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!

Contradicting the popular narrative, a recent set of reports from PwC Canada puts Canadian unlimited mobile wireless plans atop affordability rankings among the G7 countries.

In December, PwC released “Understanding wireless affordability in Canada” [pdf, 4MB] and last week, it released an addendum, “Impact of unlimited data plans on affordability” [pdf, 1.6MB]. According to the reports, “unlimited plans represent a significant increase in value for the average Canadian consumer. By 2020, the price paid per GB of data is estimated to decline by 50% compared to 2018 levels, and by 38% compared to 2019 levels.”

PwC says that Canadian consumers are getting access to the top ranked unlimited data plans among the G7 countries, based on four key dimensions measuring user experience: speed; latency; price per GB; and, access. According to PwC, “Canada performs consistently well across these key dimensions, and performs particularly well on speed.”

PwC’s December affordability study was motivated by consideration of the 7.7% annual growth in Canadian household expenditures on wireless devices and services (between 2010 and 2017) versus much lower increases in disposable income.

To provide a holistic view of wireless affordability in Canada, this report examined a number of aspects related to the overall affordability of consumer wireless in Canada, including:

1. The changing pattern of household expenditures, as wireless data use is enabling a different delivery of products and services – including the substitution of select historic spend categories by wireless.
2. The assessment of wireless affordability in Canada, as measured by recognized affordability metrics.
3. The affordability of wireless services for Canadians in proportion to their income relative to other jurisdictions.

Among the results, PwC found that wireless expenditures have reduced spending on such items as landline phone, postal, and photo products and services, as well as audio, video and printed reading materials. In addition, citing ride sharing and alternative accommodation services, PwC says wireless services have “been instrumental in the growth of a number of new businesses that have directly or indirectly improved access, reduced search costs and enhanced choices for the Canadian consumer.”

PwC found that, as mobile video and social media usage increased, the average spend per gigabyte of data consumed dropped at a compound annual rate of nearly 26% between 2014 and 2017. “These trends indicate that value for money from the wireless expenditure increased.” PwC forecasts that the unlimited data plans will reduce the price per GB by a further 50%, between 2018 and 2020.

As evidence that wireless expenditures did not impose an unreasonable burden, PwC observed that across every income quintile, recreational expenditures increased faster than the total expenditures (non-discretionary, wireless, and discretionary expenditures). “It is evident that wireless expenditure did not impose an unreasonable burden on the average Canadian household’s non-discretionary expenditure across income quintiles”. Further, PwC measured affordability against the target threshold from the Alliance for Affordable Internet (A4AI) and found the threshold was met across all income quintiles in 2018.

Quoted in an opinion piece by Rita Trichur in the Globe and Mail, Innovation, Science and Economic Development Canada says “Cellphone and wireless bills are putting too much pressure on Canadian household budgets.” Statistics Canada data simply does not support that assertion. If household budgets were under “too much pressure,” how could recreational spending be increasing across every income quintile?

For the purpose of international benchmarking, PwC compared Canada to the US, Australia and the UK. It found that an average Canadian household spent 1.6% of its disposable income on wireless, less that what was spent by an average US household or Australian household. PwC said that UK households spent 1.3% of disposable income. Looking at the data by income quintile, wireless service was more affordable in the UK across all income quintiles; compared to Australia, wireless was more affordable in Canada across every income quintile except the lowest.

In my year-end wrap-up, I wrote that there are indeed some Canadians unable to find an affordable device or service plan that they may need to participate in today’s economy. We know these technologies can help find a job, maintain health, be in touch with families and friends. In late October, we learned that nearly 1 in 5 Canadians in the lowest income quartile still doesn’t have broadband connection at home.

But, we also know that in many cases, it isn’t just an issue of affordability; the experience learned from targeted programs that deliver low-cost connected computers have helped us to understand that there are a number of factors – not just lower prices – that inhibit adoption of communications technologies among certain demographics.

As I have written in the past, most government programs continue to target increasing “supply”, extending the geographic reach of services.

We need to focus on strategies to drive “demand”: increasing adoption rates among groups that could subscribe, but have not. That is a problem across all geographies, and perhaps more pronounced in urban markets. That should start with developing a greater understanding of those individuals and households on the wrong side of the digital divide.

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An earlier version of this article appeared last week on National Newswatch.

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