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Tuesday, November 24, 2009

Minister: Let the WIND blow.

Tony Clement is being encouraged by the incumbent wireless industry players, and even one future entrant, to forgo overturning the CRTC ruling on Globalive, who was to launch their national wireless service under the WIND Mobile brand this month.

Telus, Bell, and Rogers have all made the same argument in varying degrees; seeing the inevitable long-term trend towards further liberalization of regulation in Canadian telecommunications, they have opted for the obstruct and delay tactics.

Essentially, these companies are arguing that since it's currently illegal for them to seek foreign financing, it is unfair to allow Globalive to enter the market as a company which is principally financed by foreign dollars--in this case, Egyptian-based Orascom Telcom Holdings, which helped front the CA$430 million which Toronto-based Globalive in turn, used to purchase wireless spectrum licenses last year.

Given the finite amount of radio frequencies available, national governments usually regulate their use, granting exclusive rights to certain radio frequencies for commercial and non-commercial purposes. For instance, there are licenses which are issued for the exclusive use of emergency services as well, so as to prevent a free-for-all on radio frequencies. It is illegal to transmit on these frequencies without a license.

In what is a strange state of affairs in our regulatory system, there are two licenses from two completely different government agencies that a wireless phone carrier must obtain in order to operate.

Ultimately, Industry Canada has the authority to issue wireless licenses, and the Canadian Radio and Telecommunication Commission has the authority to license their use.

Effectively, you can own a license for a set of radio frequencies, barring anyone else from their use, but not have a license to use it yourself. Makes a lot of sense, I know. But such is life in the world of big government.

This is effectively the limbo where Globalive finds itself. It possesses a national spectrum license, but it's not legally authorized to employ it's use by offering cellular phone service to prospective customers.

The reason for this, is that the CRTC found, quite legitimately mind you, that Globalive is de facto: a foreign-owned and controlled company. Even though the management structure is such that it's Canadian directors hold sway over the day to day operations: in the event of any financial trouble, it's creditors--who are almost entirely foreign--would by any stretch of the imagination have ultimate control over the company. Given this, the CRTC decided that it violated the legal requirement: that any company providing telecommunication services to consumers must be eighty-percent owned by Canadians.

Such is the case that Telus, Rogers and Bell are almost exclusively Canadian-owned. Bell, in particular, having failed to find a buyer for the company last year after the takeover deal by the Ontario Teacher's Pension Plan fell through, is probably the first company which would want to cry foul. They were, of course, barred from seeking international financing or sale to an international company in order to best serve their shareholders.

While these arguments against allowing Globalive to compete would appear to speak to an issue of fairness, I think the truth of the matter goes beyond their oversimplified definition of fairness.

One issue of fairness which is not communicated by "Robelus"--a pejorative word comprising the names Rogers, Bell and Telus often used by consumer advocates to refer to their collective monopoly--or oligopoly--is the fact that they have been able to collectively enjoy windfall profits at prices which are, to say the least, high by international standards.

In terms of the state of competition in Canada's wireless market, Canada is the only OECD country which has seen a drop in wireless penetration in the past five years.

Despite Canada's economic boom through the first part of this past decade, less Canadians--as a proportion of the population--owned cellphones in 2007 than did in 2002. In the same period, profit margins for Telus and Rogers, in particular, skyrocketed. High prices and the three-year commitments that most cellular phone plans push (most plans in Europe and Asia bolster an 18-month commitment) resulted in a smaller base of cellphone users paying higher rates--which as it turns out, more than made up for the lost customers who could not afford or were not willing to pay those rates.

It's hard to blame Robelus (sorry, I just think the word is funny) for trying to maximize their profits. But it's equally hard to feel sorry for them having to face down potential foreign-competition.

They've had their shot at being the robber barons, protected from competition by archaic and illiberal ownership rules, and now is as good a time as any to bring and end to this unjustifiable status quo.

