Regulations to solve the underlying price discrepancies between provinces could backfire.
Prairies Wireless Plans:
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The big question that has arisen from my previous post on how some individuals are selling cheaper Prairies wireless plans to non-Prairies residents in Canada is: what can be done about it?
To be more specific, it’s not so much a question of whether these individuals can or should be stopped, but whether the underlying problem of pricing discrepancies between provinces can be fixed somehow.
If you’re not aware, Bell, Rogers and Telus are charging between 30 and 50 per cent less in Manitoba and Saskatchewan thanks to the presence of strong fourth competitors there, MTS and SaskTel respectively. The same is happening in Quebec to a lesser extent with Videotron, according to a recent government-sponsored report.
One obvious possibility that comes to mind would be some sort of price regulation by either the Canadian Radio-television and Telecommunications Commission or the Competition Bureau. Either organization could theoretically step in and try to prevent the Big Three from charging differently in different parts of the country.
I ran the problem by Ariel Katz, an associate law professor at the University of Toronto, where he also holds the Innovation Chair in Electronic Commerce. Katz, who is an expert in competition law, doesn’t think imposing uniform pricing rules would be a good idea because of their potential to backfire.
Rather than lower prices in the rest of Canada to match those in Manitoba and Saskatchewan, the big carriers could instead raise them in the Prairies and Quebec to the levels found in the other provinces.
“They might choose to do [that] even if that means they lose market share in the three provinces to the local competitors, but gain a higher profit from maintaining the higher prices in the rest of the country,” Katz says.
“It’s also possible that if they’re barred from charging a lower price in response to the competition in the three provinces, the local competitors in those provinces would respond not by keeping a lower price and increasing their market share, but by increasing their prices too.”
Okay, so if that’s out, should something be done about the individuals selling the plans?
Their existence typically provokes one of two reactions, Katz says. The first is a sort of “arms race,” where the product or service providers – in this case, the Big Three wireless carriers – take measures to stop these individuals, otherwise known as arbitrageurs or parallel traders. The individuals then have to find new workarounds and a game of cat-and-mouse develops.
The second reaction is tolerance, where the service providers accept the arbitrageurs’ activities because it allows for their high profits to continue. The customers who typically go in for the arbitrageurs’ offerings are those who are particularly price sensitive, and they may not be all that desirable to the carriers anyway. Letting those few customers get away can allow the companies to keep charging what they want.
Ultimately, the best solution to the big price differentials between provinces is more official competition within them, Katz says.
In that sense, the federal government has been going down the correct path over the past few years by encouraging the emergence and growth of fourth carriers in each province.
The problem is that not all fourth carriers are created equal. Most provinces do have a fourth player – Eastlink in the Maritimes, Videotron in Quebec, Wind in Ontario, Alberta and British Columbia – but they’re all new carriers. None of them have the sort of robust networks that MTS and SaskTel do, which is why the Big Three aren’t responding in those regions with Prairies-like pricing.
The newcomers won’t pose that kind of a threat for many years to come, if ever, which returns us to a variation of the original question: How does the rest of Canada get Prairie-like pricing from all wireless carriers in the meantime?
I’ll be damned if I can see an answer, which means my money is on the arbitrage arms race continuing.
By the way, it’s ironic how related this issue is to that of virtual private networks and their popularity with Canadians for accessing Netflix’s U.S. catalog. A case can be made for how wireless arbitrage and VPN streaming are different sides of the same coin, especially since both involve some of the same players.