Who needs Better Internet, Anyway?

Way back in 2001, the Government-sponsored National Broadband Task Force determined that “over the next 10 or 20 years, the development of broadband network services and applications will have a profound effect on all aspects of Canadian life.” Well here we are, 11 years later, and Canadians are amongst the heaviest Internet users in the world, with much of that demand being generated wirelessly.

In Canada this explosion of demand for wireless data services has been met in a number of ways. In the late 90’s, public spectrum reserves were responsible for the rollout of Wi-Fi networks. In 2008 Industry Canada, responsible for overseeing wireless development, auctioned off the Advanced Wireless Services spectrum, giving companies the go-ahead to bring us services like 3G, and making more than $4 billion in the process. During this auction, the Government took an additional step to promote competition and innovation: they set aside spectrum for new entrants.

Today, those “new entrants” are Wind Mobile, Mobilicity and Public Mobile. After 4 years, these three together have only captured about 4% of the wireless market. The fact is that the new entrants’ impact has been at best minimal, and is only felt at all if you happen to live in one of the few cities where they offer service.

The real benefit to wireless has come from the reservation of some spectrum for unlicensed use. With rapidly escalating demand for mobile data tied to the the growing use of smartphones, Wi-Fi networks have become a crucial alternative to expensive mobile data plans. . Studies have shown that people use Wi-Fi on their phone significantly more than cellular data. Today we take Wi-Fi networks for granted; they’re everywhere. Libraries, malls, schools, Starbucks and even McDonald’s all provide free Wi-Fi networks. It’s hard to imagine what our lives would be like without Wi-Fi, which wouldn’t exist if the spectrum it uses had been sold at auction instead of being reserved for unlicensed, public use.

The demand for wireless data hasn’t diminished since 2008. In an effort to find ways to satisfy the demand, last summer the Government finally completed the transition to digital TV broadcasting. By reallocating spectrum that was previously used for analog broadcasting, the Government has made almost the entire 700MHz frequency spectrum, desirable for its long range and ability to penetrate buildings and carry lots of data quickly, available for sale to alleviate the overwhelming demand for wireless data services.

On March 14 Minister of Industry Christian Paradis released the Conservatives’ long-awaited rules for the 700MHz spectrum auction. The rules are certainly a win-win situation for the Government and the telcos: the former expects to rake in billions, while the latter gets access to the spectrum it needs to expand profitable next-generation wireless services. But what about consumers?

Problem is, the Conservatives’ rules fall short of a remedy to Canadian consumers’ wireless woes. These rules do set aside spectrum for a “public safety network” for police and firefighters, and the amount of spectrum a single company can buy is capped, but the bit that’s garnering the most attention is the Conservatives’ pledge to lift foreign ownership restrictions, allowing international capital to fully own Canadian telcos that control less than 10% of market share for the first time since the 1980’s.

Some are already labelling this a “win” for consumers; journalist Peter Nowak says: “Has anybody seen Santa Claus? Because it sure feels like Christmas.” Caution may very well be the better part of valour in this case, however, as enthusiasts have failed to take account of the two reasons that the auction rules will not live up to the promise of better service for consumers.

First, lifting foreign ownership restrictions will not open the floodgates to more competition, better service, and better prices. Historically, foreign interests abandoned the Canadian market even before the foreign ownership restrictions were introduced in the 1980’s. Today, the CEO of the only foreign-owned telco in Canada, Anthony Lacavera of Wind Mobile, has publicly lamented his decision to operate in Canada (The CPC gave Wind a variance to operate in Canada despite being foreign owned.), and has gone so far as to threaten a boycott of the auction if a set aside for new entrants isn’t guaranteed. (It’s not). Given that the only foreign owned telco who hasn’t abandoned the Canadian market is less than hopeful about its chances for success here, there is no reason to believe that allowing more foreign ownership of telcos in Canada will result in better prices for consumers in the long run.

Second, and more important, is that this auction doesn’t reserve any spectrum for public use. Put it this way: Wi-Fi is fast, cheap and everywhere because in the 80’s the Government set aside some spectrum for the public that couldn’t be sold, but could be used by anyone so long as their devices don’t cause interference. Mobile data services like 3G, on the other hand, are expensive and limited, because companies need to license spectrum to provide those services. They pay millions, or even billions for the privilege, and have to charge high prices to recover those costs and turn a profit.

So long as telco’s are paying top dollar for spectrum, they’re going to be charging high prices for wireless, regardless of their owners’ nationalities. This is why a spectrum auction results in a tragedy of the commons; the Government puts a public resource, spectrum, in the hands of private, for-profit companies, and takes it on faith that those companies will put the interests of consumers above their own bottom lines.

Unfortunately, in the 700MHz auction the Government has chosen not to reserve any spectrum for unlicensed use, and therefore has severely limited possibilities for the future of public wireless services. If the Government really had the interests of the public at heart, it would have reserved at least some spectrum for public use, allowing the possibility of alternative wireless innovation not dominated by a few huge telcos, who will always put the interests of their shareholders above the interests of the public. There’s a reason Rogers is often scathingly referred to as ‘Robbers’.

We won’t be seeing those kinds of alternatives here in Canada though. Industry Canada’s decision not to reserve spectrum for public use is devastating with regard to the possibility of bringing the next generation of Wi-Fi to Canadians. This failure to reserve spectrum for the public represents a tremendous lost opportunity; given the range, speed, and building-penetration characteristics of the 700MHz spectrum, this means that the possibilities for communities, municipalities or cities to deploy high-quality, low-cost wireless networks have been effectively eliminated.

Since the AWS auction in 2008, Canadians have had the choice between expensive mobile data plans or Wi-Fi, and by and large we’ve chosen Wi-Fi. After the 700MHz auction, the only choice we’ll have for next-generation wireless Internet will be between a Canadian or a foreign-owned telecommunications corporation.

So is this a gift from Santa Claus? Maybe, if you like finding a lump of coal under the tree on Christmas morning.

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