While, on the face of it, it may not be "fair", if only in an isolated sense, that Globalive was able to use foreign financing, it is less "fair" that consumers are restricted from having more market choices, and as it turns out, I do believe that Robelus should be able to access foreign investment in the same way that Globalive has; we should waste no time in drafting the appropriate legislation. But as far as the status quo goes, now is as good a time as any for a change. As such, Minister Clement should overturn the CRTC ruling, granting Globalive the ability to operate, and simultaneously announce his intention to repeal the foreign-ownership laws.

Robelus is neither deserving or entitled to "fairness" in the way they are asking for it, given the market advantage they have as incumbent players, large customer bases, and years of charging customers prices which would not be justifiable in an open market. It's time that the consumers saw some "fairness".

Minister Clement: tear down this [wireless] wall.

Posted by Mike Brock on November 24, 2009 | Permalink

Comments

While I'm strongly in favour of allowing WIND to operate (better than repaying half a billion dollars which the government has probably already spent and killing the 800+ Canadian jobs created) and overall supportive of truly capitalist reforms in Canada, there are still many legal issues attached to Clement's decision of approval that will cost millions in court -- simply because we've allow the system to crumble so much for so long.

I'm glad to see that media outlets from coast to coast are urging Minister Clement to grant Globalive the ability to launch WIND; hopefully he will heed the frustrated opinions of Canadians!

Posted by: AngryChineseDriver | 2009-11-24 3:51:16 PM

good ole robellus empire. I don't believe you can find it in your heart to feel sorry for them that they'll have to face international competition... oh well, I guess I'm jsut a lot more spiteful than you.

anyways, every day this ugly mess brings us closer to a more liberated telecom sector...

Posted by: Clement | 2009-11-24 6:57:57 PM

The war has just begun. Ready your soldiers, for the sunset shall not offer any reprieve.

Posted by: hitman047 | 2009-11-24 9:20:45 PM

I am in favor of competition and then new entrants into the Canadian Wireless market. I have paid close attention to this topic (Wind, CRTC & Industry Canada) and in all the articles and commentaries not on author has broken down, for all readers, the cost to start and operate a national wireless company in Canada.

+$400 million in license fees

+$500 million in infastructure (the cell site to include real estate, cell site hardware)

:

At the start gate to be competitive an entrant has an invested +$1 billion coupled with other costs of business (retail sotres, salaries, office space, growiing the netork, vendor license fees (ie: RIM for the BlackBerry & Qualcomm for the chip sets), etc) a return on investment of 3-5 years is difficult to achieve. Consider the montly fees a user pays for the serivce it could take an entrant >4 years to turn a profit. Fido and cLearnet are examples of this where a larger competirit acquired them.

No consider the site denitsy and environment a cell site is to be built in Canada. The US, Eurpope and Asie have greater cell density thatn Canada. In other words there are more cell sites in a geographical area due to the greater amount of cell phoen users.

Before we (generally) complaing about cost of having a cell phone as a luzury considering what it cost to bring that to the comsumer. 33 million people live in Canada with 20 million cell phone subsribers with ne subsrbibership slowing, well perhaps the market has reached capacity and the remaingn 13 million are still in diapers or playig in the sand box.



Posted by: paul | 2009-11-25 8:04:51 AM

Mike,

I just finished watching a few of the Dawkins versus Wright videos. Thanks for pointing me to them ... I'm quite frankly stunned.

Posted by: Charles | 2009-11-25 7:39:02 PM

Its Canadian civil service and telecommunication financial corruption and collusion at its finest. The CRTC had no problem rubber stamping the foriegn buyout of Telesat Canada in 2007 by Loral. Loral (USA) owns more than 64% of Telesat after the take over. American now runs Telesat. Did the CRTC care to disclose that their own pension plan owned Telesat at the time and continues to own approximately 35% of Telesat?

Well well well, what is good for the CRTC pension plan is not good for Canadians. I wonder how much the CRTC Pension plan has invested in Bell, Telus, Rogers and Shaw. Shame, shame on you CRTC.

Posted by: PowrrrPlay | 2009-12-04 8:12:47 PM

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