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Sat, 18 May 2013 14:15:00 GMT | By Deirdre McMurdy, MSN Money

The problem with Canada’s cellphone market

The spectrum auction is not some abstract scientific concept — it could end up costing you.

Deirdre McMurdy

It’s perfectly understandable.

If your eyes — or ears — glaze over at any mention of a spectrum auction that the federal government plans to hold in November, you’re among the majority of Canadians. After all, high school science class is probably the last time you had to demonstrate any grasp of how specific bands of electromagnetic space transmit high frequency signals.

And chances are good that your cellphone bill is equally hard to understand. Canada has among the highest mobile phone charges in the world — we pay a third more than the global average and almost 20 per cent higher than the U.S. Profit margins for the service providers, furthermore, run at a hefty 50 per cent.

The way those costs are billed to consumers has become so Byzantine, the Ontario government recently introduced legislation demanding that service providers offer clearer explanations on bills. They are also proposing limits on notoriously steep cancellation charges.

Similar billing rules are already in place in Quebec, Manitoba, Newfoundland and Labrador and Nova Scotia.

Here’s where these issues (and many others) converge: the upcoming spectrum auction will have a direct bearing on the number and the strength of mobile phone service providers in Canada — and on the amount they charge Canadian consumers.

This is a matter of considerable political interest. No government can afford to let consumers/voters feel that they are at the mercy of predatory pricing.

That’s why Ottawa — which now has the improved clout of a political majority — has been so active on this file. With a well-intended but increasingly knackered strategy, the federal government (which owns and has the right to sell the spectrum) wants desperately to be seen as promoting competition and making sure consumer costs are contained.

In other words, for all the effort and political capital that is spent on deregulating the telecommunications sector, Ottawa is now incrementally re-regulating it by tinkering with the market.

This is no easy task.

Telecom is a capital intensive industry that requires expensive infrastructure (like towers) as well as the ability to keep pace with constantly changing technology and innovation.

That’s why the Canadian market — relatively small and scattered as these things go — is dominated by three companies. Telus, Bell and Rogers control 90 per cent of the domestic cellphone market and have 27 million subscribers between them. The corporate upstarts Ottawa has tried so hard to champion are floundering with just a 10 per cent shared piece of the action.

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