A few weeks ago, I wrote a piece called “How long is a piece of string?”, discussing the challenge of defining the price of a mobile service plan. Year over year comparisons are difficult because data usage increases so dramatically and service providers try to design new packages to meet the demand.

So, a question arose on how to measure achievement of a key element in the Minister’s new mandate, requiring him to “Use all available instruments, including the advancement of the 2019 Telecom Policy Directive, to reduce the average cost of cellular phone bills in Canada by 25 per cent.”

As it turns out, there was clarity to be found in the Liberal party’s platform, that set out 2 specific plans and promised a 25% savings within 2 years:

• 2 unlimited nationwide talk and text phone plans, more than two optional features, and 5 GB of data usage per month; and,
• 2 unlimited nationwide talk and text phone plans, more than two optional features, and 2 GB of data usage per month.

The platform priced these out and promised specific savings. The two plans with 5GB per month were said to cost $2,095.68 at the time, and the platform promised to reduce the bill to $1,571.76 for savings of $523.92 per year. The two plans with 2GB were said to cost $1,810.56, promised to drop to $1,357.92 for savings of $452.64. All told, this hypothetical family of 4 would have their annual $3900 phone bill drop by just under $1000 for a total of about $2930.

TELUS decided to test its plans and found that it now offers plans that already meet what it is calling a “True North Affordability” standard.

According to TELUS, the Platform scenario could be delivered with all 4 hypothetical customers each subscribing to TELUS 10 GB Peace of Mind plans, for a total of $2880. The family would save about $50 more than promised, and would receive 2 to 5 times the amount data specified in the Liberal party’s platform promise.

It is clear that Canada’s mobile marketplace has moved faster than anyone in Ottawa could have anticipated. But that doesn’t mean the goal posts should continually be moved.

At a time when service providers are beginning to make the massive capital investments associated with the next generation of technology, regulators and policy makers alike need to be concerned about the unintended consequences of intervening in the market. As the Competition Bureau noted in its conclusion to its November CRTC submission, “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.”

The Competition Bureau is concerned that the regional mobile competitors, the “disruptors” that have acted as catalysts in the marketplace, will be disproportionately harmed by regulatory intervention.

As I wrote earlier this week, we should be talking more seriously about providing direct assistance to those disadvantaged households who really need help accessing affordable wireless technology and services.

Let me be very clear: Just because local prices may be higher than in other places, doesn’t mean a particular good or service is unaffordable at home. There are lots of things for which Canadians pay more than our peers to the south, or other countries. An awful lot of things. Some are basic needs, like milk, eggs and poultry. Some are everyday items like fuel or alcohol or electronics. We gripe about paying more, but the vast majority of us can afford to pay the price.

For most Canadians, mobile services are affordable.

There. I said it.

The affordability of mobile service is measurable. Every quarter, more Canadians are subscribing than ever before, meaning more Canadians are finding a mobile plan they feel they can afford. Quarterly financial results are showing increasing numbers of Canadians are upgrading their service plans, increasing their monthly bills because the new data packages deliver more affordable value. I know. It sounds like an oxymoron to say people are increasing their monthly spending because they are getting more value.

As I wrote a couple weeks ago, PwC recently produced a couple reports showing that “Canadian mobile services top G7 affordability ranking”. It is a headline that must have made many heads explode since it is completely contrary to the popular narrative. Looking at the data, PwC examined the affordability of wireless services for Canadians in proportion to income and compared that to other jurisdictions. In addition, PwC considered discretionary spending by Canadians, testing whether household budgets were being strained by spending on mobile plans. It turns out that household discretionary spending increased in every income quintile; at every level of income, year over year people had more money left over to spend on fun stuff, even after paying for their communications bills.

So, while we all might want our monthly bills to come down (and who wouldn’t want to pay less for everything we pay for?), the vast majority of Canadians are paying for mobile service that they felt they could afford when they signed up, and they continue to pay their bills each month.

And indeed, last week the CRTC released the results of its own survey and found that 83% of Canadians were satisfied with their current service provider, with 35% saying they are very satisfied.

So, can we please stop the empty rhetoric about “too much pressure” on the average Canadian’s household budget? It is distracting from the real question of affordability for that segment of Canadians who truly can’t afford a smart phone and can’t handle the price of a mobile voice and data plan. There is a real problem for a number of low income households. Their calls for help are getting lost amid the populist noise calling for across the board price reductions. Lowering prices or increasing data volumes for the same price doesn’t change the calculus for a household at the margins trying to choose between the luxury of President’s Choice macaroni and cheese or the yellow box No Frills version once again.

Those are the Canadians for whom we need to talk about affordability. That conversation just isn’t happening.

