Maxime Bernier

Telecom

Speech: Real Competition in the Telecom Sector

MAXIME BERNIER

 

Leadership Candidate

For The Conservative Party of Canada

 

 

Let’s Have Real Competition In The Telecom Sector

 

 

THE 2016 CANADIAN TELECOM SUMMIT

Toronto, June 7th, 2016

 

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Good morning everyone.

 

Thank you very much Mark and Michael for inviting me to the Telecom Summit.

 

When Mark contacted me a few months ago, I was still the Opposition critic for Innovation, Science and Economic Development. He was kind enough to keep me on the program after I had to resign from that position, when I declared my candidacy for the leadership of the Conservative Party.

 

Don’t worry, I’m not going to try to sell membership cards! Although you’re welcome to go to MaximeBernier.com to learn more about my campaign!

 

I must say I feel a little bit in a time warp. I was on this very podium almost exactly ten years ago, on June 13, 2006, as the new minister of Industry. Some of you may remember that at the time, I was planning a major reform, the deregulation of local telephone markets.

 

In 2006, strong cable companies had entered the local telephone market. Cellphones were quickly becoming ubiquitous. There was obviously more and more competition.

 

However, many regulations were still preventing incumbents from lowering their prices and offering better bundles of services without the CRTC’s approval, on the ground that the new players had to be protected.

 

Think about how absurd this is for a minute: Presumably in order to protect competition, the CRTC was preventing some providers from really competing and offering better deals to consumers. That’s what I call a policy of false competition.

 

I had to fight hard to get this reform accepted within Industry Canada and in Cabinet. It was finally adopted several months later. The CRTC followed our policy and deregulated the local telephone markets where there were at least three telephone service providers, including a wireless provider. Prices did not explode, as opponents had predicted. There was no reason to wait several more years to have this deregulation, as the CRTC wanted.

 

This is an old story, but I think there is an important lesson here. Which is those who task it is to regulate this industry tend to be behind the curve. They don’t want to let go of their regulatory control. Meanwhile, the industry has actually moved on, with new innovations. We’ve had plenty of other examples of such behaviour since then.

 

When I was addressing this crowd ten years ago, I announced that the federal government had tabled in Parliament, for the first time, a Policy Direction to the CRTC. Its goal was to direct the CRTC to rely on market forces to the maximum extent feasible within the scope of the Telecommunications Act.

 

It was supposed to be the solution to the CRTC’s control freak mindset. I, and many others at the time thought that it would force the CRTC to change its ways, to become more flexible and adapt to the new competitive reality. We were wrong.

 

The CRTC seemed to take the Policy Direction seriously for a few years. And then it reverted back to its old ways.

 

For example, it just spent a whole year consulting stakeholders and the public on the issue of broadband Internet. The purpose was to debate if broadband is to be considered an essential service. And consequently, if new regulation and taxes should be imposed on the industry. To me, this was an obvious waste of time and money.

 

According to the CRTC’s own figures, 96% of Canadians already have access to 5 Megabits per second download speeds, which is considered an acceptable minimum to do almost everything you want. It’s true that there are still Canadians in rural areas and in the North who don’t have adequate service. But there are solutions being deployed as we speak, including new satellite services. And there is a federal government program to deal with these specific areas.

 

While the CRTC is studying the matter, the industry is investing billions of dollars deploying even more efficient networks. Already, 71% of Canadians have access to 100 Megabits per second. One gigabit service is already available in some areas and will probably become the new norm within a few years.

 

This is happening because there is real competition in this sector, not because of CRTC regulations. Canadian consumers are best served when telecom providers are free to compete and invest, not when bureaucrats tell them what to do.

 

I was especially shocked by the CRTC ruling that will force the telecom companies to share their fiber networks with so-called “independent” Internet providers. This is a new technology that has been deployed only in recent years, well after the opening of the market to competition.

 

Yet, the CRTC treats fibre-to-the-home as if it was part of the incumbents’ legacy networks. Once again, it wants to impose a kind of artificial competition instead of letting market forces bring about real competition.

 

Canadians are among the largest consumers of data in the world. The only way to ensure that they will get the broadband services they deserve in years to come is to deploy world-class infrastructure using the latest technologies.

 

Forcing some providers to share their networks with others will not do anything to encourage investment. It won’t do anything to increase real competition. And ultimately, it won’t do anything to sustainably bring better and cheaper services to consumers.

 

I will repeat what I said here ten years ago: It is not the role of the CRTC or the government to decide how this increasingly complex market should evolve. It is up to producers and consumers.

