Despite mobile industry prices that have fallen more than 30% over the course of the past summer, Innovation, Science and Industry Minister Navdeep Bains is looking for further reductions of another 25%, warning “If these targets are not met within two years, the Government will take action with other regulatory tools to further increase competition and help reduce prices.”
During last year’s election campaign, the Liberal party promised 25% reductions in mobile prices and it showed sample rate plans of $87.32 for a 5 GB plan and $75.44 for a 2 GB plan. The party promised to bring those rates down to $65.49 and $56.58 (respectively), when elected.
But in an announcement today, Minister Bains said that the January 2020 market prices for a 6 GB plan are $60, and $50 for a 2 GB plan, more than 10% lower than the campaign targets.
Rather than claiming victory, the Minister has announced new targets of a further 25% price reduction over the next two years. The Minister has set a target of $37.50 for the 2 GB mobile plan, more than 50% reduction in the price, when compared to the Liberal’s campaign promise.
In a note to investors earlier in the day, TD Securities Equity Research wrote: “our view is that much of the testimony at the [CRTC’s Wireless Review] hearing proved that pricing in Canada is very reasonable relative to excess geographic and spectrum costs incurred by wireless carriers in Canada. Subsequent to heavy efforts by the government to facilitate competitive tension from facilities-based new entrants in every region, we struggle to see a problem that needs to be fixed.”
We agree. The CRTC is in the midst of its review of mobile services. The intervention in the marketplace smacks of playing a populist political card at the expense of policy leadership.
With billions of dollars in funding needed for 5G network upgrades, rural expansion and targeted connectivity programs for low income households, global capital markets will be looking for more consistency from Canada’s regulatory and policy leaders.
In an environment of already turbulent global capital markets, the last thing Canada should be doing is playing Calvinball with its telecom sector.
The CRTC issued a press release concurrent with its decision to lower internet prices in the far north.
The press release offers a quote from Chairman JP Blais:
Although we recognize the exceptional situation that exists in Northwestel’s territory, we must not let these challenges hinder the development and affordability of telecommunications services in the North. Access to reasonably priced Internet services plays an essential role in the North’s economic and social development. With this decision, we are reducing the gap between what consumers pay for Internet services in the northern and southern parts of Canada.
I suspect – perhaps hope – that more of the media looks at the dissenting opinion appended to the decision and seeks more comment from CRTC Commissioner Candace Molnar who delivered a brutal critique of the Majority:
Citizens and regulated entities alike deserve a Commission that is fair, predictable, and transparent â and one whose decisions are based upon the evidence of the proceeding. In this instance, the Commission stated that it would determine the appropriateness of the stand-alone surcharge based upon detailed costing information. The detailed costing information filed in this proceeding clearly indicates that a stand-alone fee is warranted, yet the Majority deny the surcharge.
At a minimum, the decision of the Majority is not predictable.
CalvinballWhy the strong words?
As Commissioner Molnar enumerates, over the past few years, the Commission has put Northwestel under a microscope because the CRTC determined the company “was not meeting the needs of Northern consumers.” There were two comprehensive reviews of Northwestelâs operations, a denial of request to increase local telephone services prices and the CRTC opened the market to competition. Commissioner Molnar has “been firmly in support of the initiatives undertaken by the Commission to address issues related to service quality, availability, and affordability in the North.” But she disagreed with the 10-30% reductions in the price of consumer internet services that were ordered by the majority – reductions in prices that were already below cost.
The majority decision by the CRTC says “it must take exceptional measures in this case to ensure that residential Internet service is provided at reasonable rates across all of Northwestelâs operating territory.”
“Reasonable” is a term of art in the regulatory world. According to Canadian Telecommunications Law and Regulation, “[n]ot only may the rate being charged for a particular service be unreasonably high, it may also be unreasonably low. While a low rate will not be objectionable to the customers receiving that service, … the rate shortfall attributable to the charging of unreasonably low rates for one service may lead to the imposition of unreasonably high rates on the customers of other services.”
The below cost rates were characterized in the proceeding as “predatory”. As acknowledged by the CRTC decision:
SSi submitted that Northwestelâs proposal for below-cost retail Internet service rates – that is, rates for which the price floor test is not met – and comparable service at comparable rates across Northwestelâs operating territory effectively amounts to predatory pricing. SSi added that such pricing has forced it to shut down retail Internet service in a number of communities where it could not compete, despite having previously established a significant broadband market presence in those communities.
Competitors get shut down, Northwestel shareholders are effectively ordered to subsidize broadband internet to the entire geographic region, regardless of financial needs.
“The Commission acknowledges that these changes may have a negative effect on competition for these particular services, but considers that it must take exceptional measures in this case to ensure that residential Internet service is provided at reasonable rates across all of Northwestelâs operating territory.”
In other words, the CRTC is dispensing with its customary rules for rates in order to achieve a government political objective without impact on the federal budget. As regular readers know, I prefer to see targeted subsidies based on need, rather than perpetuating the patronizing politics of presuming the need for rural and remote services to be offered below cost, regardless of means.
It is hard to imagine why there would be any incentive for Northwestel to invest in continued service improvements, capacity expansion or geographic reach. At a certain point, the shareholders may have to assess the returns being delivered from the asset.
Regular readers know that I am not a fan of the ever changing rules for the Canadian wireless sector. I have called it a Calvinball approach on more than one occasion. Policy makers just seem to be making it up as we go, reacting instead of leading.
In April, Minister Moore said, “I wish we had moved on this file, on the roaming fees, much sooner, because it actually may have had a material impact on the scene right now in Canadaâs wireless world.”
