There’s a solution to the controversy over increasing the number of cellular carriers in Canada says a telecom union: Create a government-owned cellular company.

The call comes from the Communications, Energy and Paperworkers Union of Canada in the wake of complaints that the framework for the upcoming 700MHz spectrum auction will give a big carrier like Verizon Communications an advantage over Canadian owned operators — if Verizon decides to bid in the auction.

“Instead of giving a slew of benefits to a gigantic U.S.-based corporation that will take the jobs, expertise and profits out of the country, why not set up a Crown telecommunications company that will hire Canadians, build on this country’s impressive history in the sector and return the surplus to the public?” CEP president Dave Coles asked in a press release Friday.

 In an interview this morning Coles also said the Harper government was wrong in 2008 to tilt the rules of the AWS spectrum auction so new companies like Wind Mobile, Videotron, Public Mobile and Mobilicity could enter the market.

If there were problems with competition and pricing of cellular service it should have been dealt with through regulation, Coles said, and not creating new carriers.

He also alleged that a year ago, when Ottawa changed its rules to allow foreign companies the ability to buy a telecom carrier with less than 10 per cent of the market, an official close to the prime minister promised the change wouldn’t be leveraged by a huge company to challenge incumbent carriers. 

While the rule made no mention of limiting the size of foreign company that could make an acquisition, Coles said Nigel Wright — at the time the prime minister’s chief of staff –“committed to the big players that never would it be possible that a multinational corporation could come in. ‘We’re just trying to a little more competition,’” Coles claims Wright told those at the meeting.

Cope wasn’t at the meeting, but he said BCE Inc. CEO George Cope should be asked about a federal commitment. Wright resigned in May for giving Senator Mike Duffy $90,000 to repay improperly claimed expenses.

In a news release issued Aug. 1, Cope said that “Bell was assured by the government that unintended consequences such as the entry of U.S. giants on uniquely favourable terms would not occur.” That statement didn’t say who made the commitment.

There was no explanation of what “uniquely favourable terms” means.

But Bell and other carriers have complained that if Verizon enters the Canadian market — either by buying Wind Mobile or Mobilicity, as rumoured, or buy buying spectrum in the 700 MHz auction alone — auction rules give in an unfair advantage over incumbent carriers.

The ownership and auction rules were tailored to help carriers like Wind and Mobilicity, who have been struggling to gain market share in the past three years and now face having to raise tens of millions of dollars more to participate in the auction.

But Bell, Rogers, Telus, Videotron and the CEP say the government didn’t anticipate that a giant the size of Verizon would come in. In particular, they say it’s unfair that under the auction rules a new entrant or small carrier — which Verizon would be if it bought Wind — will be able to buy two of four blocks of spectrum in each region while incumbents can only buy one. The rule actually sets aside two blocks for new entrants to bid on. At the time it was announced the assumption of industry analysts was the two blocks would be bought by two carriers, not one. But incumbent carriers say Verizon is big enough that it can afford two.

However, at the time Wind CEO Anthony Lacavera complained that the rule meant new entrants couldn’t buy enough spectrum.

So far both Prime Minister Stephen Harper and Industry Minister James Moore are unmoved and have said publicly that the government’s wireless policies won’t be changed.  

In the interview, Cole said the idea of a government-owned cell phone company is “far more rational than the ludicrous position the Conservative government is taking. It defies logic.”

When it was suggested the ownership and auction rules are made to ensure Wind and other startups have solid financial backing three years after they launched, Coles protested. “I thought they (the Conservatives) were laissez-faire capitalists. That’s counter-intuitive: The market can’t survive on its own so you want to jig the rules so Canadian players are at a disadvantage.”