As the federal government touted its consumer-friendly agenda in its speech from the throne last week, it’s worth looking at how well one of its last major efforts on that front worked out.
As has become clear in recent months, many of the wireless upstarts that emerged from the government’s 2008 spectrum auction haven’t done so well. While consumers have seen prices decline as competition in the telecommunications sector increased, some of the new companies are in financial trouble. In
Re Mobilicity Group this month, Superior Court Justice Frank Newbould noted the extent of one company’s problems. The company, he pointed out in his reasons for granting protection under the Companies’ Creditors Arrangement Act, had lost almost $72 million during the first seven months of the year on revenues of nearly $47 million. So far, it has accumulated a net deficit of more than $430 million after raising more than $400 million in debt financing to fund its operations and capital expenditures since 2008. It has about 194,000 subscribers but, according to the ruling, has run out of so-called financial runway before achieving profitability.
It’s obvious, then, that while the government did a good job of encouraging competition by reserving wireless spectrum for the new entrants during the last auction in 2008, it didn’t do enough to ensure their long-term viability. Mobilicity may yet survive, but it’s clear it and its fellow entrants have a difficult path ahead of them. Starting a wireless company takes a lot of upfront capital and an ability to withstand large initial losses. Also, the new entrants have struggled to attract enough customers, despite their very competitive prices, in part due to the limitation of their wireless networks. Mobilicity, according to Newbould, provides cellphone service in five urban markets (Ottawa, Toronto, Calgary, Edmonton, and Vancouver) with roaming agreements covering other areas.
So as the government looks to attract votes by appealing to consumer interests around things like cable TV, it’s worth viewing its efforts with a dose of skepticism. It may craft rules and regulations that look great on paper, but that doesn’t mean they’re sustainable or won’t have negative unintended consequences. That’s not to say the government shouldn’t do what it’s proposing, but it should consider all of the issues, including the full range of policies needed to ensure success, when appealing to consumer interests.
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Glenn Kauth
