Despite mobile industry prices that have fallen more than 30% over the course of the past summer, Innovation, Science and Industry Minister Navdeep Bains is looking for further reductions of another 25%, warning “If these targets are not met within two years, the Government will take action with other regulatory tools to further increase competition and help reduce prices.”

During last year’s election campaign, the Liberal party promised 25% reductions in mobile prices and it showed sample rate plans of $87.32 for a 5 GB plan and $75.44 for a 2 GB plan. The party promised to bring those rates down to $65.49 and $56.58 (respectively), when elected.

But in an announcement today, Minister Bains said that the January 2020 market prices for a 6 GB plan are $60, and $50 for a 2 GB plan, more than 10% lower than the campaign targets.

Rather than claiming victory, the Minister has announced new targets of a further 25% price reduction over the next two years. The Minister has set a target of $37.50 for the 2 GB mobile plan, more than 50% reduction in the price, when compared to the Liberal’s campaign promise.

In a note to investors earlier in the day, TD Securities Equity Research wrote: “our view is that much of the testimony at the [CRTC’s Wireless Review] hearing proved that pricing in Canada is very reasonable relative to excess geographic and spectrum costs incurred by wireless carriers in Canada. Subsequent to heavy efforts by the government to facilitate competitive tension from facilities-based new entrants in every region, we struggle to see a problem that needs to be fixed.”

We agree. The CRTC is in the midst of its review of mobile services. The intervention in the marketplace smacks of playing a populist political card at the expense of policy leadership.

With billions of dollars in funding needed for 5G network upgrades, rural expansion and targeted connectivity programs for low income households, global capital markets will be looking for more consistency from Canada’s regulatory and policy leaders.

In an environment of already turbulent global capital markets, the last thing Canada should be doing is playing Calvinball with its telecom sector.

Mobile prices have fallen more than 25% over the past year, according to Innovation, Science and Economic Development Canada’s “2019 Price Comparisons of Wireline, Wireless and Internet Services in Canada and with Foreign Jurisdictions” [pdf, 2.1MB], the 12th annual edition of the report.

The report is dated November 7, 2019, which means the work product has been sitting around for 4 months, waiting for today’s disclosure. The information gathered in the main body of the report was known to be stale even before it was completed. The study gathered its main pricing information in May 2019, a month before what the report calls “the relatively recent introduction of significantly modified mobile plans … Some of the market changes are greater standardization of national MNO pricing across the country as well as the offering of higher end data caps at reduced prices.” That statement appears to contradict observations that prices are lower in provinces with ‘strong regional competitors’, in evidence presented by the Competition Bureau at the CRTC’s Wireless Review.

The prices changed substantially, the plan structures changed substantially, and prices were seen to be more consistent across the country. But, rather than redo the study in its entirety, all that was done was add a ‘spotlight’ section to provide highlights of the impact of the updated rates. Moreover, according to the study authors, “foreign jurisdiction price data was primarily collected in June/July 2019”, meaning the study authors were still in the process of collecting data when the new Canadian rate plans were in the market.

Policy statements are being made based on outdated data. Regulatory measures are being contemplated based on detailed data collection that was stale before the report was written. In 2018, Canadian mobile services revenues were more than $27B. How much would it have cost to get the data right by updating the Canadian pricing data? This fundamental error in judgment is especially troubling since the already outdated report sat unreleased on a desk for a further 4 months. [Note: alleged flaws in the methodology used in the annual pricing study are described in detail in evidence filed by NERA in the CRTC’s Review of Mobile Services.]

Earlier this week, I wrote about the much more sophisticated pricing study conducted for the CTIA that used regression analysis that “considers differences in plan characteristics, network qualities, and country attributes, allowing the authors to compare value propositions, and not just a superficial price comparison.”

The CTIA study looked at the ISED methodology and observed that its comparisons are based on “six artificial demand baskets”. “Moreover, depending on how similar or dissimilar the plans are in each basket, the study reports drastic and incredible price fluctuations from year to year.” In the view of the authors of the CTIA study, “Because the baskets lack an empirical foundation, this results in a price comparison of drastically different plans that produces meaningless results.”

Extreme caution should be exercised in interpreting the data in this year’s report released by ISED. A few years ago, the study acknowledged its limitations.

Despite the current report missing the important “caveats” section acknowledging the study limitations, let’s take a closer look and carefully consider the cautions that were disclosed in the 2016 edition of the study.

