This article was originally published in the National Post.
By Aaron Wudrick, January 27, 2023
On Tuesday, the Federal Court of Appeal rejected an appeal by Canada’s Competition Commissioner to decide the fate of the proposed merger of telecom giants Rogers and Shaw.
The court’s decision marks the end of a saga that has dragged on for nearly two years. At one point the federal Competition Bureau attempted to block the deal — only to have the Competition Tribunal dismiss the Bureau’s allegations that a merger would lead to anti-competitive effects.
There’s no question that in a sector as concentrated as Canada’s telecoms market, less competition is worrisome. Canadians’ wireless costs are already among the highest in the world, even compared with other large-but-sparsely-populated countries such as Australia. In their 2019 election platform, the governing Liberals went so far as to pledge to lower cellphone bills by 25 per cent — a promise that, depending on who you believe, they either fulfilled by simply ordering the telcos to lower their rates, or they claimed victory after engaging in some statistical sleight of hand.
But while competition is important, the hyperfocus by both the government and the media on the proposed Rogers-Shaw merger was always misplaced. The sad fact is that, barring other changes, Canada would have continued to suffer from a lack of telecom competition regardless of whether Rogers and Shaw merged. This is because Canada’s telecom market remains in a protectionist straitjacket, shielded from global competitive forces, leaving agencies like the Competition Bureau to micromanage an ersatz form of “competition” that ultimately allows a handful of big incumbents to charge consumers high prices in perpetuity.
But all hope is not lost. There’s a simpler way to inject real competitiveness into the telecom sector: Relax the remaining restrictions on foreign investment.
This might sound off the mark in a time of rising protectionist sentiment, when even right-leaning politicians are less vocal about the benefits of trade, and industrial policy has seen a renaissance of sorts. Nonetheless, there’s a strong argument that this one barrier is the main reason that all efforts to date to increase competition in the sector have failed.
Most of the objections to foreign ownership boil down to thinly veiled protectionism, often from the very telecom giants who would prefer not to see their cozy oligopoly gatecrashed by more formidable foreign competitors.
There are certainly legitimate national security reasons to worry about infrastructure (for instance, Huawei and Canada’s 5G network), but protecting ourselves from the corporate proxies of menacing foreign states does not require banning majority ownership by legitimate companies in countries with whom we have strong and reliable trading relationships.
The good news is that this prescription isn’t new. As far back as 2006, a panel appointed by Paul Martin’s Liberal government concluded that “liberalization of the restrictions on foreign investment in Canadian telecommunications common carriers would increase the competitiveness of the telecommunications industry.” This was echoed by a 2008 report commissioned by Stephen Harper’s government (which in 2012 started down the road to increasing foreign investment with smaller telecoms) and again in a 2016 paper published by the Macdonald-Laurier Institute.
Conveniently, the federal government is currently in the midst of a broader consultation on the future of competition policy in Canada. Beyond telecoms, it would do well to consider whether foreign investment barriers should also come down in such sectors as airlines and financial services. The alternative is further fiddling by government agencies in an attempt to conjure up dynamic competitive forces out of thin air.
Successive governments have tried and failed to shake up Canada’s moribund telecom sector while largely ignoring the outsized impact of restrictions on foreign investment. It’s time to try something new, and bring global competition to bear on our telcos so that Canadians can finally see some desperately needed relief on their phone bills.
Aaron Wudrick is director of the domestic policy program at the Macdonald-Laurier Institute.