Let’s Ditch the CRTC’s Interference in Telecommunications and Learn from US Antitrust Laws

Last week, during a parliamentary committee hearing, CRTC Chairman Ian Scott was questioned by various MPs about competition in Canadian telecommunications markets. It was tense at times, with members of all political parties questioning Scott about the prospects of US companies entering the Canadian market.

Unfortunately, the focus on American companies is misplaced. We often forget that American players, particularly AT&T and Southwestern Bell, have a long, on-and-off history in our markets dating back to when Professor Bell sold his telephone patents in the United States and Canada to American interests in 1880. (Canadian investors refused to buy the patents.) This American owner became the Southwestern Bell Company (SBC). SBC swallowed AT&T in 1995, and famed AT&T didn’t sell its 20% stake in Bell Canada until 2002.

Fostering competition in Canada’s small, long-haul distributed telecommunications market has never been easy. In the 1970s and early 1980s, CNCP Communications, a joint venture of the two railroads, tried unsuccessfully to enter the long-distance telecommunications market. This firm, renamed United, was then sold to Rogers, which also failed. Rogers sold United to a consortium of banks and AT&T which owned the largest share of that business, 33%. United with AT&T leadership (and renamed Allstream) also failed and AT&T eventually left the Canadian market in 2004. Allstream remains in the market.

Why do MPs think foreign companies, primarily US telephone companies, are eager to enter the Canadian telecommunications market?

Of course, any US competitor could enter the market today. Changes to foreign ownership rules in 2012 mean the only restriction is on taking over one of the biggest existing companies like Bell, Rogers, Shaw or Telus. Presumably, Americans, who never shy away from seeking market opportunities, would enter if there was an unmet need. But once, twice burned, why try again? Leaving history aside, if what MPs want is for Canada to more closely emulate the American approach to the marketplace, what should change?

To begin with, we would have to get rid of all the CRTC’s regulatory interference in the relations between telecommunications companies, which has no equivalent south of the border. For more than five years, would-be competitors in the Canadian telecommunications market have seemingly focused all their energy on endless battles at the CRTC rather than customer service. In the most bizarre of them, the CRTC reduced the rates Internet resellers had to pay to use someone else’s network by more than 80%, then reduced them again by another 30-40%, then reduced some – but not all – of the cuts when they realized they had made a mistake.

It’s hard to blame resellers for putting all their eggs in this regulatory basket: at one point, they were going to collect more than a quarter of a billion dollars in windfall payments from the companies building the broadband networks that they use. You read that right: they were going to be Payed by their suppliers.

Of course, when this is explained to our supposed American saviors, it causes both bewilderment and bewilderment. To put it mildly, most Americans believe that everyone involved should get down to crafting a business plan rather than a regulatory strategy.

Rather than micromanaging day-to-day relationships, Americans focus on enforcing their merger and antitrust laws when competition is truly threatened. This is the most urgent lesson for Canada as the Competition Bureau and Minister of Industry consider Rogers’ proposed acquisition of Shaw and Freedom Mobile. The US experience with consolidation of the type proposed offers some key lessons.

When AT&T tried to buy T-Mobile in 2011, competition regulators in the United States blocked the deal entirely. T-Mobile was a small wireless disruptor taking on three other incumbents. AT&T was the second largest carrier in the United States. After the deal was stalled, T-Mobile continued to compete with — and eventually overtake — AT&T. T-Mobile proposed to acquire Sprint in 2018. This merger, after extensive debate and analysis, was approved in 2020 after major divestments were ordered to ensure full competition remained in mobile services.

Rogers and Shaw cannot complete their merger announced on March 15, 2021 without the approval of the Minister of Industry, the CRTC and the Competition Bureau. MPs need to ask who is looking after consumers in these reviews and they need to pay attention to the existing tools available to government to ensure reviews are done properly and consumers are protected. The relevant American lessons to learn are to ensure that antitrust tools are used to promote competition and protect consumers, not to try to encourage American companies to enter our market.

Finally, it should be noted that if a Canadian company were to boldly attempt to buy AT&T Wireless, it would run into US regulatory restrictions expressly designed to prevent foreigners from taking major interests in the telecommunications sector. Sounds familiar, doesn’t it?

Leonard Waverman is a professor of finance and business economics and former dean of the DeGroote School of Business at McMaster University.

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