In this era of rampant populism by grandstanding politicians, nothing beats the Canadian example: bashing the big telcos. Consider these words, taken from the 2019 Liberal election platform, in a document subtitled A Real Plan for the Middle Class.“As Canadians, we pay some of the highest prices in the world for cell phone services, while…
“As Canadians, we pay some of the highest prices in the world for cell phone services, while Canadian telecom companies are among the most profitable in the developed world.
“To help lower monthly cell phone bills and bring costs in line with what people pay in other countries, we will move forward with cutting the cost of these services by 25 per cent in the next two years by using the government’s regulatory powers, saving an average middle class family of four nearly $1,000 per year.”
One expects this kind of middle-class pandering from grifting politicians angling for more power by suckering voters with promises of a thousand-buck payoff if they back the Liberals. But it is quite another matter when a supposedly independent government agency joins the populist bandwagon.
As if taking a direct cue from the Trudeau Liberals, the federal Competition Bureau recently filed an 88-page report on mobile wireless services with the Canadian Radio-television and Telecommunications Commission (CRTC). After presenting its conclusions that Canada’s wireless market is uncompetitive, the Competition Bureau proposes a modified scheme that would force the major companies — Bell, Rogers and Telus — to turn over their facilities to upstart wireless resellers at bargain prices to allow more competition.
The analytics in the report, an economic consultancy’s run through market-power theories and data, deserve a separate review. More important is the bureau’s expansion of a fake-competition model that was proposed back in pre-election August by the CRTC.
In a move applauded by Innovation Minister Navdeep Bains, the CRTC proposed a plan to essentially nationalize the multi-billion-dollar, high-speed networks built by the telcos and force them to sell access to wireless marketing firms that have no networks. A TD Securities report at the time said that the CRTC price-rigging regime would force the major telcos to sell access to networks that cost $45 to “competitors” for $16, a 66 per cent discount.
The Competition Bureau modification to the CRTC plan would require these free-riding resellers to commit to building their own networks. Over time, so the theory goes, the resellers — while free-loading off the major firms — would be required to build their own networks and thereby establish “facilities-based competition” with the major firms.
The economic model borders on the absurd. The major firms would be forced to sell access to their networks at below-cost to subsidize resellers, who would use the money to build competitive new networks. Aside from undermining the basics of competition and entrepreneurial economics, one has to wonder at the plausibility of an upstart reseller spending billions on networks. That’s not their business model. And will these lower-level firms be able to foot the cost of the looming 5G revolution?
By making such recommendations, the Competition Bureau (not for the first time) is engaging the dubious role of government industrial planner rather than overseer of competition processes. The bureau’s report also appears to roam beyond its legislative mandate.
The opening words of its new report to the CRTC are: “Competition Bureau proposes wireless policy to lower prices for Canadians.” That’s the kind of language one expects in a political election platform. “Lower prices” is not one of the purposes or objectives of the bureau.
The bureau’s official purposes under the Competition Act are to maintain and encourage competition in Canada in order to “promote the efficiency and adaptability of the Canadian economy.” This includes expanding opportunities for Canadian participation in world markets while recognizing the role of foreign competition in Canada.” The last Bureau purpose is to help “provide consumers with competitive prices and product choices.”
“Competitive prices” is not the same concept as “lower prices.” The Bureau’s mandate is to encourage competition, which may or may not lead to lower prices, an objective that cannot be determined by bureaucratic assessment. Politicians can promise lower prices, but the competitive process does not guarantee lower prices.
To support its claim that lower wireless prices can be achieved by government manipulation of the market, the Bureau rehashes the familiar and worn-out anti-economic arguments that have long dogged anti-trust theory. The claim is that the Big Three firms exercise “market power,” which is an example of “market failure” that is in breach of the “perfectly competitive market” theory.
The Competition Bureau claimed that “in a perfectly competitive market, social welfare is maximized and outcome are efficient.” Perfect competition is usually defined as a market where many companies are roughly the same size, offer the same goods at the same price, and use the same technology. Because Canada has “only” three big firms and a few smaller ones, the competition is therefore allegedly not perfect and suffers from a “market failure.”
Economists have been bickering over the meaninglessness of “perfect competition” for decades. Joseph Schumpeter, in his classic book Capitalism, Socialism and Democracy, said perfect market structure is not the issue. Real competition comes from “the new commodity, the new technology, the new source of supply, the new type of organization” that rips into the foundations of an industry. That’s what happened to the newspaper business.
The Competition Bureau’s bureaucratic meddling in the market would impose phoney competition via regulation and political intervention. It is the anti-thesis of real competition that can only lead to excessive government power and government failure.
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