Why do Canadians pay so much for cell phone service?

Why do Canadians pay so much for cell phone service?

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Canadians pay some of the highest prices in the world for cell phone services. In 2020, the affordability of mobile services in Canada was ranked 209th out of the 228 countries tracked. According to Bloomberg News, one gigabyte of mobile data in Canada costs US$ 12.55 versus US$ 8 in the United States.

The recently proposed merger of Rogers Communications and Shaw Communications, two of the four Canadian telecom companies operating nationwide, drew attention to this issue—as decreased competition is expected to translate into even higher prices for consumers. Open Media, an activist organization and a telecom company critic, has opposed the merger plan, bemoaning diminishing competition. The implicit concern is that the remaining three competitors would collude to fix prices and maximize profits, hurting consumers.

But the telecom companies’ “greed” for profits and the alleged price fixing is not the real reason for the high prices of their services in Canada.

While it is true that providing wireless services to a small population in the vast Canadian geography is expensive, government regulation is the fundamental reason for the high consumer prices, as some commentators have pointed out.

The telecommunications industry is one of the “culturally sensitive” industries that the Canadian government has chosen to protect against foreign competition. The government protects domestic telecom companies by restricting foreign ownership to a minority stake only. This means that foreign telecom service providers cannot operate in Canada, except as minority partners of domestic operators.

Protectionism is an effective way to reduce competition in —and to increase prices of—cell phone services. When foreign competitors are banned, the industry concentrates into a small number of companies that are the likely winners in any wireless spectrum auction. The ownership of wireless spectrum allows the few companies to control prices and coordinate among themselves, even without explicit collusion.

While these companies undoubtedly enjoy being protected from competition, they can only engage in controlling and coordinating prices because of government protectionism. In its absence, the telecom companies would have to compete harder, not only in their prices but in innovation for better products and technology.

By effectively banning foreign competition, the Canadian government is violating the individual rights of the telecom companies and consumers. In particular, the government is violating their rights to liberty and property: to trade freely with whomever they want on terms they choose, and to own property and dispose of it as they wish.

Recognition of individual rights is necessary to ensure free market competition, which is required to incentivize companies to provide the best products and services at the lowest prices possible. As Ayn Rand argued, the government’s role is to protect, not violate, individual rights.

Why do government protectionism against competition and the high prices of wireless services persist in Canada?

The reason for persistent protectionism is that Canadians like it, or put up with it at least. While they bemoan high prices, they take the price-increasing regulations for granted, assuming that the government knows what is best for them. Most do not protest the government’s violation of their right to liberty and property, even when it happens concretely in their face (such as the arbitrary economic lockdowns and incarceration of international travellers in government mandated hotels during the COVID-19 pandemic).

Similarly, the Canadian media is mostly not critical of government regulation of the markets. Thankfully, there are a few exceptions, such as a recent column by Rupa Subramanya in the National Post. But even the critics of protectionism do not argue for the importance of individual rights in ensuring freedom and free competition. Some have even argued that to protect consumers against price increases, the government should set restrictions on the merger of the telecom giants Rogers and Shaw.

But further regulation of the telecom industry and not allowing the merger is not the long-term solution.

If Canadians want to pay less (not only for cell phone plans but for products and services of many other protected industries), they need to stand up for their individual rights, including the right to trade freely. They could do so by protesting rights-violating regulations directly to their elected representatives or in the social and other media, and by using digital technologies (such as VPNs) in the domains where it is possible, to bypass regulations.

Photo by Charles Deluvio on Unsplash

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6 Responses

  1. Thanks.

    Renowned radio disc jockey Red Robinson from Vancouver BC opposed Canadian Content laws because he believed they were bad for Canadina performers, success in a protected environment can be interpreted as of lower quality when wanting to get gigs in the US. (A sidelight is that a radio station in Windsor ON had been making money broadcasting RnR into the Detroit MI area, which would be heavy on R&B like Motown, that business plan did not meet CanCon rules when they were implemented.)

    CanCon is a mild case of the cultural xenophobia and ideology used by totalitarian regimes to justify oppression, such as of females and small ethnic groups.

