November 29, 2007

Cautious Optimism With Wireless Auction Plan

For all the issues I have with the federal government and the crap they spew on a consistent basis, I'll give them some credit for their plan to create more competition in the cell phone market. The plan right now is to auction off 105 megahertz of new wireless spectrum with 65 megahertz open to all competitors but the last 40 only open to companies with 10% or less of the current Canadian market. The hope is that this will lead to greater competition in Canada's cell phone market and effectively bring prices down. Canada currently ranks 29th out of the 30 member OECD in current cell phone adoption.

Essentially, if this is the only way I can get my cell phone bill costs down then I'm all for seeing greater competition. My so-called $30 plan has effectively never been cheaper than $50. There were two months when I did pay the rate I signed on for: the two months I didn't use it because I was using a Blackberry for a job.

There is some indication this may work as Bell has recently announced lowering prices and offering competitive packages in regards to wireless data to compete with Rogers and their exclusive use of the Apple iPhone. As well, when independent companies like Clearnet (acquired by Telus) and Fido (now owned by Rogers) were kicking around, prices for cell phones were much less than they are now. My wife got her original cell phone from Clearnet in 1999 and still has the plan they offered then, which cannot be purchased anymore. In fact, Telus calls often to ask her about 'upgrading' to one of the many current Telus offerings. The problem is that they Telus has no current plan that is as competitive as my wife's original Clearnet plan. In other words, over the last eight years cell phone plans have been getting worse for customers while at the same time the number of cell phone providers shrunk. Greater competition may just work in the favour of consumers.

There are no guarantees though. For all we know the bulk of the 40 megahertz set aside for the smaller cellphone companies may get bought up by a company that has greater resources than is indicated by its share of the Canadian wireless market would indicate. Virgin, as an example, is such a company (interesting note: they currently piggy-back on Bell's systems). Virgin, though, could turn around make a huge investment and just be another giant in the already crowded oligarchy and essentially overcharge consumers along with the other big three. Or even a company such as Google, who has already expressed interest in the wireless business, could swoop down and join the other three.

Even in the event that several smaller companies are able to increase their own share or join the market, what would stop the big three (Bell, Telus and Rogers) from eventually buying them out? The 40 megahertz set aside will guarantee that some smaller company (or companies) will get to increase their own market share. But what will stop one of the big three from doing what has already been done (Rogers and Telus acquiring Fido and Clearnet, respectively)? While the big three may not be able to bid on the set aside amount, what is to stop them from buying it indirectly by acquiring the company or companies that are the successful bidders? There is already precedent in that regard.

While I would welcome a change and a lowering of my cell phone costs, I wait with cautious optimism. In other words, I'm not holding my breath that anything will be change any time soon. It's a nice theory that greater competition always leads to better choices and prices for consumers but there is also nothing stopping Canadians being subjected to just another giant cell phone company or one of current the ones from getting even bigger.

Post Script:
Though not appropriate for this post but another post entirely, I can't help wonder what the real motivation is for the Conservatives to put this spectrum auction on. While they claim it's about increasing our competition in the wireless market, one can't help to wonder this is just an easy cash grab at the expense of some of our home grown corporations and possibly Canadian jobs. Also, what is to become of the money that is raised through the auction? More meaningless and wasteful tax cuts?

Articles of Note:

Ottawa's wireless auction could cut cellphone rates - CTV
Ottawa opens up wireless industry to more competition - CBC
Lower cellphone rates ahead? - Toronto Star
Bell to offer unlimited wireless data - Toronto Star
Google Goes Wireless - BusinessWeek


Stephen said...

Doesn't this plan amount to auctioning off a public asset (i.e. part of the 'spectrum') at less than market value in order to benefit certain private interests, possibly including multinational corporations?

Why is this in the public interest again?

Kyle said...

The was a concern raised over the 40 megahertz set aside and was exactly what you're talking about. Because, in theory, it is only companies of limited size that can bid on it, the set aside is likely to go for much less than the market price. And as such, that comes at the expense of the public in the end. The 65 megahertz that is open for bidding will likely go for market value, whatever that is, or more, as it did in the U.S. when they held their own auction for spectrum.

The Conservatives are arguing the public interest is being served because it will force the big players to lower prices due to greater competition. Canadians pay higher rates compared to many countries. There is also the money that will be raised, likely in the hundreds of millions or possibly as high as the billions. It is possible the money will be used to benefit the nation as a whole, but that remains to be seen.

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