Mark Goldberg


www.mhgoldberg.com





#CTS20

Setting the record straight on Canada’s wireless industry

The following opinion piece by CWTA President & CEO Robert Ghiz appeared in Hill Times on December 3:

During the recent federal election campaign, we heard a lot of talk about cellphone prices. Now that the election is over, it is important to put rhetoric aside and look at the facts. Not just about prices, but also about the future of mobile communications and what is required to connect more Canadians and to reap the economic and societal benefits of the new 5G technologies.

The price of wireless data has actually been declining significantly over the last several years. In fact, the CRTC recently reported that wireless prices declined by an average of almost 30 per cent from 2016 to 2018. That was before unlimited data plans were launched across the country. Today, Canadians can get unlimited data plans that start from $50 to $75 a month, a huge decline in price from 2018 when, according to the government’s own study, $75 was the average price for a 2-GB plan.

Declining prices are only one indication of successful wireless policy. Network performance and coverage are also fundamental components of a healthy wireless industry. Given its size, low population density, and climate, as well as government licence fees that are among the highest in the world, Canada is one of the most challenging countries in which to build wireless networks. Yet despite these challenges, Canada’s wireless providers have, so far, invested over $70-billion in building world-class wireless networks throughout the country, according to data gathered by the Canadian Wireless Telecommunications Association, the CRTC, and Nordicity. That’s about twice as much on a per connection basis as in the European Union, according to the industry group GSMA Intelligence.

Thanks to these massive investments, Canada’s LTE wireless networks are ranked the third fastest in the world (and twice as fast as the U.S.) and reach 99 per cent of Canadians. This success is not limited to urban areas. A recent report by OpenSignal shows that network coverage and performance in Canada’s rural areas is also among the best in the world. In fact, if rural Canada were its own country, its average download speeds would rank higher than the average speeds across all of the United States and more than 70 other countries.

These achievements were possible because successive federal governments adopted policies that fostered meaningful competition while also maintaining an environment that encourages investment in wireless infrastructure. These facilities-focused policies also encouraged the introduction of new regional wireless providers, such as Freedom Mobile, Videotron, Eastlink, and Xplore Mobile that are playing an important role in providing sustainable competition, while at the same time making significant investments in Canada’s wireless infrastructure.

Policy proposals that would instead favour companies looking to be “virtual” wireless providers, or mobile virtual network operators—whose business models depend on regulatory arbitrage rather than investing their own capital to build and maintain wireless infrastructure—have been repeatedly rejected by the CRTC. Why? Because any potential benefits are outweighed by the negative impacts on sustainable competition and investment.

MVNOs will not help extend wireless networks to rural communities or invest in 5G infrastructure, and any material impact on prices is unlikely. The fact is Canada’s wireless market is already delivering the same or lower prices than high-profile U.S. MVNOs like Tracfone and Google Fi, at speeds faster even than early 5G implementations in the U.S.

In its submission to the current CRTC proceeding, the Competition Bureau and its expert consultant concluded that a broad-based MVNO policy would not have a significant impact on prices, would harm the regional providers who have brought meaningful competition to the market, and would reduce network operators’ incentive to invest in network infrastructure. In short, “the risks associated with such a policy are too high for it to be warranted.” The bureau recommended the CRTC maintain its facilities focus as “[a]ll else equal, facilities-based competition is the most sustainable and effective form of competition.”

Canada can’t afford to ignore the success that policies supporting facilities-based competition continues to have in delivering performance, coverage, and declining prices. Countries that have turned their backs on facilities-based competition have seen the quality of their wireless networks and services suffer, investment decline, and jobs disappear. We must not let this happen in Canada. The government should focus on policies that encourage investment in Canada’s future and deliver increasing value to Canadians and our economy.

Majority isn’t always right

I came across an interesting article in The Guardian from a few years ago that is perhaps somewhat relevant to the very public discussion about Canada’s telecommunications industry.