In the CRTC’s upcoming Review of Mobile Services, the Coalition for Cheaper Wireless Service has proposed that carriers be mandated to offer an income-tested mobile services plan with unlimited Canada-wide voice and texting, and 4GB per month of data at LTE speeds for $25-30 per month. The coalition was silent on the subject of how the low income household gets a hold of an affordable LTE compatible device. There is a lot of merit to a targeted affordability program. I am not crazy about having just one plan available for these households; I would prefer to see a portable direct subsidy for those who need the social assistance and allow them to select the best plan to meet their specific needs. It is also my view that no specific plan should be prescribed in a regulatory decision because of the potential for the market to make any plan obsolete.

Funding such a plan could be the subject of many more blog posts: should it be funded by a general tax on telecom revenues, like the Broadband Fund; or, perhaps it should be funded by social service government programs? By way of example, Ontario’s Electricity Support Program may be a useful model to examine.

In any case, we also need to work out a solution to get affordable devices into the hands of lower income households. That is a non-trivial challenge.

For many, we still need to show them the basics. There are too many who don’t see the value of a mobile broadband service at any price.

Our national digital strategies have to consider gaps in service adoption with the same focus as programs that target service availability. There are far more people who have access to service but haven’t subscribed, than there are people living in unserved territories.

Canada needs to talk more seriously about increasing adoption of digital technologies and services in lower income households. So far, there has been too much noise to hear about the real problems, let alone develop real solutions. We need to change that.

We need to talk seriously about affordable wireless.

In just under 2 weeks, the CRTC will begin the oral hearing phase of its Mobile Services Review proceeding, TNC 2019-57.

Much of the media coverage has looked solely at the potential to mandate resale of mobile facilities via Mobile Virtual Network Operators – MVNOs. At least one reporter has mistakenly described it as a “hearing on Mobile Virtual Network Operators, wholesale service providers that offer services at cheaper rates”. In fact, no it isn’t, and no they aren’t.

There are other components to the CRTC review, including an important review of whether additional regulatory measures are required “to reduce barriers to the deployment of cellular infrastructure”, given that the next generation of mobile architectures imply “a large number of small cells will be required to properly cover any given area.” The public has not been as engaged in that topic, despite the potential impact on intergovernmental relations, electro-magnetic radiation concerns, issues associated with the visual impact of antennas on every lamp post among other matters. My views on such issues are already documented from my days in 2012-13 working on my local municipality’s tower siting protocols [for example, see “We need more towers” • Sept 2012].

But the question of mandating MVNOs is indeed on the agenda.

As I read through the business plans and follow the Twitter rhetoric, I just can’t get over the feeling that there is a parallel between many of today’s proposed MVNOs and the long distance resellers of 30 years ago.

Those businesses went through two distinct waves of failures.

The first wave was triggered by a dependency on regulatory arbitrage. The CRTC mandated wholesale inputs and the marketplace determined the maximum price that could be charged. Non-facilities based service providers relied on regulation to provide a sufficient margin to enable them to eke out a living.

The second wave was a failure to add value through innovation or differentiation. The product was the same as everyone else, just cheaper – and cheaper in every sense of the word. As retail prices fell, price savings became less meaningful and margins shrank. Resellers operating with regulated access became dependent on going back for rate reviews in order to maintain viability.

Some of those businesses survived; most have faded into oblivion.

What factors allowed a handful to survive?

Consolidation was a part of the answer, and diversifying into adjacent businesses is another part. Long distance, local phone service, home internet. Adding one business to the next, relying on regulated access to facilities based carriers’ lines.

Regulated rates for resale arbitrage has meant a continuous cycle of rate-setting procedings and shifts in technology has also driven more regulatory burden. If the regulator sets rates too high, there isn’t enough margin left for to arbitrage; if rates are too low, the facilities-based carrier has insufficient margin to expand its network coverage or invest in technology upgrades. It is a delicate balance, virtually impossible for the regulator to get “bang on”.

I can’t help feeling these companies are playing like the old video game Frogger, hopping to safety by jumping onto the next passing log. For some of the proposed MVNOs, mobile is apparently just a jump onto the next business adjacency, the next log coming down the stream to provide temporary safety to avoid drowning.

We’ve been down that river before.

I’d like to think there is a better way. I have some ideas for more forward-looking value-added services that don’t have such regulatory dependencies, looking ahead to the next generation of services, instead of arbitraged resale of yesterday’s success story.

Will any service innovations be discussed when the CRTC opens its hearing on Feb 18? Or are we setting up another round in the regulatory arbitrage game of Frogger?

What happens when mobile services prices get to be too low to support carriers’ investment?

Last May, I wrote about the situation in Israel with “Low prices, high cost”.

Last week, in an article written by Finland’s public broadcaster, Yle, we see indications that “4G connections are slower than a few years ago and the local differences are huge”.

