Sunday, 4 May 2014

War on Telecoms - State-Sponsored Economic Terrorism

This is the Actor you get in Conservative propaganda commercials paid for with millions of your tax dollars

The Conservative government does no one any favours with its vindictive obsessions. When this government decides it has a strategic or tactical advantage to gain from a particular course of action, it will let nothing stand in its path to get there. Logic, reason, common sense, and most of all, the public interest which they were elected to defend are all secondary priorities for the Conservative government. This has not only weakened our political structures and significantly deteriorated political discourse in this country, it has created a dysfunctional business environment where investors, businesspeople, workers, and customers have their interests compromised because of some minister decided his ill-conceived whims could score some political points.

Nowhere is this more evident than in the government's ongoing war with the telecom industry. First of all, tell me if you know anyone who can figure out why a government whose top priorities are supposedly “jobs and the economy” has spent significant political capital demonizing and picking fights with one of Canada's only genuine homegrown sectors, whose three main players operate across several industries, employ tens of thousands of Canadians, and provide one of the countries biggest capital pools that can (and will, make no mistake) be deployed into innovators and disruptors of modern technology. On paper, it makes no sense; in the Conservative strategy lab, it is a bet on the pathetic “consumer-first” agenda which characterizes people not as citizens who live in a society but as consumers who should have as much money as consume. And since the big 3 telecom players operate in industries which have traditionally been heavily regulated, what a great way for the government to weasel in some nanny state, planned-economy intervention to score some political points with people who love to complain that services they signed up for are too expensive.

Think about it: Canadians for the most part accept the principle of inflation, and the prices of food, gas, and real estate are grudgingly accepted as needing to increase regularly, even as prices for other key items like cars and electronics have stayed flat or come down. But one area where Canadians really feel they pay too much, thanks to the outrageously rip-off bundles they sign up for, are telecom services. In a populace that turns out to vote in feeble numbers and for whom major political issues barely register, this was a chance for Conservatives to seize something relevant to the majority of Canadian people.

And although the fact that they have spent time and deployed taxpayer money and resources in their fight against the telecom sector merits plenty of criticism alone, the real bonehead moves are their actions against the sector themselves, which someday will serve as a textbook example of why government intervention in industry is almost always doomed to fail. The country has had three telecom empires evolve over its history which mirror that history and now form an oligopoly: First Bell telephone in Montreal, which was the country's original economic and industrial base, then Ted Rogers' big bet on fibre optic cable in Toronto, whose payoff rode that city's economic expansion to the stars, and finally Telus out west, whose brash young CEO charted a bold plan to fill a void and elbow market share away from the two establishment players out east and succeeded. It is perfectly logical that today, being the only companies in Canada with the cash flow and the wherewithal to run businesses and networks with their reaches, that these companies continue to dominate the sector.

This is where the Conservatives come in. Their strategists, in their eminent wisdom, having no doubt consulted countless phds in economics, decided that the optimum number of Canadian telecom companies that should exist should be four. If this logic strikes you as having been lifted straight out of the book of Mao or Putin, it's because it is. There is no evidence that a fourth carrier would result in “more choices, better service, and lower prices”, the talking points the government incessantly repeats in response to any criticism; indeed, one struggles to understand how a startup would achieve these three objectives without the scale of the big boys, but this is not about economics. It's about politics. And this is what it's like when two world's collide.

The government has leverage in this fight because it decides who can bid for new “spectrum” - basically, parts of the network which are not up yet that the government owns. It already reserved spectrum for new entrants in the past, and new entrants were born. They were all cheap, edgy, independent, and innovative – and by 2014, they were all owned the big three except one. Fido, Koodo, Chatr, Virgin, Public – they all belong to the big three now. And they all made prices come down when they came out and are all still way cheaper than signing up directly with the Big Three. So explain to me – why don't you think Canadians have choices? Because to have cheap cellphone service, you have to sign up with cheap cellphone companies that are owned by the main ones? If the price is right, do you really care who you're buying from?

We don't know what koodo, fido, virgin and public's hundreds of thousands of users think, because the government never asked any of them and doesn't actually acknowledge these companies exist –becauseit doesn't fit into their narrative of one david versus three goliaths. But the best drama, and the reason for this column, is the one remaining cheapo character, Mobilicity, who has not been allowed to merge or be bought out. Let's recap the facts – Mobilicity has been bankrupt since June 2013, and is desperate to sell to a willing buyer – Telus – to pay off its creditors. It's 160,000 subscribers will be able to continue the existing arrangement they have. Yet Industry Minister James Moore has been publicly and deliberately blocking this sale because...Canadians need more choices and better services. Which happen by a government forcing a bankrupt company to keep the lights on to suit its own ideoligical narrative?

Because clearly, there is no other buyer for mobilicity. The government already looked like fools for rolling out the red carpet for Verizon, an American behemoth bigger than our big 3 combined, only to have Verizon decide that Canada wasn't worth the BS and the headache. Then Mr Sawiris, the Egyptian billionaire who started Wind Mobile, took off when the government refused to let him purchase the Allstream division Manitoba Telecom Services was desperate to sell him. So we can't actually convince a huge multinational to take a risk here, so risky is our telecom sector to operate in, and one of the smaller regional telecom players our country does have has been hindered in its efforts to run its business because of more government interference and meddling.

If there was a real problem and Canadians were suffering from mental illness and malnutrition from the burdensomeness of their telecom bills, government intervention might be justified. But as usual, the real world is evolving light years faster than idiotic bureaucrats in Ottawa could ever bother to take notice of from their six-figure perches. Home phone service is decreasing every year as people realize they barely use it. Canada wide unlimited cellphone plans are available from all the majors' discount labels for under 45 bucks a month. Rip off internet service has been halved by smaller players like TekSavvy, Canac and Distributel, if you're just smart enough to use them. Phone service to anywhere in the world can be obtained for pennies now through MagicJack, or byjust using skype and google talk applications on any device. “Cord-cutting” is endemic – cable packages that used to make Rogers, Quebecor, and Cogeco solid blue chips with utilities-like profit predictability of profits are now threatened – not just by Netflix but by torrents, apple tv and the proliferation of sites offering free streaming of just about any tv show and live sports. Jail-broken phones are easily obtained as well now and telecom customer service operators can be spun for upgrades, new phones and extras all the time as their margins are constantly under pressure in this fiercely competitive industry.

It is clear that big telecom faces enough challenges to its established business model – I'm not paying them, and I may have bailed at the top of my Bell and Rogers investments – without a government fomenting anger against them and making arbitrary decisions that are in nobody's interests – not even consumers – but Conservative Pollsters. There is a time and place for government intervention. In 2008 the Conservatives blocked a takeover of MacDonald, Dettwiler & Associates – a top-flight, homegrown aerospace firm responsible for the Canadarm – from an American hostile bid looking to scoop up valuable assets in the bargain basement during the economic crisis. Canadian jobs, expertise, assets, and strategic information in an ultra-high value sector were protected from a predator looking to poach precious talent and resources and add no value. It would have been a shame had that decision been subjected to the free market. In this current example, however, we are witnessing nothing more than political oppotunism exploiting ignorance and apathy (nothing makes peoples' eyes glaze over like telecom regulations) causing real havoc and instability in a very important (it is, hate it all you want) sector of the Canadian economy.