Naguib Sawiris, is the Egyptian billionaire who financed Wind Mobile on the premise that Canada was open to creating more competition in the telecom sector. When asked recently if he regreted his investment, he replied “Totally. I would actually, if they would give me my money back, minus 10 per cent, I would take it any day.”

In other words, Mr. Sawiris expects to take a major loss in Canada and if he could find a way to bail out with only 10% loss (approximately $100 million) he would.

But even more worrisome, Mr. Sawiris is not afraid to tell others investors to steer clear of Canada, “Anybody who asks me, I tell him,  [...] Don’t come here”

The bottom line is simply this; high telecommunication costs reduce productivity and stifle innovation.

Regardless of how the auction is done it will be  just another example of short term gain for long term pain and a tragedy for Canadian tax payers.

The auction process fails consumers because no matter what price companies pay up-front for spectrum, it get sold back to Canadians at a rate many times higher than the original purchase price. The higher the cost, the less likely the purchaser will be able to offer competitive cell phone plans and with so much money tied up in the initial spectrum purchase, new entrants will only be able to offer service in the most densely populated areas.

In short, the auction process promotes high prices and poor coverage.

Far from promoting competition in the wireless industry, spectrum auctions favor incumbents even when they aren’t allowed to bid by driving up spectrum costs and thereby constraining the new entrant’s ability to compete. The multi-billion dollar cheque the government gets from the sale of the spectrum pales in comparison to the long term cost to consumers.

Any way you slice it it equals a massive net loss for Canadians.

A better option? How about a reverse auction? Why don’t we give the spectrum (yes for free!) to the bidder who commits to massive, Canada-wide coverage and to selling the spectrum back to Canadians at the lowest price? To ensure that Canadians continue to get the best prices, the spectrum license would have to be renewed every 5 years.

The beauty of this plan is that it doesn’t require any restrictions on who can bid. Regardless of whether or not it’s a new entrant or an incumbent, Canadians are guaranteed the lowest price.

Of course it’s a dream. There is no way that Tony Clement will be able to resist the big payday the auction will bring. Like most governments, they will choose short term gain despite the long term pain.

On February 4th, the federal court ruled that the government decision was based “on errors of law and must be quashed“. Of course they are planning on appealing but if they lose again it’s going to cost tax payers a fortune.

Globealive could be forced to shut down and presumably Canada would have to give back the money from the spectrum auction ($442-million). And with potential losses in the billions one can only assume they would sue the government to recover their loses.

In addition, the rest of the participants in the auction could also sue arguing that the prices were artificially inflated by allowing an illegible participant to bid. The court might even rule that the auction should be done over again!

The Conservatives have managed to create one mess after another in Telecom.

Wow, its like I wrote this report.

http://www.piac.ca/telecom/regulate_telecommunications_by_results_not_promises_consumer_group_says/

- Canada is the most expensive place to own a cellphone

- Seaboard Group urges feds to scrap foreign ownership restrictions for telecom

From the perspective that, up until now, wireless has been a black box and allowed to do whatever it wants with regard to the internet, this is good. It should force wireless providers to reveal how they are blocking or shaping internet content which will be valuable for any business hoping to do business over the internet using wireless devices.

On the down side, the previous CRTC net-neutrality ruling had some serious flaws so applying it to more aspects of Canadian telecom isn’t great news. Still, I’m actually surprised the CRTC decided to do anything. In Canada, cell phone companies have been allowed to do pretty much whatever they want so at least this is a sign the CRTC is starting to see the importance of wireless data and is no longer treating it as a regulation free area.