Critical thinking

I think that the greatest skill I picked up in university was critical thinking, gathering evidence, facts, observations and forming a judgement by the application of rational, and unbiased analyses. I learned to be skeptical of so-called conventional wisdom and I have become the family’s resource for urban legend mythbusting.

That is a role that keeps me busy. There is a lot of misinformation masquerading under academic imprimatur in newspapers and online journals.

An article in yesterday’s Globe and Mail included a line that caught my eye. “A 2022 study found that Canada’s wireless rates were the second most expensive in the world – seven times more expensive than Australia, 25 times more expensive than France and Ireland and 1,000 times more expensive than Finland.”

Canadians complain about mobile prices, but does anyone in Canada actually believe that they are paying one thousand times more than what they would pay in Finland?

In fact, we don’t.

So how did the author, a university professor and Academic director for University of Toronto’s Victoria College, make such a claim? The online version of the article links to a study from the widely discredited Rewheel/Research, criticized as “a prime example of misinformation on the Internet.”

Three years ago, a report signed by two dozen academics and economics experts detailed factual errors and logical inconsistencies in Rewheel’s report, and concluded Rewheel’s approach is fundamentally flawed. “The Rewheel story is easy to understand. It is also completely wrong… Rewheel’s rankings are of no value in comparing prices and assessing the level of competition in wireless markets… Rewheel’s assumptions are unsupported and create distorted rankings.”

Yet, the professor had no trouble writing that Canada’s wireless rates were 1,000 times more expensive than Finland. Last year, I was paying $85 per month for my plan (my prices have dropped considerably earlier this year). Does anyone think you can find a plan for less than 10 cents per month in Finland?

Critical thinking.

The article is also flawed when it states,

This spring, Industry Minister François-Philippe Champagne approved Rogers’s $26-billion takeover of Shaw, further consolidating its dominance in an already concentrated telecom space. Proponents of the deal, including Mr. Champagne, argued that it could “drive down prices across Canada,” despite reducing consumer choice in Alberta and B.C.

In fact, there has been no reduction in consumer choice in Alberta and British Columbia. The logo on cable and internet bills for Shaw subscribers may have changed to Rogers, but Rogers had never been a wireline services option in those provinces. Shaw’s wireless services were spun out to Quebecor (Videotron), a company that did not previously operate in Western Canada. Not only was there no reduction in consumer choice, but Freedom Mobile is now owned by a company that is willing and able to invest in more competitive technology.

Indeed, the finding by the Competition Tribunal, a judicial body, stated [pdf, 1.25MB]:

It bears underscoring that there will continue to be four strong competitors in the wireless markets in Alberta and British Columbia, namely, Bell, Telus, Rogers, and Videotron, just as there are today. Videotron’s entry into those markets will likely ensure that competition and innovation remain robust. … Moreover, instead of the two firms (Telus and Shaw) that offer bundled wireless and wireline products in those markets today, there will be at least three (Telus, Rogers, and Videotron).

The strengthening of Rogers’ position in Alberta and British Columbia, combined with the very significant competitive initiatives that Telus and Bell have been pursuing since the Merger was announced, will also likely contribute to an increased intensity of competition in those markets.

It was difficult for me to take the rest of the article seriously when the sections on telecom were so seriously flawed.

As students return to school this week, be prepared to challenge instructors and lecturers. Carefully examine references and resources to test for credibility.

Critical thinking is the most important skill I developed in my university days.

Welcome back to school.

Understanding Canada’s digital divide

For almost 7 years, I have suggested that we need more research to improve our understanding of Canada’s digital divide. A couple of weeks ago, I wrote “We need more research to understand and solve the non-price factors inhibiting people from connecting to broadband services that are at their door.”

A recent report, “Views of the Divide: An Investigation into Canada’s Wireless Divide”, provides a good starting point to help policy makers become more attuned to the kinds of barriers faced by individuals who are not currently accessing “constant connectivity”.

The study [pdf, 1.3 MB], undertaken by Vivic Research (commissioned by TELUS), “combines quantitative data in Statistics Canada’s 2020 Canadian Internet Use Survey (CIUS) with qualitative interviews with organizations working with individuals experiencing the wireless divide in Canada”.

In addition to making a number of interesting recommendations for action, the report calls for some improvements in the data being gathered by Statistics Canada in CIUS.

  • Increasing access to wireless programs. Interviewees highlighted the usefulness of industry programs that make wireless connectivity more accessible (such as TELUS’ Mobility for Good program, which is the only mobile-specific subsidy program we found in our search). However, they also stressed that these programs may be inaccessible to some who need them because they are often tied to receipt or participation in government programs, like the Guaranteed Income Supplement for older adults. These government programs may have high administrative barriers for some potential recipients, which has knock-on effects for accessing wireless programs. Expanding access to these wireless connectivity programs my modifying their eligibility criteria may increase their effectiveness.
  • More prepaid and pay-as-you go options. For unhoused individuals and those living in unstable housing, wireless serve may in inaccessible because they do not have a stable address. Additionally, people with poor or no credit may also face barriers to accessing wireless service offered though a subscription. Increasing options available for prepaid and pay-as-you go plans in the market would enhance access to wireless connectivity for underhoused, low-income and new Canadians in particular.
  • “Pull” digital skills development. Data from the CIUS show that there is scope for innovation in how we support people in developing digital skills. People in the divide are less likely to pursue learning opportunities than people outside the divide, and when they do they tend to rely on informal instruction from friends and family. Learning supports could be retooled to emphasize “pulling” rather than “pushing” skills development by tying learning opportunities to the current needs of recipients. This approach could look like providing technology or training to people that require connectivity to access support programs, helping them fulfil a concrete need rather than build digital skills in the abstract.
  • Evaluation. Full evaluations of both public and private programs addressing the wireless divide, such as TELUS’ Mobility for Good program and the Connecting Families Initiative from Innovation, Science and Economic Development Canada, should be undertaken to establish their effectiveness and identify specific areas of improvement.
  • Measurement of the wireless divide. A method for measuring the wireless divide over time should be developed to enable policy makers and industry partners to set goals for closing the divide and track progress.
  • Surveys. Unhoused individuals and people with unstable housing are likely not captured in the Canadian Internet Use Survey. However, information on wireless connectivity of these individuals could be gathered as part of point-in-time homelessness counts. Furthermore, questions could be added to the Canadian Internet Use Survey that would enable researchers to gain more insight into the potential drivers of the wireless divide and to define the wireless divide more precisely.

