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Ottawa’s Wireless Policy is Doomed to Fail, Study Says

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competition

Mobilicity, one of the smallest wireless players in Canada, has won creditor protection from an Ontario court as it struggles for survival. Although this is a good sign for the struggling wireless carrier, it also raises doubts about the government’s plans to encourage competition, Yahoo reports.

In fact, if we look at the short and rugged history of the wireless startup, the government’s plans don’t look bright at all: Mobilicity entered the market in 2010 after shelling out $243 million to reserve spectrum during the 2008 AWS spectrum auction. Since 2010 it has managed to provide coverage in a limited number of regions, which are Toronto, Edmonton, Vancouver, Ottawa, and Calgary. It also managed to top 250,000 subscribers, but this figure has dropped since May to 200,000 as of October 1.

However, this didn’t save the company: in February, it announced fiscal restructuring, and then Telus bid $380 million, which was rejected by Ottawa. It was also in talks with Verizon, but since then the red US carrier has said it isn’t interested in the Canadian wireless market.

And this isn’t the only example: Public Mobile also struggled to obtain customers, but the carrier was fortunate enough to have been bought by two private equity firms.

From this perspective, Ottawa’s effort to encourage competition was doomed to fail, according to a recently released University of Calgary School of Public Policy paper, “Wireless Competition in Canada: An Assessment.” And this includes the forthcoming 700 MHz spectrum auction as well.

Efforts to create competition in the short run, that increase the number of carriers, will simply squeeze margins in the short run and likely will not be sustained in the long run, as carriers exit and consolidate to reduce competition and restore margins consistent with profitability and the natural limit,” the paper says. “And, while consumers might gain in the short run from lower prices, everyone is likely made worse off in the long run from the misallocation of spectrum, reduction in scale of carriers, and reduction in incentives to invest from such intervention.

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