Canada just took a step to avoiding the wireless ‘disaster’ that hit Europe

Originally published by the Financial Post
Author: Georg Serentschy

The CRTC recently reconfirmed that it will not extend roaming rights to WiFi-first providers and other mobile virtual network operators (MVNOs) – those cell service providers who lease wireless capacity from telecoms with cellular facilities, and then resell minutes and data at a markup to customers. The decision affirmed the commission’s conviction that facilities-based competition – that is, competition between companies that invest billions of dollars to build and maintain network infrastructure – is the best way to ensure long-term benefits for consumers.

While many parties are debating the CRTC’s decision from their entrenched perspectives, few have paused to reflect on the real determinants of consumer value and the impact MVNOs have had in other countries. International best practices show that facilities based competition is the only form of competition that provides sustainable benefits. Europe offers compelling – and sobering – proof of this.

The European regulatory and merger-control practice focused over years on the number of retail competitors in each of the national European markets and on short term retail price reductions. A significant number of such retail competitors were dependent on permanent regulatory support. This development created a vicious circle, and investors walked away from the European telecom market. The European Commission recognized that this situation had become more and more detrimental to consumers, society and the telecom industry, and in 2016 proposed a new regulatory framework, the “European Electronic Communications Code (EECC),” aimed at creating strong incentives for telecoms to invest in new infrastructure.

However, the legislative process for the EECC (which is still ongoing), partly driven by efforts to foster greater retail competition, will most likely result in the legislation being watered down through discussions between the European institutions (i.e., the European Commission, the European Parliament and the council). Consequently, the European telecom market will most likely not produce a strong investment story; far from it, as the continent is facing a 150-billion-euro investment gap. Concurrently, technological innovation and the investment pace has suffered. For example, a top official of the European Commission called the introduction of 4G in Europe “a disaster.” The reason for this is something Canada would do well to learn from.

The rationale for alternative network operators like MVNOs that sell the right to use incumbents ‘networks through regulated access is based on the belief that these “access seekers” will eventually graduate from simply reselling wholesale products to investing in their own network infrastructure. However, rather than invest in network infrastructure, access seekers oftentimes request permanent regulatory protection for their business model in an effort to shore up and increase their regulatory immunity. In Europe, the access-seeker model widely failed because of the protection provided for access seekers on lower rungs of the investment ladder – there was simply no incentive to invest in infrastructure, so access seekers didn’t. What is clear from the example in Europe is that achieving sustainable and effective competition depends on regulatory policy that incentivizes investment and innovation through facilities-based competition. Canada has wisely decided to follow this path.

Critics of this approach will argue that competition suffers as a result of facilities-based regulation, which invariably means higher prices for consumers. But competition is not a goal in itself but is rather an abstract economic concept that aims to achieve choice, more value for money and a better and more innovative user experience. For telecom consumers accessing the internet, what really counts is the quality of their experience. This notion depends not just on a one-dimensional view of the consumer’s perception of a fair “price”; it also depends on the network quality, availability of the service and the level of innovation driving new products and services.

It is clear that regulating the market by favouring resellers and MVNOs with regulated wholesale access rates – without any incentive for them to invest in infrastructure – does not work. The model is failing in Europe. Regulatory policy that favours access seekers hampers innovation and creates roadblocks for investment in new networks and technologies. In contrast, facilities-based competition that constantly strives to improve network availability and exceed quality experience has consistently proven to drive investments in infrastructure and technology that future-proof our digital economy and, in turn, our society. This maximizes benefits for consumers.

Georg Serentschy is a former telecom regulator in Europe.

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