The Future of Mobile Broadband Can Arrive Early in Canada

A student recently asked a colleague, “How will the telecom world look in twenty years?” After some thinking, I have an answer for what it should look like. I am working to make that vision—articulated by Professor Eli Noam thirty years ago on open access—a reality in Canada and globally. With its huge size and low population density, Canada has a history of regulatory debates. Effective competition policy is challenging for critical infrastructure industries like communications and electricity. 

Here is my vision for Canada’s mobile industry. This future promises innovation and competition that is a win-win-win for Canadians, the regulator, and the mobile operators—both physical and virtual. Everyone benefits from making the communications pie larger, and everyone’s slice gets bigger. While status quo bias and regulatory capture often slow innovation, Canada is equal to the task. Innovation today makes life more rewarding for regulators and the companies they regulate because competition policy will be based on core economic principles instead of arbitrary administrative parameters that stakeholders argue about endlessly. Competition is driven by transparent and efficient prices that are readily modelled, reducing unhedgeable regulatory risk.

Structural Challenges in the Current Regulatory Landscape

Currently, the Canadian wireless industry is more complicated than international best practices. These complications have long-standing historical roots, going back to the founding legal instruments of the original wireline and wireless frameworks—the Telecom Act and the Radiocommunication Act. Those acts established dual—and sometimes duelling—regulators in wireless by involving the Canadian Radio-television and Telecommunications Commission (CRTC) and Innovation Science and Economic Development Canada (ISED), formerly Industry Canada. The resulting complicated framework and rule-making process include the possibility for industry to appeal directly to the CRTC, the courts, and the Cabinet. This power has resulted in significant changes and costs.

This dual role was less consequential when the mobile market was a fringe market, but as the mobile market grew into an essential communications service, the tables turned. The interdependencies have leverage effects. For instance, when it comes to roaming, ISED supports negotiation among players, whereas the CRTC gives regional mobile operators the right of initiative in this area. In addition, ISED and CRTC set rates differently, with one agency foreseeing negotiated rates while the other pushes for rates regulated ex-ante. There are tensions between ISED and CRTC regarding implementing regulations for mobile virtual network operators (MVNO), with ISED seeking a larger role for MVNOs, with more extensive prerogatives. The spectrum assignment and allocation roles of ISED and the regulatory roles of CRTC add additional overlaps and complications. 

A simpler way forward builds further on advances in auctions and market design. Open access creates a new, competitive market design for roaming, capacity, and spectrum access.

The Promise of Open Access and Market Design

Open access paves the way for a fundamental restructuring of the Canadian mobile market that moves away from the current landscape in which the Big Four compete with several regional companies. As a merger remedy, open access paves the way for a much-needed restructuring while fostering increased competition among the wholesale market participants. It removes entry barriers. The potential benefits include additional infrastructure investment, increased competition, innovation, and lower rates, all of which contribute to a bright future for Canada’s mobile industry. 

Open access is built on a trading platform that organizes access and pricing among participants based on continuous auctions for communications capacity. This market, overseen by an independent market operator with a mission encoded in market rules that maximizes as-bid social welfare, such as network and resource constraints, resolves the intractable administrative Gordian knot of the current roaming and access regimes. It allows for spot and forward trading in communications capacity with fine granularity of time and location, paving the way for a more efficient and competitive telecom market. 

Competition policy is an essential question for mobile markets. Traditional instruments have relied upon spectrum caps, set-asides, build-out requirements, and other constraints on mobile market participants. However, the proposed model offers a simpler and more effective solution. We can foster a more competitive and efficient market by imposing obligations on spectrum holders to sell a predetermined portion of the capacity in an open-access wholesale market conducted by an independent market operator. 

The benefits of open access include increased transparency, fair competition, and efficient resource allocation, all of which contribute to a healthier and more dynamic mobile industry and less costly rent-seeking by incumbents.

Removing Barriers and Building Confidence

While the proposed market mechanism may sound like an additional governance roadblock, it is, in fact, a simplification that removes the entry barriers and reduces the complexity of the status quo. “First, do no harm” is the principle of any good regulator, but change is needed to address a broken status quo. Turn crisis into opportunity. 

The details of open access have been thoroughly developed and tested. Research on empirical testing and an open-source platform for regulators and market participants worldwide is available. In that framework, the participants bid persistent piecewise-linear downward-sloping net-demand curves for portfolios of products for communication wholesale capacity. The platform clears the market, finding unique prices and quantities that maximize social welfare. Prices, aggregate quantities, and the slope of the aggregate net demand are publicly posted every hour. The result is an efficient market mechanism with significant potential gains for society, providing reassurance and confidence in its effectiveness. 

Implementing such a model for Canada will achieve the government’s objectives, such as enabling competition, lower rates, investment incentives, administrative predictability, and simplicity. The market aligns the incentives of market participants with social welfare, making the communications pie as large as possible—every stakeholder benefits. Special conditions, such as Indigenous Rights for spectrum, can also be included. 

Open access allows for sharing infrastructure without reducing competition in Canada’s wireless market. It also allows for new mergers that bring efficiency gains while maintaining robust competition. These mergers will be increasingly necessary as the economies of scale grow with each mobile generation to facilitate artificial intelligence and other demands for real-time information and control. 

A Future-Proof Foundation for Canada’s Digital Economy

An open-access foundation is increasingly important because the digital ecosystem’s value generation has shifted significantly over the last few years. As seen in the chart below, the ecosystem has become pyramidic regarding value generation, with Big Tech at the top globally.

The emerging problem is that the base will become increasingly porous because of a lack of investments in upgrades and maintenance. The upper layers are dependent on the lower levels in the value hierarchy.

A shift to an open-access market framework will make Canada’s telecom more future-proof, resilient, competitive, and market-driven. Canada will have a foundation for innovation that will be the envy of the world until others see the secret of its success. The future is bright.