According to Yle, mobile data volumes increased sharply over the past decade, but the network has been been unable to keep up. Nationally, the average peak speed of 4G connections in Finland was virtually unchanged between 2018 and 2019. “However, looking further back, speeds have fallen sharply” from 30 Mbps in 2015, to just 23 Mbps in 2019, a 25% collapse.

The source data for the report was Finland’s own Netradar. Open Signal seems to confirm these results, showing Finland at 25.19 Mbps in 1H2017, rising barely 7% to 27.0 Mbps in 2019.

By way of comparison, over the same period, Canada went from 30.58 Mbps in 2017 to 42.5 Mbps, nearly a 40% increase and moving Canada from 13th place to 3rd fastest download experience in the world.

These speeds aren’t just found in Canada’s cities; Open Signal published a report last September that said “If rural Canada were a country, it would rank 12th in our Download Speed Experience ranking, with our rural Canadian users on average seeing faster 4G download speeds than our users in Sweden, New Zealand, France, and 73 of the other countries we reported on”. Rural Canada would rank higher than Finland.

There is a cost to low prices.

Take a look at this December 2019 report from BCG’s Centre for Canada’s Future: “In the Balance: Future-proofing Canada’s digital infrastructure to unlock benefits for all” [pdf, 16.3MB].

There is a need to balance the short term voter appeal of low prices with Canada’s bigger picture economic future that needs continued investment. Canada’s communications industry have been recognized leaders at investment per capita and capital as a proportion of revenue. As seen in in my post about Israel last May and now seen with Finland, there can be a high cost to low prices.

How long is a piece of string?

What is the price of mobile service in Canada?

The response to both questions is, “it depends.”

And personally, I don’t think that should change. It’s reasonable to ask “around how much does it cost for unlimited national minutes and global texts and say, 10GB of full speed data,” but that still should just get you to a rough estimate of pricing. There are still lots of variables at play. Things like: do you want a new device? Financed over how many months? How many other lines do you want for family members? Is your company or school or affinity group entitled to a group discount? Do you subscribe to other services (like home internet or TV)? Do you need access to cross-border or international roaming? Do you have (or want) a connected tablet as well?

Those are just some of the choices facing consumers today when they are going into a retail channel for a mobile service provider.

So, if it is hard to define the price of mobile service in Canada, consider the challenge of price comparisons between one year and the next. While the CRTC has observed that the price of service plans it surveys declined on average by 28% from 2016-2018, some consumers have the impression that the cost of wireless services are not changing much from year to year.

Data consumption is increasing dramatically each year. For many consumers, the base price they pay may not have changed from one year to the next, but a lot more services, especially data, are included in their plan. In the past 6 months or so, we have seen many Canadians sign up for unlimited plans, or plans with other forms of data overage protection, which eliminate the risk or actual pain associated with overage charges.

How do we compare prices from one year to the next?

In its 4th quarter results release, Rogers reported that nearly one and a half million mobile customers had switched over to Rogers Infinite unlimited data plans. On average, those customers are using 65% more data than they had under their old plans. Of those, 60% upgraded to higher priced plans; 40% downgraded to lower priced plans. But these plans had a significant impact in reducing ‘overage’ revenues – wireless fees incurred when using more data than the plan included. Rogers said that overage used to contribute 5% of wireless revenues. It said that the reduction overage fees was equivalent to a 2% reduction in ARPU – average revenue per user.

Once again, how do we compare prices from one year to the next?

A couple weeks ago, we noticed a promotional price plan from TELUS, offering its 20GB Peace of Mind plan for $75 per month, discounted from its usual $95 per month level. On Twitter, I asked how many people took advantage of such price promotions, or waited for back-to-school or Christmas seasonal offers. How many people actually pay the equivalent ‘manufacturers suggested retail price’?

But once again, this highlights the challenge of how to compare prices from one year to the next?

Frankly, the worst way to compare prices would be for the government to try to force service providers to offer a ‘standard’ price plan. Such regulation is the antithesis of competitive choice.

There is an alternative. In its recent report, “Understanding wireless affordability in Canada” [pdf, 4MB], PwC used proxies for prices, normalized by data consumption in order to compare average spend per gigabyte of data consumed. In its report, PwC found the average Canadian’s wireless spend per gigabyte of data consumed decreased by a compound annual growth rate of 25.9% during 2014-2017.

And this was before the introduction of national unlimited plans in the summer of 2019. In an addendum to the study [pdf, 1.6MB], PwC forecasts that the unlimited data plans will reduce the price per GB by a further 50%, between 2018 and 2020.

A normalized approach, such as that used by PwC, may be the best way to measure price performance and changes in value for the money being delivered to the consumer.

How long is a piece of string?

What is the price of mobile service in Canada? I’m not sure what price you’ll pay, but PwC says it’s been getting 25.9% better each year!