The fact is that all of these issues have been considered numerous times in public consultations associated with the wireless framework. The Minister’s regret is a powerful statement – one that may come under consideration in the litigation over the collapse of Mobilicity.
Agree with the need for intervention or not, legislative changes on roaming fees may be another example of half measures that might have benefited from a more complete review, had the enabling legislation not been buried in the middle of a budget implementation bill. For example, the roaming rates established by the legislation did not contemplate new entrant subscribers making out-of-country long distance calls. How would that impact overall consumer wireless rates?
But, as described in an article in the Globe and Mail on Monday, it isn’t just the wireless telecom world that sees on-the-fly policy making. Broadcasting regulation is now also being subjected to political interference.
In a speech delivered last Monday, the Prime Minister said his government was helping Canadians by letting them pay only for the channels they want, and stated he would oppose any âtaxâ on services such as Netflix and YouTube. Those are popular positions, which is presumably why an election-ready Harper is taking them without first letting the CRTC finish its work. But they are also self-contradictory, and based on ignorance of the TV business.
Next week, the CRTC will open the oral hearing phase of its review of wholesale mobile wireless services proceeding, perhaps exploring what other improvements can be made to the competitive wireless sector. Will tweets from observers of next week’s CRTC process trigger more regulatory interference from the government side of the Ottawa River?
As we prepare to celebrate our nation’s sesquicentennial, how do we envision Canada’s communications marketplace in 2017?
What is our vision?
What are the measurable objectives that we can set to ensure that we get there? What are the strategies that we need to put in place in order to achieve those objectives? What tactics are consistent with those strategies?
That should sound familiar. A year ago I wrote “Set clear objectives. Align activities with the achievement of those objectives. Stop doing things that are contrary to the objectives.”
Indeed, the Netflix challenge of the CRTC’s authority gives rise to another reason for the government to create an expert panel, charged with exploring the role of broadcast and telecom regulation in a complex digital era. Moving forward on such a panel would provide an opportunity for the new media jurisdictional crisis to subside and allow issues associated with digital media regulation to be explored by a panel of those able to consider the matter with calm consideration. Naming such a panel now would simultaneously provide an appropriate political cover for a government that could not want such headlines when it is facing an election next year. Above all, we are long overdue for such a comprehensive review. The report would undoubtedly be delivered post-election.
This evening marks the start of Rosh Hashana, the Jewish New Year, as we mark the start of the year 5775. It is a time for reflection, for reviewing what we did wrong over the past year and seeking guidance for doing better in the year ahead.
My office will be closed later this afternoon and on Thursday and Friday to mark the holiday.
The news that Wind Mobile withdrew from the 700 MHz auction on the eve of its start was a deeply disturbing signal that Canada’s telecom policy framework is broken.
Rita Trichur, in the Globe and Mail, wrote “VimpelCom decided not to fund Windâs purchase of 700-megahertz spectrum because of ongoing conflict over Ottawaâs foreign investment rules that, to date, have prevented it from taking formal control of the small Canadian carrier.”
For months I have been suggesting that it is time for a reset. As I said to IT World Canada, âUnfortunately Canadians are paying the price for ⊠rules that are simply too unstable, inconsistent and at times incomprehensible.â For too long, our telecom policy framework has looked like the Calvinball rulebook.
As I told Business In Vancouver: “Wind’s withdrawal should be ‘a wakeup call’ that Canada’s telecom policies aren’t working.”
He added it calls into question the Harper government’s telecom policies, including its rules around foreign investment in the Canadian wireless space.
As he points out, Vimpelcom-Wind was the only new entrant in the Canadian wireless space that already has spectrum and the financial wherewithal to acquire more.
“These guys have spectrum, they have an opportunity to be the only new entrant bidder in Canada’s three most prosperous provinces and yet they can’t make the business plan work to continue investing in Canada.”
I told Mobile Syrup this situation is âan unfortunate outcome of a wireless policy where the rules are changing too frequently and are leading to an unstable investment climate.â
We are long overdue for the 5-year review of our telecom policy, recommended by the Telecom Policy Review Panel. We need to understand the market landscape, take stock of the conditions that have inhibited the build out of competitive networks, and develop policies that work for Canadians, encouraging investment in new technologies, products and services.
I am going to use this post to provide references and links to stories in respect of the announced changes that are coming for Canada’s wireless sector.
It is interesting that the government waited until after the bids were submitted for Mobilicity’s assets. Would the number of bidders have changed had there been knowledge of the new framework? Indeed, are there bidders for those assets who had advance notice of such changes?
What do these changes do to the incentives for investment?
We have frequently written about the continual flux in the fundamental regulatory framework for the sector – a Calvinball approach to the market. What is the impact on the investment climate for digital infrastructure? Will the proposed legislative changes, with the government opening the Telecom Act and RadioCommunications Act, be the final word?
Doubtfully.
At what point do we look holistically at the communications sector – including both broadcast and telecom – and bring all of the legislation into the 21st century. That would mean looking at appropriate changes to the Broadcast Act, or rolling all of them together into an integrated Communications Act. As I suggested in August, perhaps it is time for a fresh look at a Telecom Policy Review.
That sounds like a discussion for The 2014 Canadian Telecom Summit, taking place June 16-18 in Toronto. I would be remiss if I didn’t invite you to register early!
Despite mobile industry prices that have fallen more than 30% over the course of the past summer, Innovation, Science and Industry Minister Navdeep Bains is looking for further reductions of another 25%, warning “If these targets are not met within two years, the Government will take action with other regulatory tools to further increase competition and help reduce prices.”