Terence Corcoran: Canada's competition agencies are anti-competition

Rogers is among Canada's major telecom companies that have complained about a new policy that gives competitors access to its networks. (Credit: Peter J. Thompson)

So imagine this scenario in the automobile retail sector. In order to facilitate and encourage retail competition in auto sales, the Competition Bureau issues a policy that requires the top three auto retailers in Canada — Ford, Toyota and Chevrolet — to begin stocking their showrooms with competitors’ products. From now on, under this new policy known as the “mandatory retail access” plan, a Ford showroom must also have at least one other brand on display, perhaps a Subaru or maybe a Mazda.

Makes sense, right? By mixing brands in any one showroom, competition is increased. It is so blatantly obvious! It’s the kind of bonkers competition theory Industry Minister Mélanie Joly would instantly endorse. We know this because Joly last week threw Liberal support behind the theory in an almost identical case involving Canada’s telecom industry.

As imposed by the Canadian Radio-television and Telecommunications Commission (CRTC) in 2024, the major Canadian telecom companies — Bell Canada, Rogers and Telus — are required to make their internet systems available to their competitors. It is known as the “mandatory wholesale access” plan to force the major telecom companies to allow competitors to access their installed networks. Bell and Rogers objected to the policy, which for example would have forced them to open their networks in Eastern Canada to allow Western-based Telus to expand east. Under the policy, the wholesale price paid by Telus and other companies would also be regulated by the CRTC.

The CRTC policy has been endorsed by Canada’s market watchdog, the Competition Bureau. Both agencies claim that the regulatory structure enhances competition. The CRTC, in an outline of the policy, states for example that forcing  Bell and Rogers to provide market access to competitors fosters “greater competition.” It also states that “We set wholesale rates to facilitate greater competition.”

The Competition Bureau, supposedly dedicated to market competition, endorsed the CRTC plan to use non-market regulation to allegedly increase competition. It is OK, in Bureauland, to regulate and force corporations to open their operations to competitors. The bureau also said it is OK to regulate the price paid for access.

The observation to be made at this point is that this is not competition but regulated access for some corporations to a market accompanied by a form of price control.

But there’s more. According to the bureau, the CRTC did not go far enough. In its review of the CRTC mandatory wholesale access plan, the bureau added that the CRTC should consider setting rules that would make it easier for individual consumers to switch internet suppliers. In other words, the CRTC should make it easier for Bell customers to switch to Telus and other piggybacking companies that Bell is forced to carry.

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The telecom case illustrates the sorry state of competition theory in Ottawa, an approach that focuses narrowly and almost exclusively on the retail perspective. Individual consumers at all times need to have simultaneous access to multiple versions of the same product and cheap prices. Otherwise, the market is deemed uncompetitive and needs regulatory intervention.

The bureau claimed Canada’s grocery chains were uncompetitive during the pandemic and produced a report that applied the consumer principle on numerous occasions. Evidence of market failure in food retailing proved non-existent. Even after collecting confidential financial data from the grocery chains, the bureau could find no evidence of excess monopolistic profits during the pandemic’s food price chaos. The best the bureau could come up with is that gross profit margins “generally increased by one or two percentage points since 2017,” a period that included pre-pandemic performance. Gross margins also involved billions in profits on non-food items, leaving the bureau to waffle its assessment. Grocery chain profit margin increases were described as “modest but meaningful.”

Despite the waffle, the bureau recommended a major government effort to create a national “Grocery Innovation Strategy” to be developed by Ottawa and local governments. That such interventions, based on dubious competition theory, are flawed is demonstrated in the CRTC’s plan — now supported by Minister Joly and the Carney government — to manipulate wholesale internet access, leading to unintended consequences.

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Bell, Rogers and other companies have warned that the access mandates will force them to curtail billions in investment. In a harshly critical comment, Bell blasted the CRTC plan. The company will cut $1.2 billion in investment, thereby “diminishing network resiliency and leaving rural, remote and Indigenous communities behind. Over the long-term, it will reduce competition as smaller internet service providers, who cannot offer the same promotions and bundles as large players, are squeezed out of the market.” On Wednesday Joly dismissed Bell’s plea, while some observers accused Bell of “crying wolf.”

Others, however, see a real wolf at the door. A pair of U.S. researchers at the University of North Carolina modelled the CRTC plan and concluded the risk was great that the structure and wholesale pricing regime create a problem for Canadian regulators “because the optimal balance trades off short-term gains in consumer welfare against investment incentives that impact long-term welfare due to network quality and capacity.”

Last year, a Canadian summary of the flawed competition theories guiding federal telecom policies concluded that it would be preferable for Ottawa to allow foreign competition but also — and perhaps more importantly — to create “conditions for investment … rather than micromanaging the market.” In Ottawa, however, Ottawa knows best.