Mark Goldberg


www.mhgoldberg.com





Fox Group Dispatch

Quality, coverage and affordable prices

The following commentary appears on National News Watch in the National Opinion Centre section.

In their letter of welcome to new CRTC Chair Ian Scott, Ministers Melanie Joly and Navdeep Bains wrote that the government’s objectives are to improve the quality, coverage and price of telecommunications services. This echoed remarks from Minister Bains earlier this year at The Canadian Telecom Summit.

There is a difficult tension in these objectives, seeking increased investment while maintaining, if not improving affordability. The Ministers wrote “All Canadians and Canadian businesses deserve high quality telecommunications services at affordable prices.”

It is a delicate balance. Quality and coverage require significant levels of capital investment, especially in a country like Canada.

How do we define and measure “affordable”? We all want lower prices for everything, but the modifier “high quality” makes low prices more of a challenge. That is why we should be careful not to equate “affordable” with rock bottom prices.

A number of recent speeches and announcements from the government have claimed Canadians pay more for entry-level cell service compared to residents of the US and the UK. There have historically been problems with the way the OECD and CRTC has collected communications pricing information. For example, the CRTC does not include flanker brands (such as Virgin, Koodo or Fido), or examine pre-paid plans, precisely the kinds of services that would be the most attractive choices by lower income consumers. Both OECD and CRTC do not account for the difference in the quality of networks nor for the difference in density of population for these comparisons. Further, the information collected is typically outdated by the time it is published and tough to verify.

A recent report by Wall Communications submitted to the CRTC observed that “an inherent problem in defining affordability is the need to invoke some benchmark for which there is no objective definition.” Canada’s Public Interest Advocacy Centre has suggested communications services are affordable when they make up no more than 4% to 6% of a household’s income.

The Wall report found “The lowest priced Smartphone service that is widely available across Canada constitutes roughly 1% or less of the low income cut-off.” Further, measured as a percentage of low income level, Canadian entry level prices for a voice, text and data plan is similar to Germany, Italy and Australia, and almost half the level of the US, where entry level voice, text and data plans cost 2% of American low income levels. So, while Canadian prices may not be the lowest, entry level plans are affordable when compared to our peers, consistent with a report from The Economist Intelligence Unit ranking Canada number 1 in communications services affordability.

What about coverage and quality?

A February 2017 report from the GSMA found that Canada had the highest spectrum cost measured on a per capita basis, roughly $350 (US) per person, as compared to $200 per person in the US and about $50 per person in the UK. Recent reports have shown that Canada led all G-7 countries in capital spending per subscriber. Measured as a percentage of revenue, Canadian capital spending was top in the G-7 and fourth in the OECD. All of that investment has been paying off, providing high quality network wireless coverage to most Canadians. In announcing the latest spectrum policy consultation, the government acknowledged that Canada’s networks rank second among G7 countries for average wireless connection speeds and 98% of Canadians have access to LTE wireless technology.

Canada is now setting the rules for the next multi-billion dollar auction of spectrum and the country has launched a consultation on what its spectrum policy should look like for the next 5 years. At the same time, the wireless industry is preparing for what has been called a “generational investment” in the latest 5G technology.

Lower prices won’t ensure Canadians have access to affordable options no matter where they live. Regulations, spectrum policy and auction rules have to preserve the delicate balance that enables mobile service affordability, while encouraging investment in high quality networks that are available from coast to coast to coast.

What mobile speed tests teach

This past weekend, how many people went into hardware stores looking for nails?

Very few.

Of those who came out of the store with nails, most went into the store looking for a way to hold two pieces of wood together. Some of those people chose nails; others chose screws; some decided on glue; some are going to make a dove-tail joint; and then there are those like me who decided that duct tape would be just fine.

I have used this metaphor before, describing the need to apply a systems engineering approach for broadband. It is often a real challenge to define requirements without specifying a solution, allowing flexibility in the choice of technologies to satisfy the requirements.

Frequently, I have said that we need to ensure that we remain technologically agnostic, even though so many associate fibre with advanced broadband. Through the weekend, I tweeted a few mobile speed tests that I conducted, looking at how the TELUS and Freedom Mobile networks performed with a couple of the latest devices optimized for performance on each of the respective networks.

Frankly, I could probably talk for hours about the implications of the 4 pictures attached to the two tweets that you can examine below. I want to focus on the headline speed results from the TELUS network on a Saturday afternoon driving south on Bathurst Street near Eglinton Avenue. The download speed was close to 175Mbps, a speed that would thrill most for achievement on home networks, let alone mobile. Can we finally put to rest the view that advanced broadband needs fibre connections?

The network performance comparisons raise other issues that might merit further discussion, including:

What other questions are raised in your mind by the images in these tweets?

By the way, if you get a chance to test drive an Essential phone, be sure to check out the 360 degree camera (that is actually doing 360×360 recording). It is amazing technology.

Two sides to every coin

“The Government will encourage more private sector competition and investment in services that have become essential in a digital economy.” That is a quote from the letter of welcome sent to CRTC Chair Ian Scott last week by Heritage Minister Melanie Joly and Minister of Innovation, Science and Economic Development Navdeep Bains.

“All Canadians and Canadian businesses deserve high quality telecommunications services at affordable prices.” How do you increase competition to drive “affordable” service prices while simultaneously encouraging investment?