• “The price comparisons are based on price data collected through a survey conducted in January and February of this year. As prices for telecommunications services are constantly evolving, the prices cited in this Study represent a ‘snapshot’ of prices in time. Also, the price differentials found are highly sensitive to currency fluctuations.”

  Any study is naturally a snapshot in time. We know that the market is dynamic by virtue of regular articles like Mobile Syrup’s “Here are the changes to Canadian carrier rate plans this week”. Multiply those changes by the other countries in the study and add in currency fluctuations and you have a significant challenge.

• “Thus, the prices cited for Canada, US or the international jurisdictions are not meant to be statistically representative of the individual countries as a whole.”

  Will this limitation be considered in the reporting on this study?

• “Prices in Canada and international jurisdictions are driven by a complex mix of a number of factors: cost of service, competitive positioning, technological advances, consumer behaviour and regulatory frameworks.”

  The study conducted for CTIA was designed to account for many of these variables that are key to the value proposition placed in front of consumers. It found Canada beat the countries used by ISED when accounting for such factors.

• “As wireless technology is constantly improving and consumers demand ever more bandwidth and data caps, service providers are constantly increasing features. In the Study, these changes are reflected by the need to regularly update the definition of service baskets. Hence, price increases in those baskets may in part, simply reflect better service levels offered to consumers.” [emphasis added]

  Will this limitation be considered in the reporting on this year’s study?

• “This Study did not take into account the network technologies deployed in the networks nor the speed or quality of service of those networks. Finally, this Study did not account for any cost of service or socio-economic factors that may be relevant for price differences across different domestic and international jurisdictions.”

  The study conducted for CTIA was designed to account for many of these variables that are key to the value proposition placed in front of consumers. It found Canada beat the countries used by ISED when accounting for such factors.

• “factors such as population density, terrain and climate have significant impacts on the cost of service.”

  The study conducted for CTIA was designed to account for many of these variables that are key to the value proposition placed in front of consumers. It found Canada beat the countries used by ISED when accounting for such factors.

• “socio-economic factors such as affordability indicators (i.e. mobile prices in relation to disposable income), number of handsets per subscriber, number of minutes of usage per subscriber and other factors were not within the scope of this Study.”

  Last month, I reported on an independent study on mobile service affordability, with PwC’s examination of the claim that “household budgets were being strained by spending on mobile plans”. Other attributes associated with the consumer value proposition are accounted for in the CTIA study methodology.

There are limitations to any study, and in 2016, the study conducted for the Canadian government carefully cautioned readers on the kinds of interpretations and conclusions that can be drawn from it.

Why has this section that highlights limitations of the study disappeared?

Watch for reporting on the study. Just because the report doesn’t contain a ‘caveats’ section doesn’t mean the limitations have gone away. The international price comparisons are completely meaningless in this year’s report given the significant price changes that took place in Canada.

The government plans to monitor and report on mobile plan pricing on a quarterly basis for 2GB, 4GB and 6GB plans. The spotlight section of today’s report shows the price of 2GB plans fell 30% between May and September; 5 GB plans fell almost 25% in the same period. Earlier this week, a US-based study conducted for the CTIA (based on current mobile industry pricing) “puts Canada atop the G7 + Australia when considering the price-value relationship in mobile wireless services.” In December, PwC found Canadian mobile services topped its analysis of affordability in the G7.

The election campaign promise to lower mobile prices by 25% has been delivered, confirmed by the release of the government’s own pricing study. The government’s new benchmarks are seeking a further 25%, rates that are 50% lower than the baseline used in last year’s election campaign. As I wrote in my accompanying article, “Moving the goalposts”, the January 2020 prices being used in the government’s mobile benchmarking are already 10% better than the two year targets that were promised in the run-up to last year’s election.

Today should have been time for the government to take credit for the success of measures it already put in place. The low prices are taking hold across the country (“greater standardization of national MNO pricing across the country”), evidence that all Canadians are benefiting from more vibrant competition.

Facilities-based competition is working; prices are falling; carriers are investing in new new technologies and expanding the reach of their networks.

Declare victory.

Consumers won.

A new report comparing international mobile rate plans puts Canada atop the G7 + Australia when considering the price-value relationship in mobile wireless services.

