectrum costs were as low as those paid by European wireless carriers, Canadian wireless rates could be as much as 12 percent lower.”

Crandall is a Senior Fellow at the Technology Policy Institute and he has authored or co-authored 8 books and more than 40 articles on communications policy. He is currently a consultant to TELUS and has served as a consultant to Canada’s Competition Bureau, the FCC, the FTC, and the Department of Justice in the US.

So, we have an interesting tension: We want carriers to invest in state-of-the-art networks and offer leading edge services to all Canadians throughout this country, which requires capital for hard assets and for acquisition of spectrum. The government is calling for more competition and lower prices, but has handed the Minister a mandate that could continue to inflate spectrum prices through scarcity caused by new-entrant set-asides.

Over the past few months, I have written a number of pieces looking at Canadian spectrum policy, including:

As I warned 2 weeks ago, “There is a cost associated with spectrum policy.” Crandall’s article shows how costly Canada’s spectrum policy has been for carriers and ultimately, for consumers.

Crandall measures some of the financial costs being paid by consumers for spectrum policies of the past, which have inflated our monthly bills by as much as 12% with what National Post columnist Terence Corcoran called “taxes that are paid by consumers.” Corcoran also published a commentary on Friday, “The biggest cellphone price gouger is Ottawa”.

There isn’t much we can do about spectrum policies of the past, but we need to acknowledge how Ottawa’s own spectrum policies continue to contribute so substantially to the prices Canadians are paying for mobile services. For example, the Canadian wireless industry pays nearly $200 million per year in annual spectrum licence fees – on top of the billions of dollars in fees paid to acquire spectrum rights at auction. Compare these annual fees to the US industry paying about half that amount (approximately US$80 million), despite 10 times the market size. As a result, on a per user basis, Canada’s service providers are paying spectrum fees that are 20 times the levels in the US.

After reading the Crandall and Corcoran arti cles, I couldn’t help thinking that the government could easily achieve the 25% mobile price reduction it wants by taking matters into its own hands, or rather, by taking its own hands out of mobile consumers’ pockets. Consumers are paying 13% in harmonized sales taxes (HST) on top of a hidden and embedded spectrum tax of 12%. That could produce the 25% reduction in consumer prices the government is seeking. Mission accomplished.

We need to get spectrum policy right going forward.

Mark Goldberg is a telecommunications consultant with 40 years of international experience in strategic planning, managing, designing and implementing competitive telecommunications networks. In naming him as one of Canada’s top 10 technology bloggers, itWorld Canada wrote: “No one does a better job of exploring, interpreting or criticizing telecommunications policy in Canada. Period.”