Canadian lawmakers have a choice: defend corporate interests or competitive markets

While the titans of U.S. tech faced Congress last week over investigations of monopoly power, a similar, yet less publicized, battle is being waged on Canadian soil. In March, the federal government rightly moved in favour of Canadian consumers when it demanded that the major mobile network operators—Bell, Telus, and Rogers—lower their wireless pricing to keep pace with other developed countries. Canadians have long known that they continue to pay some of the highest global rates for wireless packages in addition to overall connectivity. While this was a welcome move, the telecom proceedings must be seen as an exalted battleground of a much larger issue plaguing the Canadian economy: industry concentration. Most Canadians are aware of our national oligopolies in banking, telecoms, and airlines, but similarly high degrees of concentration persist in other lesser-known industries like funeral services, beer, pharmacies, eyeglasses, and grocers. COVID-19 could further exacerbate concentration, with many larger incumbents able to purchase distressed companies cheaply—as we’ve seen with the U.S. tech giants, which continue with their mergers-and-acquisition activity, even while under investigation for antitrust violations. Small market sizes are often blamed for Canada’s need to enshrine oligopolies into the national economy. But regulators have silently looked on as waves of mergers in each subsequent decade since the 1980s have left industries consolidated to a point never before seen in history. To date, the largest fine the Competition Bureau has ever doled out is a measly $15-million—large companies barely blink and see this as a cost of doing business. The effect of this concentration is that as Canadians go about their daily lives, they transfer a bit of their paycheque to monopolists and oligopolists. Despite the “efficiencies” that should be gleaned from having relatively few major players within industries, Canadians also pay some of the highest global rates for international travel and banking services. While the largest Canadian telecommunications companies do not wield the same influence and power globally as the major U.S. tech companies, they do capture outsized profits in Canada in the “pay-per media” category, leaving U.S. giants in the dust. According to a report by the Canadian Media Concentration Research Project, Bell’s subscriber-based revenues in Canada were three times those of Google, Amazon, Facebook, Apple, Microsoft, Netflix, and Twitter, combined, in 2018. Thanks to a 2018 Financial Post article helpfully titled, “our nation of oligopolies not good for consumers, but great for investors,” we see that the Canadian majors actually have a higher compounded growth rate than their U.S. telecom equivalents. From 2008 to June of 2018, the market cap weighted index of Bell, Rogers, Telus, and Shaw delivered an 8.59 per cent annual compounded growth rate, whereas the five largest U.S. telcos only delivered a 6.33 per cent annual return. Translation: investors can make more money on Canadian telecoms than their U.S. counterparts, in part because the oligopolies are adept price makers, extracting from consumers to pay investors. In response to the dire need for more competition, the Canadian Radio-television and Telecommunications Commission (CRTC) is considering a mandate that would force the incumbents to allow wireless network access to mobile virtual network operators, or MVNOs. This would increase consumer choice, spur innovation, and drive down prices. The regulator has also demanded that the telecom giants pay back $325-million in overcharged fees to smaller competitors in the wireline internet sector—a decision the incumbents are unsurprisingly appealing. This threat of more competition has forced the incumbents to take a familiar page out of their age-old playbook with the recent unveiling of a report that paints a dismal future, projecting a battered GDP, lost jobs, and a stalling of innovation investment in Canada if the MVNO access and wholesale rates are enforced. This kind of kabuki theater scare-mongering is as tired as it is false. We need not feel dismayed about the potential fate of the Big Three: Rogers, Bell, and Telus collectively capture more than 91 per cent of the wireless telecom industry based on both revenue and subscribers. Telus hit a near-time high stock valuation in February of this year, and then sold its shares to raise an additional $1.3-billion in cash. Telus also ranks among the largest corporate stock buybacks programs in Canada. If the company has enough cash to repurchase shares to inflate stock prices, then it can likely afford to repay the overcharged internet fees (as ordered by the CRTC) and lower mobile service prices for consumers. Similarly, Bell’s share prices hit all-time highs at the end of last year, leading it and the other telecoms to offer pay raises to their CEOs. Telus’ CEO saw an increase in compensation, despite the company failing its own internal scorecard on the most important category for any consumer-facing business: customer satisfaction. Bell also recently hiked their monthly internet prices by about $6, despite consumers facing increased economic pressures during coronavirus. We need not listen to alarmist projections by incumbent players over-emphasizing their role in Canada’s GDP. Instead, we should deeply fear the lack of competition that hinders Canada’s global competitiveness, prosperity, and future productivity well into the future. The OECD has reported that Canada struggles with stagnant productivity and weak business dynamism relative to other developed countries. Canada has the highest number of older firms among 15 other developed countries, with business dynamism and firm entry and exit rates waning since the 1980s. The OECD also stated that “regulatory protection of incumbents is high by international standards and arises primarily from an above-average use of antitrust exemptions.” If lawmakers and regulators care about protecting the health of competitive markets and future innovation in Canada, they will enforce the decision of the CRTC concerning wholesale internet pricing —overturning it would hurt Canada’s productivity and business dynamism. The decision of the CRTC case will be an important signal for other industries as to whether we value fair pricing, choice, and competition for all Canadians. We are at a crossroads for capitalism—there is no going back if the federal government and parliamentary courts allow competition to die. “Market forces” and Schumpeter’s creative destruction will not conjure up competition on their own. Every game needs rules of fair play, and it is long overdue that we enforced them in Canada. As Robert Reich, the author of Saving Capitalism says, “The invisible hand of the marketplace is connected to a wealthy and muscular arm.” As we have seen in the congressional hearings with the U.S. tech giants, failing to take decisive action in favour of competitive markets means giving a green light to monopolists. Though the context is different, the same axiomatic question is at stake: will the federal government concede its political power and bend to corporate demands, or will it pursue its public duty to protect consumers and the future of the Canadian marketplace? The Hill Times

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Canadian lawmakers have a choice: defend corporate interests or competitive markets

If lawmakers and regulators care about protecting the health of competitive markets and future innovation in Canada, they will enforce the decision of the CRTC concerning wholesale internet pricing —overturning it would hurt Canada’s productivity and business dynamism.

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