The study [pdf, 537KB], authored by NERA and commissioned by the CTIA (the US mobile industry association), examined more than 1500 rate plans offered by 213 mobile operators in the 36 OECD member states. The study, conducted by NERA, considers differences in plan characteristics, network qualities, and country attributes, allowing the authors to compare value propositions, and not just a superficial price comparison.

“A hedonic regression is a special type of regression model that assumes the price of a good is affected by product characteristics and external characteristics, which can be analyzed through regression analysis to produce a price prediction for any combination of these attributes.”

Why go to the trouble of such a sophisticated analytical approach? The abstract to the NERA study explains:

The interest in international comparisons in the mobile wireless sector has created a cottage industry in which regulators, consulting firms, and think tanks regularly rank countries based on a single variable—price. These price rankings, so several of them claim, are the Swiss Army knife of competition analysis. A country with a low ranking is viewed as noncompetitive and thus purportedly in need of regulatory intervention. Recent research has raised concern as to whether the methods employed in these ranking studies are sound and produce meaningful results.
…
The purpose of this study is to fill this void by ranking countries not solely by their nominal retail price points for mobile wireless services but rather by comparing them based on their more holistic mobile wireless value propositions.
…
For instance, a simple price comparison would indicate that a $30 plan is a better proposition than a $40 plan. However, if the value proposition of the second plan exceeds that of the first by the equivalent of $10 or more, the second plan is a better proposition because it provides more bang for the buck. The mobile wireless value proposition consists of not only how many megabytes of data the plan includes but also how many voice minutes, SMS messages, and other services the plan includes. The value proposition also accounts for network quality because a low price on a spotty network with low download speeds may offer a lower value to the consumer than a higher price on a more ubiquitous network with excellent download speeds. The value proposition also considers the fact that serving smaller countries with high urbanization rates is less costly than building a network in a large country with sizable rural regions.

At the end of the day, examining the value proposition more closely mirrors the purchasing decision process undertaken by consumers, as contrasted with overly “simplistic assumptions”, such as those contained in studies produced by Rewheel.

There is an easy way to demonstrate that Rewheel’s world differs starkly from the actual world. If consumers cared only about data, as assumed by Rewheel, then they would purchase only the plans offering the most data for a given budget. However, marketplace evidence clearly refutes this simplistic assumption; there is no indication of a positive correlation between providers offering data rich plans and market share, thus refuting the notion that consumers care only about data allowances. Based on these limitations, the Rewheel study has been repeatedly criticized and found unscientific and meaningless.

Keep in mind, this study was produced for the US industry. When accounting for the value proposition being offered consumers in comparison with those in peer countries, NERA found Canada’s mobile services pricing to be top performing.

The “Weighted Ratio” for a country is calculated using a subscriber share weighted average for all providers in the country, following a hedonic regression model, based on the assumption that the price of mobile wireless service is affected by plan, network, country attributes. In the example above, the country ratio for Canada of 0.953 means that Canadian mobile prices are 4.7% lower than the G7 plus Australia benchmark after adjusting for the mobile value proposition.

When benchmarked against leading democracies, effectively Western Europe, Australia, New Zealand, the US and Canada, Canada again ranks number one, followed by the USA and Germany.

The report’s abstract describes the dilemma faced by policy makers examining so many of the published international rankings:

Across the world, politicians, regulators, and competition authorities are analyzing the state of competition in their respective countries, considering regulatory and policy actions, and measuring the key performance indicators of mobile wireless service providers. To compare their country’s standing relative to international peer groups, they rely on international ranking lists. The interest in international comparisons in the mobile wireless sector has created a cottage industry in which regulators, consulting firms, and think tanks regularly rank countries based on a single variable—price. These price rankings, so several of them claim, are the Swiss Army knife of competition analysis. A country with a low ranking is viewed as noncompetitive and thus purportedly in need of regulatory intervention. Recent research has raised concern as to whether the methods employed in these ranking studies are sound and produce meaningful results.

According to the CTIA study, “The fundamental problem with the existing price ranking studies is that they all suffer from an omitted variable bias,” assuming “a world where consumers are indifferent to all other competitive differentiators” such as monthly service allowances and quality differences beyond price. The study authors also note that most rankings “fail to consider the vast differences in building networks in the study countries.”

The study takes aim at a number of international pricing reports, including ISED’s annual study (performed by Wall Communications or Nordicity), saying the use of arbitrary baskets “produces meaningless results.” The harshest criticism is levelled at Rewheel Research, saying its “study has been repeatedly criticized and found unscientific and meaningless.”

