Even though Canadians are some of the most "wired" people on Earth when it comes to technology and Internet usage, shockingly, we're lagging behind in cell phone usage.

According to a recent report by SeaBoard Group, Canada's adoption rate for cell phones puts it on par with Tunisia and slightly behind Turkey. The main reason, according to the report, is price gouging.

The numbers are certainly hard to dispute. Just last week, Statistics Canada announced that operating profits in the wireless phone industry in Canada reached $1.2 billion in the third quarter of 2006, up 34.4 per cent from the corresponding period in 2005.

The SeaBoard report indicates that wireless penetration rates in Canada are second last in the OECD and a full 20 percentage points behind the United States. An earlier report by Moody's Investor Services pointed at the same problem. Both say that Canadians pay between 33 and 56 per cent more for their cell phones than their American counterparts.

The government seems to be taking notice and there could be changes to the Canadian wireless industry ahead. Industry Canada announced in February that it would be holding a spectrum auction of 105 megahertz of spectrum in the 2-gigahertz range in early 2008. The public is invited to address these issues and make proposals for any measures they consider appropriate through Industry Canada's website. "We have been hearing from people for a while on this issue. With our new website forum, people have until May 25 to comment on it. All comments will be posted on the website and people can respond to those comments until June 27," said Peter Hill, director of spectrum management operations at Industry Canada.

Spectrum is like real estate in the air. Much like radio airwaves, the government doles out room on the cell phone airwaves, known as spectrum, through an auctioning process.

Industry Canada originally implemented spectrum restrictions in 1995 to prevent a single player from dominating the mobile-service business. Since the federal government decided to cancel its policy limiting the amount of radio spectrum cellular telephone companies can hold in 2004, Canada is now serviced by just three companies – Telus Corp., Bell Canada and Rogers Communications Inc.

In a consultation paper on the spectrum auction released last month, the government addresses competition issues such as: whether Canada should adopt measures to enable market entry by new players and whether existing operators should be forced to offer roaming on their existing networks, proposed conditions of licences, the size of spectrum blocks and geographic areas, and conditions for licence renewal. In the past, spectrum went to the highest bidder. According to the two reports, this approach is not working in the consumer's best interest.

Moody's Investor Service pointed out that the average revenue per user (ARPU) in Canada climbed six per cent in 2006 to $56. In the U.S., the average bill per subscriber is dropping as market penetration increases.

"Consumer cost per minute – that's just an average on all cell phone bills – is about twice as high as it is in the U.S. In the U.S., the penetration rate is about 76 per cent while it is 56 per cent here. And that gap has increased over the last few years," said co-author of the report, Darren Kirk.

"The acquisition of Microcel by Rogers a few years ago removed a price-aggressive competitor and there have been price increases steadily for the past few years. The industry continues to grow none the less, but that growth is behind other nations, especially the U.S."

The U.S. has only four major carriers, but there are many smaller carriers in urban areas that compete with the giants to keep prices down.

The SeaBoard Group, a consulting group that researches the Canadian information technology and telecommunications sectors, recently released a study titled: "Lament for a wireless nation - a cross-national survey of wireless service prices: Canada, the United States and Europe."

"We sought to compare wireless phone prices from Western Europe and the United States. They have in fact gone down in the past 18 months. We found that heavy users (1,200 minutes per month) in Canada paid 56 per cent more than their American counterparts and average users pay 33 per cent more," said Kevin Restivo, co-author of the report. "We think prices are too high and customers aren't adopting the technology like they are in other countries."

The reason, according to Mr. Restivo, is quite simple.

"(Service providers) are doing it because they can. They have created business models for themselves in which more attention is paid to ARPU by the Bay Street analysts. So carriers focus on extracting more revenue from each customer rather than growing their customer base."

But Mark Goldberg of Mark H. Goldberg & Associates Inc., a telecommunications consultant, said that comparing Canadian telecommunications trends to European or other markets was like comparing apples to oranges as pricing schemes are very different. "In the U.K for example, they have a system where the calling party pays. People are charged outrageous fees to call from a landline to a wireless line. People have multiple phones because it is cheaper to call others who have the same carrier as you. That distorts penetration rates," he said.

Mr. Kirk also pointed to the acquisition of Microcell as an indication that Canada might not be large enough to support more carriers. "We just present the numbers, but we don't say one way or the other what we think should be done to change it," he said.

However, Mr. Restivo said that opening spectrum to competitors is a step in the right direction. "We think that there is potential for a new dynamic in the Canadian cell phone market place. The government can help foster the new cell phone environment by setting aside spectrum. Unless you create these new players there's no chance of changing anything," he said.

"A number of folks who aren't currently licensed in Canada have expressed interest in getting access. The questions is then should we have any measures (to allow smaller companies to get into the market)," said Mr. Hill. "Honestly, we have no opinion on the matter. People have come into talk to us who say that there should be measures and others say that there shouldn't be. So that's why we're having this public consultation."

But Mr. Goldberg doesn't think that making room for new players and forcing large companies to share their power is the way to go.

"As a consumer, I always like to see lower prices. We all like free. Is there room for improvement? Absolutely," said Mr. Goldberg.

"I have no trouble with more competition, but the questions is: should a new entrant have access to spectrum and roaming without doing it in free market environment? If new entrants don't have to pay as much as they would in an open bidding, in effect it's a government subsidy. (Telecommunications companies) are well-funded organizations, so why do they need a subsidy?"