Antitrust in Canadian Telecommunications: A Policy at War With Itself

On the surface, there seems to be an easy fix to the abysmal state of competition in the Canadian telecommunications sector: breaking up the oligopolistic firms that have a chokehold on the market. However, a nuanced analysis ought to mention that divestiture has historically not led to its promised outcomes. Instead, policymakers should open up the market to competition in a different way: Reducing barriers to entry and ending the protectionist measures that prohibit foreign competition.

Shaw Office, Calgary. Featured image by Can Pac Swire obtained via Flickr

Despite being among the most expensive in the developed world, Canadian telecommunications services lag behind the rest of the world in quality. One of the key reasons behind this is obvious at first glance. A few firms have a disproportionate amount of market power and continually lobby the government to induce anti-competitive policies. The rather dismal state of competition in the Canadian economy is not isolated to only one market, but several. Telecommunications, however, is among the worst and most well-known by the general public. 

In light of the recent and highly publicised acquisition of Shaw by Rogers, Conservative Member of Parliament Ryan Williams has spearheaded a movement to promote competition in both the Canadian banking and telecommunications sectors. Williams claims that stronger enforcement of antitrust measures, including breaking up the  “Big Three,” telecommunications firms Telus, Rogers, and Bell, would reduce prices for Canadians. 

Williams and others sharing his disposition are correct in identifying the problem: The abysmal services at exorbitant prices follow from the incredibly high levels of market consolidation. As an article by the Globe and Mail summarized well in a recent report by the Competition Bureau, the state of in Canada competition is "lacklustre and getting worse." Before jumping to government intervention, one ought to ask some preliminary questions: Why has consolidation occurred this way, and is antitrust enforcement, either through disallowing mergers and acquisitions or through breaking up firms the best way to move forward?

Enforcement of horizontal mergers and acquisitions relies on a few key assumptions from regulators. One is that there is a clear level of market concentration at which firms begin to generate market power. The most commonly used index on behalf of regulators is the Herfindahl–Hirschman Index, and significant changes in this index often trigger investigations by government authorities. One should immediately note that it is impossible for anyone to know at what exact level of market concentration a merger or acquisition would create market power. MP Williams has said that Canadian telecommunications is a monopoly in light of the acquisition. It is very difficult to conduct this sort of research in economics given the ever-changing variation in human action.

Further is the assumption that “relevant markets,” can be defined in some substantial manner. Two goods are said to be part of the same market if they could be reasonably substituted for one another, but evidently “reasonable,” has a great variance from person to person. In applying this law, various distinctions can be made regarding what counts as being in the market and what does not. Despite the arbitrary nature of the entire process, these distinctions have serious ramifications. Controversy in antitrust proceedings are hardly rare, like when the FTC adopted an “outrageously narrow,” definition for the relevant market in a proposed merger between Staples and Office Depot. In a prime example of relevant market ambiguity, the regulatory body’s decision created a relevant market that initially would create five per cent market consolidation if the two firms were to merge. The FTC’s newly defined narrower definition showed the merged firms constituted 75 per cent consolidation, and practically guaranteed the merger between Staples and Office Depot would not go through.

Let us consider the question, What is the relevant market for telecommunications? Defining this market is more complex than it may initially appear, given the diverse services offered by the major industry players. Should we focus on home internet services, mobile plans, or cable subscriptions? Is it a combination of these services, or perhaps even more? How about recent foreign competitors, like Starlink? Any attempted empirical measurement of the relevant market is bound to be caught up in statistical noise, and yet the fate of firms and consumers is highly dependent on what is decided to be the relevant market. Much of the litigation regarding antitrust is arguments over the relevant markets given its importance to the outcome of cases.

Historically, enforcement of antitrust laws in developed economies have not significantly increased quality or reduced prices. Even if one were to concede that the measures against Rogers, Shaw, Telus and Bell would be effective, the root of the problem is not addressed. Who is to say that all else being equal, further consolidation of these large firms won’t happen after they are broken up in the long term? Will further antitrust measurements just have to occur in perpetuity? 

Theoretically, when a few firms are making abnormal profits in the short run, we would expect more firms to enter the industry to capture the available profits, which would force firms to engage in price competition and reduce prices overall in the long run. This has not happened in Canada. Part of the reason is systemic: Canada is a very large, sparsely populated nation, and as such telecommunications infrastructure is very costly to build. That however does not explain the entire disparity. In Canada, government-imposed barriers to entry restrict foreign competitors and make any opportunity to say infrastructure very difficult. The thinking behind this protectionism must be seriously called into question. Canadian telecommunications is not made up of a few small firms on the peripheries of existence. Rather, they are multi-billion dollar conglomerates that hardly need help from the government to stay afloat. 

The status of competition in the telecommunications market is a mess. The state has engaged in corporate welfare for the biggest players at the expense of Canadians who pay exorbitant amounts for services. Instead of antitrust, however, regulators should look towards increasing competition in an organic way and letting Canadians buy from any provider–foreign or domestic– who they see as giving them the best quality of service.

References

William Niskanen, “Antitrust and the Staples‐​Office Depot Merger,” Cato.org (Cato Institute, June 26, 1997), https://www.cato.org/commentary/antitrust-staples-office-depot-merger#. 

 Government of Canada, Canadian Radio-television and Telecommunications Commission (CRTC). 2020. “Communications Monitoring Report 2019.” Retail Mobile Sector | CRTC. February 4, 2020. https://crtc.gc.ca/eng/publications/reports/policymonitoring/2019/cmr10.htm.

 Jackson, Emily. 2018. “Canada Has One of the World’s Most Protected Telecom Sectors — and the Rates to Show for It.” Financial Post. July 25, 2018. https://financialpost.com/telecom/tight-reins-leaves-our-telecom-sector-open-to-criticism-but-sadly-not-competition . 

“MP Ryan Williams Calls for More Telecommunications Competition | Brockville Recorder & Times.” 2022. November 21, 2022. https://www.recorder.ca/news/mp-ryan-williams-calls-for-more-telecommunications-competition. 

 The Fraser Institute. 2024. “Eliminating Barriers to Competition—the Overlooked Remedy for High.” Fraser Institute. January 15, 2024. https://www.fraserinstitute.org/blogs/eliminating-barriers-to-competition-the-overlooked-remedy-for-high-cellphone-bills. 

The Globe and Mail. 2023. “The Growing Case to Act Against Shrinking Competition,” November 1, 2023. Editorial. https://www.theglobeandmail.com/opinion/editorials/article-the-growing-case-to-act-against-shrinking-competition/.