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Canada’s federal election will be held on October 21. Mobile telephony — or more precisely, the price and quality of services offered to Canadian consumers — has been front and center for the campaigns has been the issue of mobile telephony.
Despite the Canadian Radio-television and Telecommunications Commission (CRTC) reporting that the price of common packages had dropped 28 percent between 2016 and 2018, and subscriber numbers and volumes of data consumption have increased (the same characteristics leading the US Federal Communications Commission to conclude that US mobile markets are functioning competitively), politicians of all stripes have weighed in with election manifestos promising to take a big stick to Canadian mobile operators.
The Liberal Party of Canada will, if successful at the ballot-box, intervene directly (via a method not yet disclosed) to set mobile telephony prices and mandate the sale of wholesale elements enabling mobile virtual network operators to resell services provided by existing network operators. As expected in a competitive market for election promises, the liberal policy is arguably responds to the New Democratic Party of Canada’s earlier pledge to impose price caps on mobile phone charges and require all operators to offer mandatory basic and unlimited data plans.
Bucking a 30 year trend
The politicization of mobile connection price flies in the face of conventional wisdom (if not even an article of faith) holding from at least the early 1990s that the long-term interests of telecommunications consumers are best served by political interests staying as far away as possible from day-to-day industry activities. Policy entities such as the Organisation for Economic Co-operation and Development (OECD) and the International Telecommunications Union (ITU) have urged states to delegate competition and regulatory oversight to independent authorities and allow the private sector to be the primary investors in network capacity and services whenever possible.
It begs the question, therefore, what Canadian politicians hope to achieve by usurping CRTC. Or perhaps more presciently, what unintended consequences politicization of regulatory functions might engender.
The rationale for the ITU and OECD recommendations is remarkably unequivocal.
Telecommunications infrastructure is a long-lived asset. To encourage investment, especially in technologies providing new and significantly higher quality services, the “rules of the game” need to be clearly articulated, neutral between different technologies and owners, and importantly, applied consistently over the investment’s lifetime. This enables the operator to reasonably expect a fair return on the capital deployed. Without these assurances, incentives for operator investment diminish, leaving consumers as certain losers. Prices may be lower, but consumers must endure lower-quality services for longer, and forgo the benefits of applications made possible by the new networks (at least for the foreseeable future).
Delegating competition and regulatory control to arms-length agencies provides some assurance that the rules of the game under which the industry operates are less likely to become subject to wild fluctuations within and between political election cycles, which are typically much shorter than the time required to recover a fair return on network investments. Furthermore, if networks are privately owned, they cannot become playthings to dispense favors and fortunes for political purposes. Incentives for governments to distort the playing field to favor their own network over privately owned rivals are also reduced. Governments also exercise significant influence over industry structure by way of the packaging and sale of spectrum usage rights necessary for operating mobile networks — how these rights are packaged influence the number of competitors in specific markets — so delegation of these decisions to non-political agents is also advisable.
Of course, the delegation of network ownership, competition, and regulatory oversight doesn’t mean politics doesn’t have a role in telecommunications policy. Government subsidies play an important role in ensuring access to disadvantaged populations and providing funding for infrastructure in regions where private investment would not otherwise occur. Political debate is important for deciding which communities and activities should receive scarce taxpayer funds. There is also room to debate the finer features of the powers delegated to arms-length overseeing agencies — for example, clarifying their powers to act in certain ways when undertaking their constitutionally-assigned duties.
Political (un)accountability
The flip side of delegating responsibility for day-to-day oversight of industry governance to arms-length regulators is the concomitant framework by which regulators are held accountable for their decisions. This obliges them to demonstrate to both their political principals and the public exactly how their interventions contribute to their objectives (usually expressed in terms of increasing long-term consumer welfare). Thus, regulatory interventions come only after long and considered processes in which experts evaluate a wide range of options and are required to consider possible adverse consequences.
This is the opposite of interventions based on popular political mandates delivered by voters with negligible understanding of market complexities or the possible consequences of particular actions. No rational mobile consumer would disagree with a proposal that they should pay less for the same service. It’s all too easy for voters to support politicians promising to deliver this result without giving much thought to whether there is a problem with current prices or the longer-term consequences of the methods by which price reductions will be achieved.
Thus, it’s all too easy for aspiring politicians to make such promises, as they too are seldom aware of their proposals’ consequences. And unlike regulators, politicians are rarely, if ever, held accountable on the exacting standards of promoting consumers’ long-term interests, which take much longer to ascertain than electoral cycles last.
Ongoing politicization
Hence the result likely to emerge from politicization of telecommunications policy in one electoral cycle is its continued politicization in all subsequent cycles, regardless of the long-term consequences for consumers. Australia is a prime example of this, as flip-flopping political agendas governing the National Broadband Network have characterized every federal election since the government chose to intervene directly in the market in 2008. The industry instability created by politicization has not been positive for Australian consumers. Hopefully, US politicians will learn from their Canadian and Australian counterparts and leave telecommunications market oversight to regulatory experts, not uninformed voters.
The politicization of telecommunications issues in Canada’s upcoming election offers a cautionary tale for the US. Decades of evidence demonstrates that independent agencies are better at overseeing telecommunications markets than uninformed voters.
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