Three years ago, Julian Baggini wrote “Think democracy means the people are always right? Wrong”. In the article he writes:

Western democracy is built around a tripartite trust: trust in the people to hold government to account and to set the general direction of policy, but also trust in politicians to make specific decisions, and in institutions to provide safeguards against rash or tyrannical actions. What we are seeing all over the western world are the last two pillars being torn down, leaving all trust resting on the people.

This is rightly called populism, not in the American sense, but as understood in the rest of the world. Populism is generally defined as a mode of politics in which the will of the people is seen as clear, virtuous and homogeneous. Populist politicians simply promise to do what this will commands, ignoring or denying the fact there are different, competing interests in society, not just those of the majority. Populists do not try to square the simple desires of the electorate with the complex realities of society but pretend that what seems simple is simple and that anyone who says otherwise belongs to an obfuscating elite looking for excuses to defend its own interests.

Sound familiar?

There is a reason we look to expert panels, such as the CRTC, to explore the complex issues associated with telecommunications regulation, hopefully acting without political interference in reaching their determinations.

The issues associated with the current review of Canada’s wireless industry are quite complex and the stakes are extremely high. There are different, competing interests involved, extending far beyond the short term interests of the majority.

As Eros Spadotto of TELUS wrote this past weekend in the Toronto Star:

This brings us to the crux of the problem around affordability: many of the arguments are not informed by facts, neglect to account for policies that have failed in other countries, and make no reference to the risk of introducing regulatory uncertainty when wireless carriers are preparing to make generational investments to accommodate the transition to 5G.

Eros, the EVP of Technology Strategy and Business Transformation, spoke about “accelerating innovation and economic prosperity in Canada” at The 2019 Canadian Telecom Summit (his address can be seen online). Better than most, he understands what is at stake in the current regulatory review. His article in the Toronto Star says the evolution to 5G is predicted to add 250,000 permanent new jobs and $40 billion to Canada’s annual GDP. “If this is what’s at stake, surely we want to be making informed choices about the right path to take.”

Returning to Baggini’s piece in the Guardian, “No sensible person thinks majority opinion is a good guide to best practice in health, education, engineering, or pretty much everything else. So why would public policy be any exception?”

Evidence-based policy making

Over the years, I have tried to draw attention to the need for better, and deeper statistical analysis to help guide policy making in Canadian telecom. I’m not just talking about public opinion polling, especially internet-based surveys that are open to ‘gaming’. We need ongoing econometric analysis of all segments of the communications marketplace.

Frankly, I wonder what kinds of conclusions will be drawn from the CRTC’s current consumer survey, drawn from a completely non-random sample, with such questions as:

  • How much data is included in your cell phone plan?
  • Do you bundle your cell phone service with other services from your provider?
  • How satisfied are you with your current cell phone provider?
  • Have you ever switched cell phone providers?
  • How difficult or easy was it to switch cell phone providers?
  • At the end of your contract with your current cell phone provider, how likely will you be to consider switching to another provider?
  • Have you ever told your cell phone provider that you plan to switch to another provider in order to lower your bill?
  • How much do you agree or disagree with each of the following statements?
    • I’m happy with the upload and download speeds I get with my cell phone provider.
    • I get good value for money from my cell phone provider.
    • I have a good selection of cell phone providers in my region.
    • The cost of cell phone plans has decreased in the last three years.
    • My cell phone calls are almost never dropped. [A dropped call occurs when you are disconnected from the person you are speaking with due to a cellular interruption]
    • I rarely experience dead zones with my cell phone provider. [A dead zone is an area in which there is no cell phone service available]
  • In your view, are Canada’s cell phone prices better, worse, or about the same as what you would find in other countries?

The CRTC’s online survey might have been more useful with a few modifications. For example, the survey asks “In which Province or Territory do you live”, but does not examine the geographic location with any finer resolution, such as the first 3 characters of the respondents’ postal code. It might have also been interesting to ask for the first 6 digits of the respondents’ mobile phone number, to see if any people living in one location are subscribing to a service from a different province.

Many of the questions correlate highly to objective, quantitative data that could be obtained from the mobile service providers. Will the CRTC analyze the responses with such a view?