    Mergers can provide better service by improving coverage. Coverage of the big companies does not fully overlap. Sometimes purchases are made to get coverage or to get into the business – Clearnet was a case of that phenomenon, Telus purchased it to expand coverage area and gain its expertise (Kline glosses over that). IOW Telus purchased Clearnet to expand its competitive position against other companies.. And competition can sneak in at the margin, the case of Clearnet that was operating essentially industrial communications systems, then expanded into consumer cellular telephone service.

    Partnering also exists – Bell has little cellular coverage in the big population of southwest BC, it partners with Telus. (Virgin is just a reseller that provides smarter customer service than Telus and Bell. There are others.)

    A facet of the market in Canada has been attempts to start small cellular service providers that have not been successful, a common business plan was to take the cream of urban business. Telus has commendably added fill-in cellular antenna sites in recent years, providing coverage for emergencies – someone has added signal on the Bamfield Main Road south of Port Alberni BC, where a fatal bus crash occurred in 2019. Fortunately in that case an occupant stumbled through using a SATCOM emergency communicator that was on board.

    Technology will help, already there are local alternative paths using WiFi and similar technologies, and SATCOM for a cost. Of course Huawei is eager to enter further into the markets, but there is a security question.

    I gather you are expecting that elimination of Canadian content regulations would facilitate investment by foreigners who have more funds, and perhaps can deploy and run systems better. (Shaw for example does not run web functions well and has a bad attitude in retail stores, in my experience – but like all bureaucracies also has some great people. An odd case showing the benefit of competition is that years ago Rogers and Shaw swapped some areas of cable TV/Internet service, when Rogers’ bad attitude toward customers of its Internet service in southwest BC was costing it business.)

    Corcoran seems to think there is enough competition in Canada even with the planned merger, perhaps just in the context of present laws. My remarks show that competition and markets are not as simple as people assume.

    1. Thanks, Keith – a lot of good context. I expect that if the foreign ownership restrictions were lifted, there would truly be more competition. The current oligopoly makes it too easy for the incumbents to coordinate, even just tacitly. In this matter I disagree with Terry Corcoran. However, his assumption that the government’s protectionism will continue is likely more realistic, at least on the shorter term. But eventually, we must get a more principled political leader who will have the courage initiate changes in the regulations that hurt Canadians and also Canadian businesses (although the companies may not realize they are being harmed by protectionism).

  2. This article and the one it refers to may be of interest: https://www.aier.org/article/bigger-can-be-better-when-governments-step-out-of-the-way/

    Basically saying that businesses become large because they are more efficient and better at serving customers.

    I point to some like Honda as starting small and growing, even with discouragement by government, in http://www.moralindividualism.com.

    The article identifies Canadian restrictions on ownership, but does not name CanCon laws directly.

    Standard Oil bought out failing oil companies in the early days of oil production in the northeast US, in some cases after government introduced safety regulations – many startups were sloppy operations. That provided some money to owners of the purchased companies, compared to bankruptcy.h

  3. While what you wrote about limiting the market might be true, it does not contradict the notion of sky-high prices on account of greed. The two ideas are not exclusive of one another. Canadian providers are amongst the greediest and should be ashamed for their gouging, especially of the poor over the years (don’t even get me started on the hypocrisy of Bell’s “let’s talk” marketing campaign). The limiting of competition just enables that existing greed to thrive at a new place in the sun. Unfortunately, while possessing the rights of a person, corporations do not possess the conscience of one (though i’m not entirely convinced all people necessarily have a conscience with the things I’ve seen).

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Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada.

She has lectured and conducted seminars on business ethics to undergraduate, MBA and Executive MBA students, and to various corporate audiences for over 20 years both in Canada and abroad. Before earning her Ph.D. from the Wharton School of Business, University of Pennsylvania, she helped turn around a small business in Finland and worked for a consulting firm in Canada.

Jaana’s research on technological change and innovation, value creation by business, executive decision-making, and business ethics has been published in various academic and professional journals and books. “How to Be Profitable and Moral” is her first solo-authored book.

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