Mark Goldberg

An expectation, backed by a threat

On Friday, the CRTC issued a letter to wireless service providers (WSPs), warning them that it “expects that all WSPs cease offering device financing plans on terms longer than 24 months until the Commission has had an opportunity to complete a full review of the practice.”

Although the letter is not an actual Order, it is signed by the Secretary General, representing a letter from the Commission (as contrasted with a staff opinion), and the letter includes a sharp warning:

Should the Commission determine that the device financing plans at issue, including those that have a term greater than 24 months, are non-compliant with the Wireless Code, it may issue a mandatory order prohibiting certain WSPs from offering these plans. In accordance with section 72.001 of the Telecommunications Act, the Commission may also impose on WSPs AMPs of up to $10,000,000 for every contravention of the Wireless Code, and up to $15,000,000 for every subsequent contravention.

This is a Commission expectation that we expect will be treated like an Order. The potential penalty for defiance is set out in plain language, up to $15M for “every contravention.”

The Commission is of the preliminary view that certain device financing plans may create a new barrier for customers to take advantage of competitive offers in the market. In particular, customers, who may benefit in the immediate term from lower monthly costs related to their devices, appear to be asked to accept terms and conditions that may require them to stay with their current WSP past the end of their wireless service commitment period.

Let’s look at this section of the CRTC letter in a little more detail. The CRTC is acknowledging that these newly forbidden plans provided a “benefit in the immediate term from lower monthly costs related to their devices”. Consumers were benefiting. What was wrong? Well, the CRTC says that the consumers appear to be asked to stay with their service provider beyond the 24 month maximum set out in the Wireless Code. If this is the concern, we seem to be about 23 months away from the first problems emerging. If consumers aren’t happy with the early termination fees associated with the new plans, don’t they already have recourse through the Commission for Complaints for Telecom-Television Services?

It can be argued that the Commission’s letter was premature; the CRTC should have allowed the marketplace to work, intervening only when there is a failure. Zero percent financing is consumer-friendly for every income bracket.

As a matter of national policy, shouldn’t we be looking for ways to make advanced devices more accessible to a wider demographic? In the CRTC’s upcoming “full review” of the device financing plans, what kind of data will be produced to understand the type of people who choose longer term financing plans? Groups claiming to represent consumer interests should be prepared to demonstrate public support for policy positions that favour shorter terms and the resultant higher monthly payments.

A few weeks ago, I wrote a post called “Increasing consumer choice” that concluded “if the Wireless Code prohibits these kinds of choices, then maybe it’s the Code that needs changing, not the option of such innovative consumer pricing plans.”

I continue to hold that view.

Retooling Rewheel’s reports

A report by a Managing Director at NERA Economic Consulting says policy makers and regulators should ignore the Digital Fuel Monitor, an international mobile pricing study regularly published by Finland’s Rewheel Research. According to the new report, there is no “simple fix” for the Digital Fuel Monitor; it needs “a complete redesign of the study’s methodology.”

The Digital Fuel Monitor, published regularly for the past 5 years, is somewhat simplistic (eg. “how many 4G gigabytes will €30 buy”) and many industry observers rely on the abbreviated ‘public’ version of the study. Most have likely never examined the complete report in detail.

Each time Rewheel releases its studies, I have found them to be problematic, especially with some of the conclusions that don’t seem to follow from the methodology of the study. Among other problems, Rewheel’s studies are premised on the overly simplistic belief that low prices are the sole indicator of competitiveness of mobile markets as stated succinctly in a 2017 tweet:

Its statement at the time was in response to a posting from Verizon that pointed to other key indicators of competition: “falling prices, exploding demand, significant investment, boundless consumer choice and innovation.”

The report by Dr. Christian Dippon, Chair of NERA’s Global Energy, Environment, Communications & Infrastructure Practice, challenges the study methodology and conclusions drawn by Rewheel. “Oversimplified and Misleading International Price Comparisons Must Not Guide Policy and Regulatory Decisions” concludes that Rewheel’s report is a “simplistic ranking exercise that assumes away the complexities of an international comparison by treating all plans, networks, and countries as identical. This apples-to-oranges comparison offers no economic insights, and governmental agencies cannot use it as the basis for proper regulatory and policy decisions.”

The report, commissioned by TELUS, takes the reader through what Dr. Dippon calls fundamental and fatal flaws in Rewheel’s approach:

Rewheel’s methodology:

  1. ignores all plan differences except the monthly data allowance;
  2. ignores all network quality and country cost differences;
  3. distorts its results by omitting the most popular plans, including family and prepaid plans;
  4. ignores several price elements including multiple plan requirements and activation fees;
  5. fails to adjust for PPP; and
  6. includes VAT.

Dr. Dippon demonstrates the fallacy of using price as the sole measure of comeptitiveness by examining Rewheel’s assertions about its home market, Finland.

Rewheel presents Finland as one of the cheapest and most competitive countries in its 41 study countries. Rewheel bases this conclusion on its understanding that Finland offers unlimited data at €25, ahead of most other countries. Rewheel’s own data, however, demonstrate that the average Finnish subscriber does not demand unlimited data. Instead, Rewheel reports that the average Finnish subscriber demands 23.8 GB of data per month, which Rewheel reports costs €25. At this average Finnish demand level, Finland is by far not the cheapest country because Austria, Australia, Romania, Ireland, Slovenia, Sweden, the United Kingdom, Israel, Poland, France, and the Netherlands all offer plans that meet and/or exceed the average Finnish demand level of 23.8 GB with price points cheaper than €25.

