ARPU (average revenue per unit) is an important metric used by financial analysts to compare service providers. It is a good proxy for the average size of a bill, but it is not an effective way to compare prices, or to track pricing trends.

For certain, the prices of services impact your monthly bill, but there are many factors at play when looking at ARPU as a key performance indicator. Earlier this week, in RBC’s Q2/23 Review of Canadian Telecommunications Services, we read “While we believe Canadian telecom stocks/valuations continue to be sensitive to quarterly wireless ARPU growth, we continue to believe wireless ARPU as a KPI has major limitations and therefore must be sized up alongside other wireless KPIs (i.e., subscriber growth, churn, network revenue growth, margins, lifetime value per subscriber).”

RBC noted the evolution of wireless ARPU definitions over the past decade, including shifts driven by IFRS accounting standards (as I described the last time I wrote about ARPU and prices). The definition of the denominator units, the “U” of “ARPU”, has evolved from wireless subscribers to mobile phone subscribers, to now exclude tablets, hot spots and wireless home phone connections.

For the past two months, the cellular component of Statistics Canada’s Consumer Price Index has reflected dramatic decreases in prices, approaching a 15% drop year-over-year. These results aren’t really a surprise to those of us who watch the industry and have seen a nearly continuous stream of lower prices, triggered in part by Quebecor’s absorption of Freedom Mobile, and in part the integration of Shaw with Rogers.

All industry participants have significantly lower priced plans available now than a year ago. Statistics Canada says mobile prices in July 2023 were 14.8% lower than July of 2022.

So, why isn’t that price reduction reflected in the carriers’ reported ARPU? Because ARPU reflects what services consumers have chosen to pay for, while StatCan’s price index tracks, in the words of StatsCan, “pure price change”.

There are many factors that contribute to ARPU variations, such as the product mix and choices of services by subscribers.

To help understand, let’s consider monthly lease payments for a car. Let’s assume that when you last looked at cars, you had a choice between a small car, mid-sized vehicle and a full-sized model. When you considered your budget, you chose to lease the mid-sized model. Now, you start looking for a new car and you find that monthly lease prices are actually down 15% across each class of vehicle – yes, I know that this bears no relationship to the crazy increases in car prices, but work with me here.

So let’s say you find that lease prices are down 15%. You have a choice to stick with the class of car you have at a lower monthly payment, or you may decide to pay a bit more and get more car for your money. If you chose the latter – more car for the money – would you conclude that car prices haven’t gone down? Or, would you acknowledge that you are getting more for the money, and prices have gone down?

Let’s put that in terms of mobile telecom. CRTC figures show that mobile data usage has been continuing to climb, almost 20% year over year in the last reported quarter (3Q22). One national carrier indicated on its recent analyst call that the average increase in data usage by its subscribers is now closer to 50% year-over-year. CRTC figures also show that ARPU has been relatively flat.

That does not mean prices haven’t gone down or, as some commentators have suggested, that the telecom bills for all Canadians have stayed the same. It means that while many Canadians have had their bills reduced as a result of lower prices, others have elected to upgrade their service plan because with lower prices and added data allotments they see the value in upgrading to a different plan.

ARPU doesn’t measure price; Statistics Canada, Canada’s official statistics agency, does measure prices of cellular services as part of the monthly Consumer Price Index. As reported this week by Statistics Canada, mobile prices have declined nearly 15% in the past year. People are getting more service for less money – growing at a rate of about 20% per year.

ARPU simply isn’t the same as looking at prices. Instead, ARPU reflects different consumer choices responding to changes in price.

Mobile prices are lower than ever before. In these inflationary times, that is something to celebrate.

Digital inclusion needs more than just money.

Like many countries around the world, various government departments and agencies in Canada allocate funding to support building affordable broadband access facilities. We have a national target: for every Canadian to have the ability to access a broadband service with speeds of at least 50 Mbps down, 10 Mbps up and unlimited data. The goal is for such universal access to be available by the year 2030. Simple enough.

It is a formidable engineering challenge to get broadband connections to every household in Canada. But, it is a solvable challenge.

On the other hand, it will take multi-disciplinary efforts to try to get every Canadian to actually make use of the broadband services at their doorstep. And it isn’t clear to me that we will.

In 2016, Canada set an intermediate target for 90% of Canadians to have access to 50/10 unlimited service. The CRTC shows this milestone was achieved with 91.4% having access at the end of 2021.

Despite the relative simplicity of the objective, it is often misunderstood. Some people think the objective is for everyone to subscribe to a service with at least 50/10 speeds. As a result, we have seen people look at community speed tests and conclude that observed average speeds below 50/10 demonstrate shortcomings in infrastructure. That simply isn’t true. Some people may choose to subscribe to a lower tier of service. As well, many speed tests are unable to measure the speed of the service being delivered to the home.