Just a month ago, in “We need more data”, I wrote “How is Canada supposed to be engaged in evidence-based policy making when there is so little information being gathered about who is online, how Canadians are using the internet and perhaps most importantly, who isn’t online yet and why not?”

The kinds of questions being asked might have more analytic value in quarterly tracking, based on representative sampling. For more than a decade, various arms of the government have been intervening in the wireless market, with spectrum set-asides, consumer codes, sharing rules and more. What kinds of econometric analysis has been undertaken to examine the effectiveness of the competitive measures? Before new measures are introduced, do we properly understand what the current measures are doing?

As the Competition Bureau notes in the conclusion to its November submission to the CRTC, “this competition has not yet reached its full potential and a mandated MVNO policy applied broadly risks undermining the steps taken by wireless disruptors, without much certainty that the MVNO policy will significantly decrease pricing.”

An opinion piece by partners of Boston Consulting Group appearing in the December 3 Globe and Mail observed, “Policy changes can be quick to implement, but take years to undo.”

With Canada’s digital future at stake, we need to ensure policy-making is based on evidence. Maybe it’s time for one of Canada’s public policy schools to undertake the ongoing research needed to help inform the discussion.

Endorsing facilities-based competition

Before I went on vacation, I left a few posts to whet our appetites in anticipation of today’s filing of a report by the Competition Bureau. In “Climbing the ladder of investment” [November 12, 2019], I provided a number of quotations endorsing facilities-based competition from the past quarter century of Canadian regulatory proceedings. In “Do market results rule out the need to mandate MVNOs?” [November 18, 2019], I cited a report from Scotiabank that said “regulators face a delicate act of balancing competition and investment incentives. A wrong move could have years of unintended consequences.”

In its follow-up comments to the CRTC [pdf, 2.4MB and Matrix report, 3.0MB], the Competition Bureau withholds a wholesale endorsement of mandated MVNOs, instead recommending additional measures to support regional facilities-based competitors to derive the greatest consumer benefits. Indeed, the Bureau observed that MVNOs may drive lower prices and greater choice, but also could threaten the “progress in enhancing competition in this industry to date.”

While MVNOs can have positive effects on pricing in the marketplace, they are unlikely to deliver the benefits of sustained and vigorous competition that facilities-based wireless disruptors are capable of providing. The Bureau is concerned that the introduction of MVNOs would disproportionately affect these wireless disruptors, putting at risk the positive effects that they have had on pricing, and may impact long-term incentives to invest in high-quality networks in Canada.

Instead, the Bureau recommended that the CRTC should adopt policies focused on incentivizing and accelerating facilities-based competition from disruptors.” It suggests such measures as mandated seamless handoff, more effective tower sharing and site access rules, and updated roaming rates.

The submission by the Competition Bureau appears to agree with my November 18 post, saying “there are promising signs that policies aimed at promoting facilities-based competition are paying dividends.”

Further, the Bureau wrote “All else equal, facilities-based competition is the most sustainable and effective form of competition.” Further, the Bureau observed “A broad MVNO access criteria may also deliver competition, but at a cost.”

As the Bureau concludes, “[facilities-based] competition has not yet reached its full potential and a mandated MVNO policy applied broadly risks undermining the steps taken by wireless disruptors, without much certainty that the MVNO policy will significantly decrease pricing.”

As I indicated in last week’s post, “Scotiabank believes the filing by the Competition Bureau will carry significant weight.” Rather than supporting the CRTC’s call for mandated wholesale services for MVNOs, the Bureau is endorsing measures aimed at accelerating and expanding competition from existing market participants, thereby promoting a climate that supports continued network expansion and investment. That appears to reaffirm support for a model of facilities-based competition.

Do market results rule out the need to mandate MVNOs?

A big week ahead for telecom regulatory departments.

The revised schedule for the CRTC’s review of mobile wireless services (TNC 2019-57) are due on November 22, with the oral hearing phase scheduled to begin February 18, 2020. Final submissions in that regulatory proceeding are currently scheduled for March 23, 2020.

