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.
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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.
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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?

Earlier this week, I wrote “What Canada can learn from T-Mobile / Sprint”, providing highlights relevant to Canadians from the US District Court decision that has paved the way for approval of the merger of the number 3 and 4 US mobile carriers.

It is worth highlighting an opinion piece from Tuesday’s Ottawa Citizen written by Richard Feasey, a panel member at the UK’s Competition and Markets Authority. In “Canada should learn global lessons on wireless regulation”, we are told the CRTC “risks not only being out of step with the rest of the world but moving off in the opposite direction.”

His OpEd is based on a Summary Report [pdf, 200KB] prepared for Rogers as part of the CRTC’s Mobile Review proceeding. The main findings of that report are:

1. Regulation of wholesale services for MVNOs of the kind that the CRTC is proposing (to address a ‘market failure’) has been very rare in the past and is done in only one country today, Norway, in which one carrier has almost 60% market share.
2. The vast majority of reduction in consumer prices in European wireless markets over the previous decade should be attributed to reductions in costs that have been enabled by investments in new network technologies, not to changes in the degree of retail competition, such as might arise from MVNOs. This has led European regulators to conclude that the risks to investment from regulating for MVNOs outweigh any benefits that might arise.
3. Where regulation has been attempted in the past, there is no good evidence that having more MVNOs in a wireless market has led to lower prices, either for consumers in general or for those on low incomes. European competition authorities have stopped relying on MVNOs to preserve competition following wireless mergers as a result.
4. Evidence from the rest of the world suggests that regulation of wholesale services for MVNOs would do little to benefit Canadian consumers, including those on low incomes, but would risk the network investment which is responsible for most of the improvements in wireless services that consumers experience. Most regulators in the rest of the world would endorse the CRTC’s efforts to promote competition between facilities-based carriers, since this drives investment and allows MVNOs to obtain wholesale services for themselves on proper commercial terms.
5. By proposing to change direction and focus its efforts on regulating to promote entry by MVNOs, the CRTC appears to be both out of step with the rest of the world and willing to disregard the lessons other regulators have learned over the past 20 years.

The oral phase of the CRTC hearing continues through the end of February.

Yesterday, Michael Geist released a podcast that plays more as an infomercial to promote Ting Mobile, a Canadian based company that operates as a Mobile Virtual Network Operator (MVNO) in the United States.

According to the podcast, Ting’s services ride on the Sprint network in the US, but claims that Bell, TELUS and Rogers have not been willing to ‘play ball’ with Ting in Canada. It is not clear whether Ting attempted to strike a deal with the smaller players in Canada, just as it did in the US. Indeed, later in the podcast, Noss says that only ‘2 of the 3 turned us down’. There was no follow-up asking about the third.

Ting’s principal, Elliott Noss, says that the prices Canadians pay are ‘heinous’, yet an examination of Ting’s own prices shows that Canadians already pay less than what Ting charges its customers.

I took a look at the CRTC’s service baskets, defined in its Communications Monitoring Report, and checked Ting’s rates versus offers publicly available on Canadian service provider websites.

At the CRTC’s price basket level 1, Ting would save Canadians 13 cents per month. For every other basket, Ting isn’t close.

Noss made a number of other assertions that were unchallenged by Professor Geist, such as a statement that many countries have regulated mandatory access to MVNOs. This is simply not true. While the podcast is certainly entertaining to listen to, too frequently, the guest’s assertions are left unchecked and simply don’t stand up to scrutiny.

Noss claims [around the 28:30 mark in the podcast]: “Michael, I will tell you right here on this podcast, look we’re an MVNO in the US; it’s 10 times the market. If I could have right now an offer from the CRTC for liberalized MVNO on exactly the terms that we want and we couldn’t enter the market, I would take it in a second.” In reality, Ting operates in the US where MVNO’s are not mandated by the regulator and it offers services at prices higher than what Canadians are already paying.

The CRTC should be cautious and Commissioners should deeply probe assertions that are made later today when Ting’s parent company, Tucows, appears. And frankly, we should demand more critical inquiry from our academics who are asked to inform Canadians on these issues.