According to the latest Canadian Internet Use Survey, 94% have an internet connection at home, and of those, roughly 7 out of 8 subscribe to a service with speeds exceeding 50 Mbps down, 10 Mbps up.

Among Canadians under the age of 45, 99.2% report using the internet. That declines to 82.6% among Canadians over the age of 65. Still, that is up from 76.3% just two years earlier.

While most government programs are designed to stimulate supply, I’d like to focus on digital inclusion. How do we stimulate demand for broadband? How do we encourage people to subscribe to broadband, and to increase their use of digital services?

A recent report from the Information Technology and Innovation Foundation (ITIF) calls for “dramatic reforms to old [broadband] programs” in the United States. “Federal broadband subsidy programs are a mess of redundancies and have spent too much money to have failed to close the geographic digital divide.”

Earlier this week, the FCC announced [pdf, 168 KB] that its Affordable Connectivity Program has connected more than 20 million households. Still, according to ITIF, “Subsidies alone will never close the whole digital divide. Individuals will have nonfinancial reasons for not connecting, which will require targeted digital inclusion efforts, not just spending more money.”

As we have discussed before, studies show that low prices aren’t enough to get people to sign up.

Canada continues to make significant progress ensuring all Canadian households have access to a broadband connection. However, building broadband access is only part of solution for digital inclusion.

We need more multi-disciplinary research to understand and solve the non-price factors inhibiting people from connecting to broadband services that are at their door.

On Friday, Innovation, Science and Economic Development Canada (ISED) released “Spectrum Outlook 2023 to 2027”, an outline for management of Canada’s radio spectrum over the next five years.

The last edition of ISED’s spectrum outlook was released in 2018. “The 2023 Outlook outlines ISED’s spectrum plans to support wireless telecommunications services in Canada, with a focus on commercial mobile services, satellite services, backhaul applications and licence-exempt applications.”

While there are a number of policy themes that informed the development of the Spectrum Outlook, 5 are highlighted in separate chapters of the report:

1. Spectrum as an economic driver and enabler of Industry 4.0
2. Rural connectivity in the wake of COVID-19
3. Indigenous connectivity
4. Spectrum, wireless technology and climate change
5. Competition and wireless affordability

The department also said that it plans to “modernize” its fee policies. “Licence fees play an important role in incentivizing more efficient use of spectrum. Improvements to licence fee policies can potentially address growing demand while also supporting new and emerging licensing techniques such as dynamic spectrum access.”

The department sees increasing demand for data, as well as the number of connected devices, continuing to grow in the coming years, impacting the demand for spectrum. It sees low Earth orbit satellite technologies as transformative for the satellite market, driving demand for faster speeds and greater capacity in higher frequency bands.

The spectrum outlook also recognizes new applications and technologies emerging for Wifi, coupled with Internet of Things (IoT), driving demand for licence-exempt spectrum.

I noticed that ISED explicitly recognized the need for wireless technologies to be deployed in certain communities to reach the government’s target of 100% broadband access by 2030.

74. Most unconnected Indigenous communities are located in rural and remote areas that are challenging to connect using traditional wired solutions. In these areas, wireless solutions will be important to reach the Government’s target of 100% connectivity by 2030. To enable wireless solutions, access to spectrum is required.
…
77. Spectrum is also essential for satellite-based connectivity solutions. In many Indigenous communities in northern Canada, satellites not only play a vital role in providing telecommunications and broadcasting services, but also sometimes provide the only means to reach a community. ISED is considering the role that emerging technologies such as LEO satellite technologies can play in connecting communities where fibre lines may not be feasible.

The Outlook concludes with a caveat. “The 2023 Outlook reflects ISED’s current direction and efforts to provide additional spectrum for commercial mobile services, licence-exempt applications, satellite services and backhaul applications.”

What is the appropriate role for politics in the regulatory process?

Some might answer “none”. Political interventions in the regulatory process can lead to substantial distortions.

Seventeen years ago, in its report [pdf, 1.6MB], Canada’s 2006 Telecom Policy Review Panel wrote:

It is the proper role of government to establish policies and that of regulators to implement the policies and to develop the more detailed rules necessary to provide certainty as to how the policies will be applied. Comments submitted to the Panel during this review expressed broad support for the principle that the government should develop policies in the telecommunications sector. Parties also supported the principle that regulators should implement those policies in an independent, professional and transparent manner.