A week and a half ago, I wrote about the net new subscriber additions in the past quarter. A few days later, in a November 11 research report, Scotiabank argues that the recent quarter’s financial results released by Canadian mobile carriers are indicators that there isn’t a need for regulators to mandate the establishment of mobile virtual network operators (MVNOs).

According to the Scotiabank Converging Networks research note “the most important part of the proceeding revolves around the question: will the CRTC mandate Mobile Virtual Network Operators (MVNO) access?” Scotiabank believes the decision will be among the most important regulatory rulings since the new-entrant AWS-1 spectrum set-aside in 2008.

According to Scotiabank, the facilities-based competition that emerged from the 2008 decision, giving rise to mobile operators Quebecor (Videotron), Shaw (Freedom Mobile) and Eastlink, “looks sustainable.”

Quebecor has been a wireless facilities-based competitor in Quebec for a decade. Is that not sustainable enough? We estimate the company has now captured approximately 19% market share in the province, and, with its new Fizz brand, the momentum has actually accelerated. We estimate Freedom’s market share of covered population (POP) at just under 10%, and we see share gains continuing, driven by network quality improvement, and supported by network and spectrum investment.

Scotiabank’s research found that Shaw and Quebecor’s combined share of new subscribers has reached approximately 30%.

Wireless key performance indicators show that competition has been rising with a long runway. In particular, all three incumbents’ ARPUs are now in decline and postpaid churn is rising. We believe these trends have been indirectly driven by competition from Shaw and Quebecor. As we noted above, we do not foresee either slowing down until they have achieved their market share objectives, which we believe is in the 20%-30% range of covered POP. At their current market share (of POP covered) and our estimate of the pace of share gains, we believe Quebecor still has another five years before it reaches 25% share and Shaw has 10 years of market share gains ahead before it reaches 20% share.

According to the Scotiabank report, the “real sustainable competition” is expected to encourage Bell, TELUS and Rogers to push forward with investment in 5G as a differentiator. Conversely, Scotiabank warns that “heavy-handed regulation such as regulated MVNOs may drive prices down temporarily, it will likely deter the move to 5G” because of an increased uncertainty of returns on future investment and a higher cost of capital.

We believe the United States offers a good example. Competition driven by T-Mobile and Sprint Corp. has driven Verizon Communications Inc. (VZ-N) to accelerate 5G investments, and, in the case of AT&T Inc. (T-N), to invest in media. While both Verizon and AT&T pursued different strategies, their objectives were similar in that they both pursued investments in areas where they thought would help differentiate against T-Mobile. This was all driven by challengers making network investments to compete against Verizon and AT&T, particularly in the case of T-Mobile.

Scotiabank’s recognizes that regulators face a “delicate act of balancing competition and investment incentives. A wrong move could have years of unintended consequences.” The report discusses a number of these potential unintended consequences:

  • Large companies with global scale that are not current telecom service providers could become MVNOs under mandated MVNO regulations.
  • Large global companies entering the MVNO market selling wireless services as loss leaders would commoditize and cause a significant decline in prices in the short term, causing investments in next generation network investments to decline in the medium to long term and causing network quality to ultimately suffer
  • Smaller facilities-based wireless operators like Freedom, Vidéotron and Eastlink (the same companies that have created the competition over the past decade) are more likely to be affected by MVNOs than the incumbents

But Scotiabank warns “Even if the regulators knew of these consequences, trying to establish further regulations to prevent them may just add further complexity with less regulatory certainty.” For more coverage of the Scotiabank report, see the write-up by Greg O’Brien in Cartt.ca: “Wireless results show mandated MVNO is the wrong way to go, says report“.

A few weeks ago, I discussed important data arising from Statistics Canada’s release of the Internet Use Survey. That study included important information about adoption rates of connectivity and for those who don’t have a smartphone, asking why. In the current CRTC proceeding, will affordability concerns be backed by data?

Submissions are due at the end of this week. Scotiabank believes the filing by the Competition Bureau will carry significant weight. The CRTC’s schedule set January 13, 2020 for parties to reply.