 

When I tabled the Policy Direction in 2006, I believed that it would send a strong signal to the CRTC to exercise restraint when it intervenes in such matters, and to let market forces play their role. But it seems unable to realize that we have a dynamic and competitive industry, with some of the best wireline and wireless networks in the world.

 

Perhaps it cannot accept this reality because of its very nature as a regulatory bureaucracy. As Ronald Reagan said, “A government bureau is the nearest thing to eternal life we’ll ever see on this earth.” As the industry evolves, the CRTC finds new reasons to continue to regulate it, in order to justify its existence. In doing so, it is not protecting consumers, it is only protecting its own power.

 

The Telecommunications Policy Review Panel, in 2006, made several proposals to modernize the regulatory approach. One would have wide-ranging consequences if applied.

 

As the Panel wrote:

 

“It is time to reverse the current presumption in the Telecommunications Act that all services should be regulated unless the CRTC issues a forbearance order. This should be replaced with a legislative presumption that services would not be regulated except in specified circumstances designed to protect end-users or maintain competitive markets.”

 

I agree with this proposal. The telecom industry is a mature and competitive industry, and it should be treated as such. It’s not a playground for bureaucrats.

 

What this means concretely is that we should phase out the CRTC in its role as a telecom regulator. The department of Innovation, Science and Economic Development could take over its remaining essential functions, including social regulation. And the Competition Bureau would deal with competition issues, as it does with all other industries.

 

There is one more area of your industry where I think government policy has not been optimal over the past few years, and where we can once again contrast attempts to impose artificial competition with what should be real competition. That area is wireless policy.

 

In 2007, I was consulting on what kind of rules to adopt for the coming AWS spectrum auction. There was one major debate: Should we have rules that treat all companies the same, or should we set aside a portion of the spectrum for new entrants, who could get it cheaper?

 

Many people argued that we should have a set-aside to favour the entry of more competitors. A set-aside, as you know, is essentially a subsidy to new entrants. Companies that rely on subsidies to compete do not make strong competitors.

 

My preferred solution was to have no set-aside, and to open the sector to foreign investments.

 

With an opening of the sector to foreign investments, we could have had a lot more competition. Real competition. Perhaps a big American or European company would have decided to enter the Canadian market, or buy a Canadian provider. The threat of such an entry would have been enough to bring competitive pressure.

 

Unfortunately, my successor decided to go with the set-aside option. And during the following years, every spectrum auction had rules favouring new entrants.

 

That policy was a mixed success. Well-established regional companies like Videotron, Eastlink, SaskTel and MTS bought spectrum and launched wireless services. But we could argue that they did not need the special rules and the indirect subsidy, and would have bought spectrum anyway. New entrants like Public Mobile, Mobilicity and Wind never succeeded and were finally acquired by other companies.

 

The result is that billions of dollars in unprofitable investments were wasted. Spectrum was misallocated, underused or not used at all for many years. For example, Shaw did not use its spectrum until it was sold last year. The spectrum bought by Videotron outside of Quebec is still not being used.

 

This is not to the advantage of consumers. Consumers would have benefitted a lot more if all the spectrum had been bought by companies strong enough to use it and deploy advanced technologies right from the beginning. This is another typical case of trying to foster artificial competition instead of getting the government out of the way so that we have real competition.

 

Almost everyone agrees that more competition is good for consumers. It’s easy to understand that when companies are forced to compete, they tend to offer better services and lower prices. The problem is to determine how to foster competition. Interventionist policies that are meant to bring more competition actually do the opposite.

 

Competition does not increase when you prevent some players from competing, as the CRTC was doing in the local telephone market.

 

Competition does not increase when you force some players to share their networks with others, as the CRTC is doing with fiber to the home technology.

 

Competition does not increase when you tax and regulate instead of encouraging investments, as the CRTC is planning to do with broadband Internet.

 

Competition does not increase when you prop up small and weak providers with subsidies, as my successors at Industry Canada did in the wireless sector.

 

Competitive markets don't need government intervention to work. They only need to be free.

 

So here are some suggestions for the current minister responsible for this file—or perhaps they will be part of the mandate letter for the one who will be in charge after the next election!

 

Get rid of bad policies such as the mandated sharing of networks.

 

To ensure that more such policies will not be implemented, phase out the CRTC in its role as telecom regulator.

 

Hold spectrum auctions without preferential rules, so that everyone is on a level-playing field.

 

And finally, open the sector fully to foreign investors.

 

If we implement these reforms, our telecommunications industry will be even more competitive and stronger, to the benefit of Canadian consumers.

 

Thank you! Merci!

 

 

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