Home > australia, new zealand, telecommunications > Don’t fear the foreign reaper

Don’t fear the foreign reaper

February 7, 2011 petenowak2000

You know what they say: when it rains, it pours! Or, in the case of Canada, when it snows, it Snowmaggedons! Hot on the heels of the whole usage-based internet billing fiasco, the Federal Court on Friday dropped a bombshell in ruling that our government goofed when it let Wind Mobile, one of our new cellphone companies, start up back in 2009. It’s a huge decision that throws our telecom market into chaos. I’ve written about the repercussions in an op/ed piece for CBC.ca.

In the meantime, it certainly looks like the issue of foreign ownership restrictions is finally going to get some attention. I’ve seen a good deal of concern from readers over the last little while on foreign ownership, both in stories and blog posts I’ve written. A lot of people don’t believe that opening Canada’s telecommunications market to foreign companies would be a good move, based on a number of fears.

There’s a few well-established ones, but I think those are easily countered. Chief among them is that we’ll sell out our big Canadian companies to foreigners, likely Americans. To that one I say: so what? Bring it on.

When Kohlberg Kravis and Roberts, a U.S. private equity firm, thought about buying Bell Canada a few years ago, someone - I can’t remember who - criticized the deal by saying he didn’t want decisions about Canadian telecom made in Manhattan board rooms. That’s about as dumb an argument as I’ve ever heard because when it comes to telecom companies, we’re talking about the pipes - whether they’re wires or wireless - that stuff travels through. It’s like complaining about how the decisions regarding the computers we use or the televisions we watch are being made in California and Tokyo board rooms. Ultimately, it doesn’t matter who owns the pipes the stuff goes through. All that’s important is that we get the stuff, preferably faster and cheaper.

That fear is tied to another, that foreign firms will have no impetus to promote Canadian content, especially if they end up owning our broadcasters as well. That’s another dumb one. I won’t get into whether we need to falsely promote some notion of Canadian culture, but be that as it may, it’s actually a very simple fear to quash. All we need are some very simple and clear rules: foreign firms must devote X% of their revenue to creating Canadian programming and they must include said programming as X% of their daily content. And they can’t air it in the middle of the night when no one is watching/listening. Canadian companies currently follow these rules as conditions of having their broadcast licenses renewed, so there’s no reason we couldn’t apply them to foreign entities as well.

Another fear is that by allowing foreigners to buy Canadian companies, we’ll hollow out corporate Canada and see all of the top-level jobs leave the country. Also related to that is the possibility that a foreign owner might decide to pare down the Canadian operation by cutting jobs. Both scenarios are based on the presumption that our companies suck, and always will. Some of them probably do suck right now and could use a good round of fat-cutting, but they don’t have to stay that way. If we build good companies that service a vibrant market, the jobs will come rather than leave. If Bell or Telus or whoever could transform itself and start expanding out of Canada we could some day have our very own Vodafone, or a giant multinational behemoth. That would mean many, many more jobs of all levels right here in Canada.

In fantasizing last week about what Canada might look like if we did get rid of our restrictions, some relatively new fears came up. I’m of the belief that AT&T would become a big player in Canada, simply because it already does big business here and it would like to ease its operations and lower its costs. A few readers commented that they didn’t necessarily want a company that is known for abusing its U.S. customers to come north. That would hardly solve our problems.

In the first case, unfortunately things don’t work this way. If we open up the market, we can’t really pick and choose who gets to come in - the market decides that. If we decide we want to take steps to solve the oppressive situation we’re in right now, this is a risk that has to be taken.

But the real point is, it’s actually not much of a risk. If, for example, AT&T were to buy Bell Canada, there probably wouldn’t be any real change in the level of customer oppression. However, if AT&T were to buy a smaller company - I suggested MTS Allstream - it would immediately be put into the role of challenger to the likes of Bell, which is the reverse of its situation in the United States, where it is the incumbent.

In the end, market position determines market behaviour. Put another way, the level at which a company behaves like a bastard is directly proportionate to how much of the market it controls. Challenger companies have much more reason to be friendly to their customers than market leaders do.

This isn’t just theoretical - I had a front-row ticket to this phenomenon a few years ago in New Zealand. There, Telecom New Zealand was the big, evil phone company. TelstraClear, a smaller company owned by Australia’s Telstra, was the challenger. For years, TelstraClear fought Telecom to get better access to its network, and the company also built some of its own cable infrastructure in the capital city of Wellington. For the most part, internet speeds and prices were better in Wellington than they were in most other parts of the country. TelstraClear was generally considered a better company to get services from.

On the other side of the Tasman Sea, it was the exact opposite. Telecom fought against Telstra for better access rules and generally positioned itself as a consumer champion through its AAPT subsidiary. The irony was not lost on anyone - the two companies were bitter enemies, but whether they were bastards or not depended on which country you were talking about.

Such is bound to be the case in Canada. There will likely be foreign takeovers of incumbents, but there will also be acquisitions of smaller players or startups of new companies. As long as there are new, hungry challengers, they will be friendlier to consumers in their services and prices, regardless of their relative doucheyness back home.

ALMOST FORGOT: In writing this post up last night, I forgot to include perhaps the best example of this dual douchey-ness. Few would doubt that Wind Mobile has positioned itself as a champion of the Canadian consumer. The whole concept is in the company’s very DNA. But let’s not forget that the company behind Wind, Egypt’s Orascom, is also the only cellphone provider in North Korea. Doing business with Kim Jong Il scores some serious points on the bastard scale. More proof that behaviour in one country doesn’t necessarily equate to the same behaviour in another.

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  1. February 7, 2011 at 1:24 pm | #1

    I’m not opposed to any potential positive impact of competition in a market. I agree wholeheartedly that the more people get involved, the better.

    The snag for me comes in when it ends up being a race to the bottom for service.

    This crops up far too often in “free markets” (with no consumer protection or minimum standards).
    It results in consolidation, which to me is bad news for consumers. If we’re going to have free markets in telecommunications, it should be for more than idealogical reasons. With communications becoming so essential, I’d hate to see a year of mergers result in us ending up back at square one.

    There are probably two steps that need to be taken.

    First, Measurement Canada needs to get involved:
    “…to ensure equity and accuracy where goods and services are bought and sold on the basis of measurement, in order to contribute to a fair and competitive marketplace for Canadians.”

    Second: Nationalize the ownership, growth and operation of the “last mile” so that no one company hold it over the head of another.

    These two steps could eliminate the infrastructure and ideas that are constantly at the heart of anti-competitive initiatives. Effectively kicking the troll out from under the bridge.

    Only then would the idea of “competition” not seem like a contrived idealogical attempt to further ignore this issue.

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