Mark Goldberg


www.mhgoldberg.com





#CTS20

Higher? Maybe. But too high? No.

Are Canadian mobile prices higher than in other countries? Certainly. Are the prices too high? That cannot be answered without considering factors that contribute to higher costs for operators.

A recent article on National Newswatch wrote about “The High Cost of Providing Wireless Service in Canada”.

The article, by economists Mark Meitzen and Nick Crowley, was based on a study conducted for TELUS by Christensen Associates [pdf, 272KB].

The key conclusion of the study was that “Canadian wireless providers face significantly greater cost pressures than carriers in other countries on key network inputs and factors like climate and size of coverage area that impact costs. These cost pressures contribute to price disparities between Canada and other countries.”

Among factors examined in the study:

  • Capital expenditures: Canadian wireless network capital expenditures per subscriber are 50 percent higher than the Benchmark Country average.
  • Labour costs: Across all industries, Canadian companies face over 10 percent higher labor costs than Benchmark Countries.
  • Spectrum costs: Canadian spectrum prices are significantly higher than the average of the Benchmark Countries as well. In general, lower frequencies (the “coverage” band) provide extended coverage at lower cost as fewer base stations are required to achieve greater geographic coverage, whereas higher frequencies (the “capacity” band) are primarily used by mobile operators to cover urban and suburban areas where data traffic is dense and substantial network capacity is required. Canada has the most expensive spectrum among countries in the study. The capacity band is twice as expensive in Canada, while coverage spectrum is four times more expensive than the Benchmark Countries.
  • Operating environment: including geography, population density, and climate contribute to costs due to characteristics of the service provider’s service territory that are outside the control of the service provider but affect the magnitude of primary cost drivers described above.

As the authors conclude, “Simple comparisons of wireless prices across countries that fail to account for the cost differences in providing wireless service offer a distorted picture of the competitive landscape. This makes for bad economics and even worse public policy.”

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