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Fri, 07 Jun 2013 14:15:00 GMT | By Deirdre McMurdy, MSN Money

Behind the wireless wars

The insistence on a four-player market will cause future headaches for Ottawa.

Deirdre McMurdy

You know how it goes: 40 is the new 30, pink is the new black and telecom companies are the new banks.

For the three major players in the wireless sector — Bell, Telus and Rogers — this is not a welcome development: The scrutiny, meddling and second-guessing that come when your business model is tagged as a “pocketbook issue” have only just begun.

For some time it’s been apparent that, like bank charges, cellphone rates and contracts are a highly resonant consumer issue in Canada. It’s a chronic bone of contention, however much effort goes into rationalizing the costs.

In political terms, it’s like tying a pork chop around your own neck — you’re sure to attract all kinds of unwanted attention.

Canadians pay some of the highest fees in the world for cellphone service and given that there are well over 26 million wireless users in a country of 34 million, the federal government quickly decided that leaving things to “market forces” and three powerful companies maybe wasn’t the best political choice.

That’s all the more true when it’s cast as a competitiveness issue in an economy where that’s a perennial cause for concern.

The worst possible news for the Big Three telecom companies is that issues related to an upcoming (though now delayed) auction of broadband spectrum have coincided with several weeks of political scandal and Party defections. That makes the Harper government more determined than ever to be seen taking some strong, positive action on behalf of consumers — aka voters.

That reality is further underscored by a fundraising initiative by the Conservative Party of Canada. In an email, the Party declared it was “standing up” for consumers. “We will not allow the big telecommunications companies to shut down competition. More competition means lower prices and more choices for you and your family,” the message said.

The industry regulator, the Canadian Radio-television and Telecommunications Commission, is certainly on the same page.

The CRTC operates independently from the federal government and there have been very public clashes between them in the past. But chairman Jean-Pierre Blais — who, like all chairs is appointed through the Prime Minister’s Office — has positioned himself from the outset as a champion of the Canadian consumer.

It’s why he overruled Bell’s first attempt to acquire Astral. And it’s why, more recently, the CRTC cut back on the length of cellphone service contracts — an issue that has already split the industry into two factions.

What does it all mean?

It means that the telecom deregulation experiment is well and truly over. Whatever free market forces may indicate, the federal government is absolutely determined to ensure that there are four wireless service providers in every market.

Furthermore, the wireless spectrum that was purchased by “new entrants” in 2008 who have since lost interest (Shaw, Quebecor) or traction (Mobilicity), will not be allowed to fall into the hands of “incumbents” (Bell, Telus, Rogers). Or at least not until the required five-year freeze on resale is fully over in 2014.

That is the reason why Industry Minister Christian Paradis scuttled the $380 million takeover of cash-strapped Mobilicity by Telus. It’s also why foreign ownership rules in the sector have been relaxed in a bid to lure some foreign investors into the market.

Not to mention that consolidation is being almost actively encouraged between smaller wireless companies by a government that once insisted it would never pick winners and losers.

So far, it’s unclear what will happen to Mobilicity now that the Telus deal has been disallowed.

Still, creating a four-player Canadian market may come down to whether or not Wind Mobile, the largest of the small carriers, pulls through. There has been some chatter about a possible merger with Mobilicity and Wind’s CEO has said he’s still open to it.

If Wind survives in Ontario, Alberta and British Columbia (there are competitors in the other provinces), Ottawa can declare its policy a success and claim further bragging rights about standing up for consumers.

But as is pretty much always the case, it’s not likely to be anywhere near that simple a solution.

Minister Paradis has explained that “The intent is to make sure that we have a fourth player. Then after that we have to follow the evolution of the market.”

It’s a statement that’s adorable — and alarming — in its naivety. The thing about creating artificial market competition is that one bit of tampering leads to another. And before you know it, the government is up to its neck in regulation and oversight.

And such hands-on intrusion by a government, however it’s rationalized, isn’t even the new political poison. It’s an old one.

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