Ottawa Opens Up Wireless Industry to More Competition The Conservative government on Wednesday paved the way for new cell phone companies by announcing new rules for an auction of radio airwaves designed to spur competition in the wireless industry. About 40 per cent of the spectrum will be reserved for new entrants, with the remainder open to all bidders, including Canada’s big three providers—Rogers, Bell and Telus. ... In handing down the rules, Industry Minister Jim Prentice gave potential newcomers, including Quebecor, MTS Allstream, Shaw and Eastlink, virtually everything they asked for. ... [H]e agreed with their assessment that prices are too high and the wireless industry needs more competition. “Our goal at the end of the day is lower prices, better services, and more choices,” he said.
Those who had been arguing for more competition were delighted with the ruling. “This is a grand slam for consumers,” telecom analyst Eamon Hoey told CBC News. “It really puts a heavy knife into the oligopolic style of structure we’ve had in the cellular business.” Chris Peirce, chief regulatory officer of MTS Allstream, was pleased as well. “They have really gotten their policy right ...” he said.
But Liberal industry critic Scott Brison was not pleased. “There’s no proof it will lead to lower prices,” he argued, saying regulation would have been better. Brison said the auction decision will result in a $200-million windfall for the new entrants.
a. Is the spectrum of the radio waves a private good, a common resource, or a public good? Explain why.
b. What in the news clip indicates that the auction is in the public interest?
c. When the new carriers commence to operate, how will consumer surplus and producer surplus change?
d. If the government had not conducted the auction but instead regulated the industry, would the market have been more efficient than it will be with increased competition?