A number of international price studies use OECD data as their source. In looking at the data collected by the OECD, the CTIA study authors observe a number of caveats issued by the OECD itself: “All statistical country comparisons should be undertaken with caution” and “It is important that policy makers examine a wide range of broadband indicators when considering key policy decisions.”

Against the backdrop of these flawed pricing studies, NERA constructed its study, including examinations of plan attributes, network attributes and country attributes. Because the study was commissioned for the CTIA, most of the detailed comparisons and discussions are focused on the US market.

Canada’s top ranking, relative to the value proposition being offered to consumers, shines in the report’s comparisons against the G7 plus Australia, and in comparison with leading democracies.

Innovation, Science and Economic Development (ISED) is overdue in releasing its annual international pricing study, a simple examination of price. It is worth noting that ISED’s annual pricing study used to contain a list of cautions on its use, explaining that simple price comparisons have limitations. For example, in 2016, the study produced for ISED stated “Prices in Canada and international jurisdictions are driven by a complex mix of a number of factors: cost of service, competitive positioning, technological advances, consumer behaviour and regulatory frameworks.” The authors cautioned “this Study did not account for any cost of service or socio-economic factors that may be relevant for price differences across different domestic and international jurisdictions. Thus, factors such as population density, terrain and climate have significant impacts on the cost of service.”

The CTIA study represents an important independent look at the value proposition being offered to consumers, examining factors with a greater level of sophistication than the simplistic models used by most analyses.

PwC has released its 23rd annual CEO Survey, entitled “Succeeding in uncertainty” [pdf, 2.5MB].

The report observes that uncertainty is weighing on growth prospects across all industries in Canada:

Entering 2020, Canadian CEOs are more uncertain than ever. In 2018, 72% of Canadian CEOs expected global economic growth to improve, but this optimism dropped to 38% in 2019 and 14% this year. In fact, CEOs are the most negative they have been at any time in the past five years. This finding is compelling because the change in CEOs’ revenue confidence has proven to be a reliable indicator of both the direction and level of global GDP growth in the year ahead.

Among the top five concerns identified by Canadian CEOs were a number that should resonate with those following telecommunications. CEOs were asked “How concerned are you with each of these threats to your organization’s growth prospects?” These five areas, each attrated “extremely concerned” or “somewhat concerned” from about 80% of respondents:

• Uncertain economic growth
• Policy uncertainty
• Cyber threats
• Over-regulation
• Trade conflicts

Across all industries, a full 42% of CEOs were ‘extremely concerned” about over-regulation; 38% were somewhat concerned. “Only a quarter of Canadian CEOs say that governments are designing privacy regulations that actually increases consumer trust and that governments and businesses are effectively collaborating to harmonize cybersecurity strategies.”

Three quarters of CEOs have identified concerns about the availability of key skills to match growth prospects.

The survey was conducted in September and October of last year and includes insights exploring the sources of uncertainty and suggesting how CEOs can forge “a path in today’s new world.”

Those who watched the TELUS panel yesterday at the CRTC’s Wireless Review hearing witnessed a master class in regulatory affairs.

From the opening statement through to a passionate peroration, the elocution by each member of the panel articulated the TELUS position with clarity, greeting each question from the CRTC with alacrity.

CPAC has the session available on-demand. You should watch it.

There has been a lot of chatter on Twitter about statements made by the TELUS panel. Watch it yourself. Whether or not you agree with the positions set forth, you might learn something about how to prepare for a regulatory proceeding.

Be sure to tune in especially at the 1:52:07 mark, where the question by Commissioner Chris MacDonald is greeted with reserved laughter. He asked TELUS if it is “part of ISED’s Connected [sic] Families initiative”. It speaks volumes about failures in CRTC market awareness that the Commission didn’t know the history of the program, the leadership of TELUS and Rogers in launching the service and the companies freely sharing their early experience to help take the program nationwide.

If you are a regular reader of this blog, you know where Connecting Families came from.

It wasn’t just the history of Connecting Families that was troubling. The CRTC seemed completely unaware of the extremely wide range of products and service plans that are available. What other aspects of the industry are missing from the CRTC’s knowledge base?

The CRTC prepares an annual Communications Monitoring Report filled with facts and figures. Has it become so entangled tabulating its detailed measurements that it is missing out on broader observations? You know, that old forest – tree thing?