It is a delicate balance. How do we define and measure “affordable”? We all want lower prices for everything, other than our own wages, but when you add the modifier “high quality” to the product definition, it gets more difficult to implement.

What is the right way to increase competition? What is the right level of competition that provides pricing discipline, encourages innovation, and maintains the right incentives for continued investment in infrastructure?

A recent article by Rita Trichur in the Globe and Mail starts by saying

The three-year contract is dead, but monthly bills keep rising. Switching carriers is a nightmare, add-on charges multiply like cockroaches, and being off contract doesn’t guarantee that you’ll find a substantially better deal if you shop around.

Many blame the CRTC. The regulator has tinkered with the rules, but it has largely failed to keep major carriers in check.

Yes. Monthly bills went up precisely because the three year contract is dead, just as the CRTC was warned. The CRTC banning innovative pricing plans like zero rating also has led to less price competition and discouraging product differentiation. In the case of Videotron’s Unlimited Music, the CRTC prohibited a service innovation by a new entrant and denied consumers a chance to save.

On one hand, we want consumers to have more choice, on the other hand certain groups want the only competition to be on the basis of price. If a service provider doesn’t have market power, do we really need to regulate its services and products?

Two sides to every coin.

The issue of spectrum set asides is another one that is more complicated than the average soundbite portrays. On one hand, the new entrants want access to more spectrum in the lower frequency bands, as noted by Christine Dobby in her recent article, which is why they are seeking a set-aside in the 600 MHz auction. On the other hand, Canada’s new entrants in the mobile wireless sector are not start-ups; they are multi-billion dollar vertically integrated communications giants – Shaw and Quebecor.

Quebecor’s Videotron Ltd. now has 16 per cent of wireless subscribers in the province and, after wrapping up expensive investments in building an LTE network, the business now makes a healthy contribution to the telecom division’s free cash flow, which increased by almost $100-million in the first half of this year to $399.5-million.

While Quebecor CEO Pierre Karl Péladeau told The Globe and Mail that Rogers, Bell and TELUS “received swaths of low-band spectrum from the government at no charge when they first set up their cellular networks in the 1980s”, the other side of that issue is that the incumbents have been paying annual license fees for that “free” spectrum. In total, the three companies have paid more than three and a half billion dollars in license fees, with a present value of more than $8.5B in 2017 dollars. This is hardly swaths of spectrum for “no charge”.

Under such considerations, should we still have spectrum set-aside for “new entrants” in the upcoming auction? Is it noteworthy that just last week, Mr. Péladeau criticized a two-tier system for Canadian content obligations, saying it “is blatantly unjust.”

Two sides to every coin.

High quality services at affordable prices creates a difficult tension in implementing communications policy.

What is affordable for some is different than what is considered affordable for others. As I have written before, perhaps our focus should be looking at the issue of affordability by “Looking at who, not just where.”

That would require increased product and service flexibility and the ability for service providers to differentiate themselves. Do we really expect increased competition to emerge from heavy handed government regulation?

In case of emergency, who do you call?

Yet another device is having problems making emergency calls in Canada.

Last week, Bell warned its customers that the new Apple Watch Series 3 may not provide location information to the public safety bureaus when calling 9-1-1. Bell says that it is working with its technology partners to resolve the issue.

Who should take responsibility for devices that weren’t sold by the service provider? In July, we learned that certain Asus Zenphone devices were unable to complete emergency calls at all until the operating system was updated. The Asus issue raises the question of who consumers should approach for a remedy when buying a phone from an independent electronics retailer. Will they return to the store for technical support or call their service provider? Who tests and certifies compatibility for these devices?

In its Wireless Code update this past June, the CRTC implemented measures to make it even easier for consumers to get their devices unlocked and move them from one service provider to another. Although the CRTC Chair at the time said that “The changes and clarifications we are announcing today will give Canadians additional tools to make informed choices about their wireless services and take advantage of competitive offers in the marketplace”, I am unable to see any information provided by the CRTC about compatibility of unlocked devices on various networks.

Did the CRTC even hear evidence about the ability for advanced features to operate correctly on devices moved from one service provider to another? Do consumers know that not all devices work on all networks? Are service providers expected to provide support for devices that have not been purchased from their stores?

As an example, the new iPhone 8 was reported to be able to operate on Band 66, frequencies used by Freedom Mobile, but some users observed difficulties. Freedom Mobile told MobileSyrup that it “can only confirm that LTE-Ready devices sold by Freedom Mobile are guaranteed to function with our network on Band 66 spectrum. We cannot guarantee the compatibility of any iPhones brought to our network.”

Has the CRTC created unrealistic user expectations? In case of trouble with their phones, who should users call?

Shana tova – 5778 – שנה טובה

The new moon on Wednesday evening marks the start of Rosh Hashana, the beginning of the Jewish year 5778. Our offices will be closed on Thursday and Friday.

Rosh Hashana [literally, “head of the year”], begins a 10 day period of personal reflection, culminating in Yom Kippur. In religious services, we hear the piercing trumpet blast from a shofar [ram’s horn], triggering a period of personal and communal introspection, examining the past year while looking forward to improvement in the year ahead. The family dinners usually feature a number of traditional foods, like honey [for a sweet year], but it is very different from the kind of festivities and partying that mark the transition from December 31 to January 1.

It is my hope that 5778 will be marked by good health, by personal and professional growth and may it also be a year of peace for all of us.

שנה טובה ומתוקה