It is gratifying to see progress in the development of research to improve our understanding of factors inhibiting digital adoption.

Ending regulated cross subsidies

In my view, it is long past the time for ending regulated cross-subsidies.

Three years ago, I wrote “Cross subsidies in a competitive marketplace”. Nearly a decade ago, I wrote “The future of communications cross subsidies”, noting “It used to be so much easier to manage a system of cross subsidies for communications.”

In the old rate-regulated monopoly days, if the regulator wanted consumer services to be subsidized by businesses, rural services to be subsidized by lower cost urban rate-payers, basic local phone service subsidized by discretionary long distance services, Canadian TV production subsidized by cable TV distributors, it could just issue an order to make it so. “So let it be written; so let it be done.” The rates were regulated to ensure service providers had an opportunity to make a resonable return on their investments; consumers had nowhere else to go to arbitrage artifically elevated rates.

As I wrote before, there was a political attractiveness to the communications regulator engineering payment plans for these social benefits. Effectively, these cross subsidies were a hidden tax on communications services, managed off-the-books outside the government tax system. The government could take credit for providing social benefits (lower consumer rates, lower rural prices, increased Canadian content development) without politicians assuming any blame for what would have otherwise been higher taxes to fund these social benefits.

Then, along came competition. Thirty years ago, when long distance competition was first launched, there were explicit fees charged beyond the costs of interconnection – “contribution” (as though it was a charitable donation) – to offset the loss of the excess profits used to subsidize residential phone prices. Rate rebalancing largely reduced these requirements, and a recent CRTC consultation (2023-89) is looking at the evolution of the CRTC’s Broadband Fund.

Today, virtually every segment of the communications industy is competitive. Telecommunications services are provided by countless service providers in Canada and abroad, using multiple technologies, rendering obsolete those regulations that presumed telecommunications over traditional twisted copper wires. Two-way voice (and video) communications are just another app, using analog or digital signals riding on copper, fibre, coax, wireless, or any internet protocol connection. Video services are delivered using regulated broadcast distribution systems or using over-the-air transmission, and people are subscribing to a seemingly infinite array of global streaming services.

How can a system of cross subsidies survive, when consumers are able to choose from service providers that aren’t encumbered by such additional regulated costs?

For that matter, how can traditional broadcasters compete, when there is an imbalance in the burden of regulatory obligations? In a competitive environment, I would suggest that imbalances in regulatory obligations are another form of cross subsidies.

Over the past month, the issue of cross subsidies has come up in two different contexts.

In the first, the CRTC is requiring Rogers to offer a wholesale service to its competitor, Videotron, saying that the financial shortfall can be made up “through other telecommunications services,” all of which are competitive.

In the other instance, an opinion piece in the Globe and Mail says people should ignore concerns about the financial viability of broadcasters because the parent companies are making lots of money in other lines of business:

BCE (which owns CTV, and Noovo in Quebec), Rogers (CityTV) and Quebecor (TVA) complain that competition from CBC/Radio-Canada for scarce advertising dollars is hurting their conventional television networks. Yet, they can hardly plead poverty. Their wireless businesses generate billions of dollars in profits and enable them to cross-promote their networks’ news content on customers’ phones.

It is a ridiculous argument.

A company may choose to subsidize one line of business, if there is a promise of growth and profitability in the near-future. But, if the money-losing line of business is spiralling downward, with its main source of revenue under threat from competitors operating with fewer regulatory obligations, the company will either have to cut costs, find new sources of revenue, or try to shed some of those assets.

The idea that a private sector business should perpetually subsidize a money-losing line of operations with revenue from stronger lines of business makes no sense. A rational business will restructure, or shut down those units that have no opportunity to climb out of the red.

Cross subsidies are simply not sustainable in a competitive environment. Such schemes also cut against Canada’s stated objective of lower wireless prices and increased investment to expand coverage and improve quality. As Dvai Ghose recently wrote in the Globe and Mail, “While the CRTC may have good intentions, it demonstrates naiveté when it comes to the private sector, and the consequences could be incredibly destructive for wireless investment and quality in Canada, risking our ability to compete globally.”

How many contortions will legislators and regulators perform in order to capture all communications services within the so-called “system”?

It is long past time to end Canada’s system of regulated cross subsidies and the market distortions caused by trying to maintain them.

ARPU doesn’t measure price

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

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.

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