In 2006, the panel observed “Canada appears to be the only OECD country whose telecommunications legislation empowers government to do both”, providing “advance directions on policy matters” as well as “to review and vary, rescind or refer a decision back to the regulator on policy grounds”. That panel recommended repealing the cabinet appeal process, saying “the Panel believes the combination of the policy direction power with the Cabinet review power has the potential to undermine the integrity of the CRTC’s independent regulatory process.”

A decade and a half later, the Broadcasting and Telecom Legislative Review (BTLR) Panel did not make such a recommendation in its January 2020 report. Instead, the more recent review panel sought to rationalize the process and timelines for appeals under the Telecom Act and Broadcast Act. “While the Governor in Council (GiC) has rarely exercised its power to review, private parties have nonetheless made frequent requests when they are dissatisfied with a CRTC decision. The possibility of an appeal to the GiC does provide an important safety valve in cases in which the CRTC’s decision deviates from the government’s policy view.” Still, the panel stated that Cabinet’s powers should not include the ability to vary the decision, simply providing an ability to let the CRTC’s determination stand, reject the decision or return it to the Commission for reconsideration.

I recently wrote about the various channels available to appeal a decision by the CRTC.

As noted by both review panels, a number of other countries empower the executive branch of their government to issue policy directions. No other jurisdiction “couples this power with the ability to review a sector regulator’s decision: Canada is alone in allowing the government to direct its communications regulator, and to perform reviews of the regulator’s decisions.”

Over the past few years, that safety valve has been put into action, with Cabinet telling the CRTC to take a fresh look at CBC’s license last September (OiC 2022-0995), and urging the CRTC to consider that “Canada’s future depends on connectivity” in its review of the wholesale wireline rates decision (OiC 2020-0553).

What characteristics of Canada’s communications regulatory structure have made the appeal to Cabinet such an important piece of the regulatory process?

A British Parliamentary Committee has recently released a report discussing Digital Exclusion [pdf, 1.4MB] in the UK. The intent of the report was to call attention to the “political lethargy” in the UK that is undermining an ambition to make the UK a technology superpower.

However, the report was criticized as being “vague and superficial” in a commentary by Telecoms.com editorial director Scott Bicheno. He observed inconsistencies, such as a claim in the Committee’s press release that there are 7M households without broadband or mobile internet access. The report itself says the correct figure is 1.7M households. The report uses an Ofcom study that found 6% of UK households (which corresponds to 1.7M of the UK’s approximately 28M total households) had no internet connection, whether fixed or mobile. One can only presume the figure in the press release is just wrong, perhaps driven by a typo.

The Telecoms.com commentary concludes with a reference to the UK’s efforts to create an Online Harms bill. The article finishes with a bite. “If this clumsy legislation is anything to go by it seems the first focus for improving digital skills should be the government itself.”

Unfortunately, Canada’s Parliamentary Industry Committee (INDU) has not really distinguished itself with exemplary digital literacy as I have discussed many times in the past.

In my view, the parliamentary committee review process is broken. That view was also expressed last fall by University of Ottawa professor Michael Geist. Is there a better example than the Heritage Committee review of Bill C-18, the Online News Act?

Witnesses are frequently given too little time to provide meaningful responses to questions from Members of Parliament. Frequently, those questions seem designed mainly to create transcripts for campaign materials in the next election, hoping for a “gotcha” moment that can be editted into a partisan soundbite for Twitter or Facebook.

It is interesting to see that the UK parliamentary committee report on Digital Exclusion can be as poorly crafted as some INDU reports I have critiqued here in Canada (eg. this one). Indeed, it is sad that so little illumination seems to emerge from so many committee review processes.

As Professor Geist wrote, “I don’t have any obvious solutions. The reality is probably that unless Ministers prioritize accountability and MPs show some independence, nothing will change.” On that note, it has been just over 2 years since I highlighted CRTC funding of a purveyor of hate. The Department of Canadian Heritage ignored warnings until the story went viral. No one has been held accountable. Not one dollar has been recovered. The Heritage Committee review of the case resulted in no report, no admonishments, no accountability. The Ministers responsible for the funding, Rodriguez and Hussen, have retained seats at the Cabinet table.

Of course, there have been exceptions where Committee review created better legislation. The Standing Committee on Citizenship and Immigration recently concluded a productive review of Bill S-245, “An Act to amend the Citizenship Act (granting citizenship to certain Canadians)”. But, the Committee review process there was nearly derailed by partisan filibustering.

The Parliamentary Committee review process is currently broken.

Why are some committee reviews more productive than others? Why has such success been the exception, not the rule?

Will increased digital engagement drive increased partisan polarization or less?