Among the other problems discussed by Dr. Dippon is what he terms a failure by Rewheel to consider overall consumer expenditures. For example, Austria has 1.7 mobile subscriptions per person; Canada has 0.865. “By focusing exclusively on the price of a single plan, the Rewheel study fails to recognize that in many of its study countries consumers purchase more than one plan and thus spend more on mobile wireless service per month.”

Specific to Canada, Dr. Dippon points out that “Canada is home to some of the fastest and most advanced wireless networks in the world. Yet, based on its simplistic ranking exercise, Rewheel labels that country [Canada] as noncompetitive and laggard.”

Dr. Dippon points out the contradiction: “Quite simply, a market cannot both be noncompetitive and offer some of the best mobile wireless services in the world.”

The report is an important critique by a recognized authority in regulatory economics, confirming my long-held view that there are problems with Rewheel’s studies. It merits a close read by Canada’s regulators and policy makers.

Increasing consumer choice

Over the past few weeks, new mobile plans have been met with mixed reviews.

The major carriers launched mobile data services plans that remove the fear of ‘overage’ charges, slowing down access speeds after the subscriber reaches the monthly tier maximum; these plans are being reviewed by the regulator to determine compliance with the CRTC’s network neutrality framework.

In a recent article (“Will net neutrality force the CRTC kill the new $75 wireless plans?“), observed that the CRTC asked carriers to justify the plans compliance:

Address, with rationale and data, why these practices should not be considered to amount to blocking the delivery of content or Internet traffic to an end-user. Your answer should include information to explain, for example, how the reduced speed does not cause degradation to the service to such an extent that it would amount to controlling the content and influencing the meaning and purpose of the telecommunications in question.

Earlier this week, Rogers announced new financing plans “allowing customers to choose either 24- or 36-month $0 down and interest free options.” Critics quickly denounced the 36-month option, charging that the plan violates the early termination rules set out in the CRTC’s Wireless Code. One industry critic denounced the plan saying “People who can’t afford a down payment shouldn’t be financing the latest iPhone.”

The new plans provide new options for consumers to manage their monthly bills, enabling them to access the latest devices with no money down and lower monthly payments.

As I wrote on Twitter earlier this week, if the Wireless Code prohibits these kinds of choices, then maybe it’s the Code that needs changing, not the option of such innovative consumer pricing plans.

#CTS19 on demand

Over the past few weeks, I have posted a number of sessions from The 2019 Canadian Telecom Summit.

Here is the list of what is available online:

This ends my posts about The 2019 Canadian Telecom Summit. The videos may be the ‘next best thing’ to being there, but you really should plan to attend next year. Sign up to the newsletter to stay on top of information.

I look forward to reading your comments.

For the next month or so, I will be taking some important family time, trying to stay in touch, but I expect to be writing much less frequently.

Have a good summer.

Telecom policy as an election issue

Will telecom policy figure in political platforms in the fall federal election? As we head into the Canada Day long weekend, there are signs that the current government should be prepared to campaign on its record on issues related to the digital economy.

When she was appointed Minister of Rural Economic Development, Bernadette Jordan’s mandate letter set out priorities, including a few related to digital economy programs:

  • Lead the development of a Canadian Rural Economic Development Strategy. This strategy should capitalize on the enormous opportunity vibrant rural economies and communities represent to strengthen the middle-class and enhance economic growth for Canada as a whole.
  • Lead work to increase high-speed broadband coverage in rural Canada. This includes the rollout of existing investments, programming towards further improvements, and ensuring that investments by the Government of Canada, provincial and territorial partners, and the private sector are co-ordinated to best prepare rural Canada for success in the digital economy.

This morning, Minister Jordan unveiled the government’s Rural Economic Development Strategy along with a new Federal Connectivity Strategy, together with a “Get Connected” portal, bringing together many of the existing resources within the Innovation, Science and Economic Development department. Stakeholders, whether service providers or individuals, can use the portal to see what kinds of broadband services are available for a given location or could determine if government support programs are available to support new investments.

Today’s announcement appears to be another signal that it is prepared to showcase its digital economy strategy in front of voters. Minister Jordan’s release follows last month’s release of the Digital Charter, the Policy Direction to the CRTC proclaimed earlier this month, and the legislative review panel’s “What We Heard” report released yesterday.

Often, the government addressing digital issues has consisted of rural broadband spending or auctioning spectrum to maximize revenue to the treasury; this government has published much more substantive policy in just the last 5 weeks.

Unfortunately, most government programs continue to focus on increasing “supply”, extending access to broadband. We need to ensure there are strategies to drive “demand”: increasing adoption rates among groups that could subscribe, but have not. That is a problem across all geographies, and is perhaps more pronounced in urban markets.

Do we fully understand that side of the challenge for universal broadband adoption?

Will other parties be able to develop a cohesive digital strategy? Are digital issues going to be a factor for the electorate?