A look at mobile affordability

We frequently hear the term affordability used interchangeably with lower prices. That’s a mistake.

Certainly, there is a relationship between the terms. Lower prices make items more affordable, but stable prices with rising incomes can have the same effect. As I have previously written, mobile services prices have been coming down over the past few years, more than 25% in two years. So mobile services are certainly more affordable than before.

There is some interesting monthly household spending data on the Statistics Canada “Telecommunications: Connecting Canadians” portal. Mobile phone service is different from wireline services, like TV and home phones. Mobile phones are a personal service. We can expect a household with two adults to have two mobile phone subscriptions. It would be unusual for that same household to have more than one TV subscription. As it turns out, there is considerable variability in household size based on income.

The first three rows of data can be found on the portal itself.

The bottom row is from my calculations, based on Statistics Canada household size data, to derive average monthly spending for cell and pager per household member:

Monthly spending on cell phone services as a percent of total expenditures after tax, by income quintile, 2019
All quintiles Lowest quintile Second quintile Third quintile Fourth quintile Highest quintile
Monthly expenditure after tax 6,379.75 3,069.33 4,288.92 5,822.17 7,674.33 11,024.08
Monthly cell phone and pager services $111.92 $56.08 $79.92 $109.67 $140.50 $173.42
Percentage of expenditure on cell service 1.8% 1.8% 1.9% 1.9% 1.8% 1.6%
Average size of household 2.48 1.49 2.11 2.49 2.95 3.34
Monthly cell and pager per household member $45.12 $37.63 $37.88 $44.04 $47.63 $51.92

I thought it was interesting to see relatively little variation between the income quintiles in cell service spending as a percentage of total household after tax expenditures. As my calculations indicate, most of the variation in actual spending per household is explained by the difference in size of households; on average, with 1.49 members, lower income households are less than half the size of high income households (3.34 members).

What leads to the remaining difference? There is most likely a variability in adoption rates, and in spending per subscription. Interestingly, lower income households have typically been more likely to be “mobile only”, but we might want to take a further look at per capita mobile adoption rates by income. As the price of smartphones continues to climb above the $2000, we may need to re-examine the CRTC’s 24-month limit on device amortization as an inhibitor for low income Canadians.

In other jurisdictions, there are targeted subsidies, funded by the government, to encourage adoption of mobile and fixed broadband services. For example, in the US, the FCC’s Lifeline Support for Affordable Communications “provides up to a $9.25 monthly discount on service for eligible low-income subscribers and up to $34.25 per month for those on Tribal lands.”

In Canada, affordable broadband programs, such as the recently enhanced Connecting Families, have been completely funded by participating service providers. Last week, Connecting Families 2.0 was launched, significantly enhancing the original $10 residential broadband program with additional options and increased eligibility. These programs target residential fixed broadband service.

A number of service providers have an even wider array of options for targeted disadvantaged communities.

Mobility for Good from TELUS was first launched in 2017 as a youth focused program in BC. Mobility for Good has now grown to support youth nationally. TELUS extended the program to seniors in 2020, and to at risk Indigenous women in 2021. The program offers a free refurbished smartphone and mobile plan for youth leaving foster care, and for Indigenous women at risk or surviving violence. In addition, Mobility for Good offers low-income seniors subsidized plans and the option to buy a discounted device.

The CRTC’s Review of mobile wireless services last April established certain retail price regulations, establishing what the Commission calls “low-cost and occasional-use plans”, not tied to income qualification. As such, the plans, with specific characteristics, are not necessarily geared to meet the requirements of low-income users or help increase subscriptions among user groups with lower rates of adoption. It is not known whether these plans are actually filling a significant market void.

Lower prices are not enough.

As I wrote last year, “Unfortunately, after introducing Connected for Success, Internet for Good, Connecting Families and other targeted programs, we have learned that getting people online isn’t just a matter of price.”

There are a number of questions and issues that come to mind from all of this. There is a need to look beyond price. In addition, we know that seeking lower pricing is not the same as affordability. The consumer interest needs to balance value, affordability and investment, a corollary to the mantra of “Canada’s future depends on connectivity”.

Should the government be directly funding programs to encourage adoption of mobile and residential broadband, akin to Lifeline Support in the US?

That can be the subject of future posts. Your comments are encouraged.

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